Musk’s SpaceX-xAI merger risks OpenAI and Anthropic
For a significant portion of the last three years, Elon Musk’s xAI has endeavored to rival the foremost AI laboratories, including OpenAI, the organization he co-founded and subsequently had conflicts with. The outcomes have been varied: xAI’s premier product, the chatbot Grok, has garnered attention for its antisemitic responses and sexualized images, which have eclipsed its technological progress. Musk is now striving to enhance his initiatives to develop more advanced AI systems, leveraging support from one of his most prosperous enterprises. On Monday, he announced that xAI would be merging with SpaceX, resulting in a combined company valued at $1.25 trillion. The collaboration is set to assist xAI in acquiring greater computing power, talent, and data, which are essential components for AI development. Similar to other AI startups, xAI has been expending substantial funds — nearly $1 billion a month — on data centers, chips, and various investments to develop artificial intelligence models. In the process, xAI has accumulated $5 billion in corporate debt, a significant figure for a young startup. However, the extent of its AI infrastructure development remains significantly less than that of OpenAI, which has pledged to invest over $1.4 trillion in data centers and chips.
Musk stated that SpaceX intends to establish data centers in space, an ambition reminiscent of science fiction that could significantly enhance the computing power accessible for xAI. “In the long term, space-based AI is obviously the only way to scale,” Musk stated this week. Regardless of the timeline for those projects, SpaceX may also assist with xAI’s terrestrial computing requirements. The rocket manufacturer possesses a significantly stronger balance sheet, enabling it to support such investments and potentially enhance xAI’s financial appeal to US Market. Importantly, the space company is set to pursue an IPO this year, which will generate additional funds for xAI and potentially allow it to surpass competitors OpenAI and Anthropic, both of which are considering public offerings as well. “This is going to be able to give them a significant amount of capital, probably a lot more capital than they probably could have raised on their own when they’re private,” said Joseph Alagna. Mark Hackett stated that the new merged company will also be “viewed as a space opportunity more than an AI company, at least initially. They can tap a lot more investor bases than just AI.” A combined SpaceX-xAI IPO could potentially diminish OpenAI’s IPO by diverting some of the pent-up demand from public market investors seeking greater exposure to innovative, generative AI opportunities. Simultaneously, going public could enhance xAI’s capacity to attract and retain talent in a fiercely competitive landscape where AI researchers are offered nine-figure compensation packages.
As is common with Musk’s ventures, xAI has garnered a reputation for demanding long hours and experiencing burnout. Staffers have consistently shared their experiences online regarding working shifts exceeding 30 hours or spending the night at the office. “When you create a corporate environment where employees COMPETE to be the most exhausted, the most sleep-deprived, this takes a toll,” Benjamin De Kraker, previously wrote on X. “This is precisely what numerous xAI employees have reported, with some sharing their exhaustion to the point where they can hardly remain alert enough to drive home.” However, xAI is facing competition in a significantly more crowded market than many of Musk’s companies did during their formative years. Three of the 11 founding members (excluding Musk) have departed, along with several key executives, including the chief financial officer and the general counsel. Mike Liberatore, who previously served as xAI’s CFO, transitioned to OpenAI last year after a brief tenure in his former position. The risk of burnout is likely to persist; however, xAI has the opportunity to attract both new and current employees by offering appealing stock options in a company that is on the verge of going public. Moreover, xAI functions under the auspices of a highly esteemed company known for launching rockets and satellites into space. Ultimately, SpaceX could offer xAI a valuable stream of data. Starlink, SpaceX’s satellite-internet service, has recently revised its privacy policy to indicate that it may collect users’ personal information. This includes financial and location data, along with any files uploaded through e-mail and social media, for the purpose of model training. Starlink is also capable of sharing that information with any company it merges with, including xAI. Any new information would be appreciated for xAI. Up to this point, Musk’s X social network has served as the main source of training data for Grok.
In contrast, competitors such as OpenAI and Alphabet Inc.’s Google have secured agreements to license content from publishers and platforms. Regardless of SpaceX’s involvement, Musk’s AI startup encounters significant hurdles, such as a contentious brand and increasing regulatory examination of Grok concerning the dissemination of sexualized images. Persistent apprehensions regarding a potential AI bubble may impact his merged company following its public debut. Fierce competition persists among model makers, not only in the US but also in China. Leading startups, such as OpenAI and Anthropic, have formed strong alliances with major tech companies to maintain their position at the cutting edge of the global AI competition. Musk’s wager seems to be that he can replicate this success for xAI within his own business empire. “You can never count Elon out,” Alagna stated. “I do think he’s got something up his sleeve.”
