Musk’s xAI seeking a $50 billion valuation is a lesson in chutzpah
Musk is raising $6 billion for xAI at a nosebleed valuation, despite low revenue.
It’s a good time to fundraise for an AI startup: less than two months after OpenAI raised $6.6 billion at a $157 billion valuation, CNBC reported that Elon Musk’s AI startup, xAI, is raising $6 billion at a $50 billion valuation, with $5 billion to come from funds in the Middle East. The funding round is expected to close next week, CNBC said.
One interesting detail about this fundraise: xAI’s revenue is likely far below competitors OpenAI and Anthropic.
In October, The Information reported that OpenAI was on pace for $4 billion in 2024 revenue, driven mostly by ChatGPT. Previously The Information reported that Anthropic, the owner of generative-AI platform Claude, was on pace for $1 billion in annualized revenue, with the majority coming from API fees. At the time, Anthropic was looking to raise new funding at a $30 billion to $40 billion valuation.
Unlike these two competitors’ 10-digit revenue figures, xAI’s revenue is likely much, much lower. Until mid-October, when xAI added a tool to let developers create applications powered by its chatbot, Grok, the company’s only known revenue stream was X Premium subscriptions, which gave users access to Grok. On October 15, TechCrunch reported that X had made a total of $200 million from in-app purchases since X Premium was initially launched as Twitter Blue, meaning that any revenue cut earmarked for xAI is likely in the tens of millions, a far cry from the billion-dollar figures of its competitors.
But xAI does have a few things working in its favor.
The company claims it has the world’s largest data center in Memphis, Tennessee, which Nvidia CEO Jensen Huang called “easily the fastest supercomputer on the planet.” The company is also already integrated with social-media platform X, and there’s an opportunity for xAI to work with Musk’s other companies, like Tesla.
We can’t forget that Musk was one of OpenAI’s founders (he’s now suing the company), and his relationship with President-elect Trump could prove advantageous when it comes to new AI regulations.
Basically, a $50 billion valuation is as much a bet on Musk as it is on xAI.
