By Lucy Adautin
Elon Musk’s xAI, is in discussions to secure funding of up to $6 billion, as the CEO of Tesla and SpaceX he is reaching out to investors globally, including those in Hong Kong, to support his endeavor, which aims to compete with Microsoft-backed OpenAI.
In recent weeks, Musk’s AI startup has engaged with affluent individuals and investors worldwide, as reported by sources familiar with the matter.
Part of the discussions were reportedly held in family offices in Hong Kong, the territory that is increasingly controlled by Beijing.
The CEO is reportedly aiming to secure up to $6 billion in fresh equity capital for xAI at a proposed valuation of $20 billion, as disclosed by three individuals familiar with the talks.
However, they said that negotiations are ongoing, and Musk is still assessing investor interest in such substantial amounts as he has allegedly targeted sovereign wealth funds in the Middle East, with outreach to investors in Japan and South Korea.
It’s worth noting that raising funds in Hong Kong for a US artificial intelligence firm may face challenges amid rising geopolitical tensions, given Washington’s efforts to control technology exports and restrictions on certain US investments in Chinese AI, including in Hong Kong.
Musk’s xAI launched its first product in December last year, a chatbot named Grok, which is being trained using social media posts on X, allowing it to give more up-to-date answers than its competitors.
Morgan Stanley who in 2022 helped finance Musk’s leveraged buyout of X, formerly Twitter is making the fundraising, as the scale of the attempted fundraising shows high costs required to develop generative AI models that makes humanlike text, images and code in seconds which requires huge computing power, vast amounts of data and cutting-edge chips.
OpenAI, based in San Francisco, has garnered approximately $13 billion, primarily from Microsoft, other startups like Anthropic and Cohere have also secured substantial funding, with billions coming from major players like Google, Amazon, and leading Silicon Valley venture capital groups.
In contrast, xAI, based in Nevada, filed documents with the US Securities and Exchange Commission in December, indicating a goal of raising $1 billion in funding from equity investors. The filing disclosed a raised amount of $135 million, while a Bloomberg report in January suggested $500 million. Elon Musk, on X, dismissed the report as “fake news.”
Musk, a founding investor in OpenAI, parted ways in 2018 due to disagreements with CEO Sam Altman. In July of the previous year, he launched xAI, expressing concerns that competitors like OpenAI, Microsoft, and Google were censoring their AI products and not adequately prioritizing safety measures.