Why xAI is the Second Most Valuable AI Startup Right Now

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Since its launch in July 2023, xAI has become one of the most valuable AI startups in the world.

In the last week, the company has raised $6 billion in funding — increasing xAI’s valuation to $24 billion and making it the second most valuable AI startup in the world.

But what is attracting this interest?

x.AI’s primary release is its humorous chatbot Grok, introduced to the market in November 2023 and available to X (formerly Twitter) Premium Plus subscribers.

The company followed by releasing Grok 1.5 in March this year with improved performance and a 128,000 context window, followed by Grok 1.5v, which offers image understanding.

Yet while Grok has come a long way in a short space of time – it’s not the sole cause of this funding. Arguably the bigger factor is the presence of CEO Elon Musk himself.


Key Takeaways

  • xAI raised $6 billion in recent weeks, valuing it at $24 billion and making it the second most valuable AI startup.
  • The humorous chatbot Grok, available to X Premium Plus subscribers, drives interest in xAI, and CEO Elon Musk’s involvement is a significant factor in attracting investor attention.
  • Is $24 billion a fair valuation? What does xAI have in the pipeline?
  • Despite Grok’s potential, it has a way to go to compete with top models like ChatGPT.

Why Investors Love xAI

Few entrepreneurs have the ability to generate interest like Musk when it comes to technology. He is the founder of companies like Tesla, SpaceX, Neuralink, and X, and they all get people talking and capture consumer attention.

Musk has an earned reputation for thinking big — whether it’s talking about building a supercomputer to run Grok, taking humanity to Mars with SpaceX, or developing humanoid robots like Optimus with Tesla, he knows how to put forward ideas that get people and investors excited.

Muddu Sudhakar, co-founder and CEO of Aisera, told Techopedia:

“Elon Musk has the Midas Touch for building franchise companies like Tesla, PayPal, and SpaceX.


“Ultimately, the investment in xAI is a bet on his unique abilities and track record. It is also notable that xAI’s investors – such as Sequoia Capital — have made huge amounts over the years from Musk.”

It’s also important to highlight that Musk’s connection to other projects provides Grok and xAI products with plenty of opportunities to leverage data collected by X, Tesla, or Neuralink.

So Musks’ connection to other projects and the hype he brings to the table are in no small part driving this valuation. Together these provide just enough ingredients for investors to sink their teeth into.

Deborah Perry Piscione, a co-founder of the Work3 Institute, an AI and web3 advisory firm and a NYT best selling author, told Techopedia:

“VC funds like Valor Equity Partners, Vy Capital, SoftBank, Andreessen Horowitz, Sequoia Capital, Fidelity Management & Research Co., Prince Alwaleed Bin Talal, and Kingdom Holding Co. are going to jump in headfirst, ask few questions, and depend on the ‘Elon effect’ for returns.”

What’s Next For xAI

With such a valuation, the future is bright for xAI, whether it uses that money to invest in compute infrastructure or looks to make an acquisition of a third-party company.

As of today, the company has offices in San Francisco, Palo Alto, and London and over 1 million followers on X.

In a recent blog, xAI stated that “multiple exciting technology updates and products are soon to be announced,” and clarified that the funds from the round will be used “to take xAI’s first products to market, build advanced infrastructure, and accelerate the research and development of future technologies.”

While Grok has only been out for a short amount of time and demonstrated some impressive performance, it may have some way to go to unseat solutions like ChatGPT, Claude 3, and Gemini as the top dogs in the market.

Andy Cwik, co-founder and CEO of Hubub told Techopedia:

“I think that Grok is very limited compared to other LLM products such as Gemini, ChatGPT, Claude, Perplexity or, Llama.


“I think investors are instead betting on Elon Musk and given his 1000 batting average, assuming that he will create something very innovative and compelling.”

Exploring the World of Grok

If there’s one thing that makes Grok stand out in the oversaturated large language models (LLMs) market is that it’s designed to be funny, or at least it tries to be.

In a post on X in November 2023, xAI explained that Grok is an AI modeled after the Hitchhiker’s Guide to the Galaxy, “intended to answer almost anything,” and “designed to answer questions with a bit of wit,” and “a rebellious streak.”

This approach has made its outputs much less dull than models produced by OpenAI, Google, or Anthropic, which are more carefully restricted.

As a result, Grok comes across as more open to interacting with the user than these other models, where overzealous moderation often gets in the way.

That being said, it’s unclear exactly what the use cases are for a rebellious chatbot. I.e, do you want a rebellious chatbot when seeking a research assistant or content creation tool?

In a market where vendors are marketing LLMs around particular use cases, such as ChatGPT for content creation,Gemini for acting as an online research assistant, and Perplexity AI almost acting as an AI-generated news feed, Grok has no compelling unique use case that we can see at the moment.

That being said, Grok is very competitive in terms of its performance, sitting just inches away from the scores of GPT-4V, Claude 3 Opus, and Gemini Pro 1.5 on the MMMU benchmark for instance.

Its connection to X also has the power to be a significant force multiplier if xAI uses its proprietary data and user posts to train and enhance its model.

How xAI Stacks Up Against the Big Three LLM Vendors: OpenAI, Google, and Anthropic

As of today, OpenAI is the vendor to beat in the LLM market. The launch of ChatGPT in November 2022 kicked off a wave of hype behind generative AI that the world’s largest AI startup has been riding ever since.

OpenAI has steadily built a multimodal AI ecosystem, releasing products including GPT-4o, DALL-E 3, and GPT-4v, which support text, voice, and image inputs. It’s also built its own alternative to the App Store, the GPT Store, a marketplace where users can share custom GPTs.

Google has also incorporated multimodal AI into its product ecosystem – scrapping its chatbot bard in favor of Gemini, which can process text, image, and voice inputs, and generate images through the use of its Imagen 2 model.

Although Grok has incorporated some image understanding, it’s more limited than ChatGPT or Gemini. For instance, it can’t generate images like ChatGPT w/ DALL-E 3 can or Gemini with Imagen 2, though this may change with future releases.

In this sense, it’s more comparable to Anthropic’s Claude 3, a family of models made up of three models; Claude 3 Haiku, Claude 3 Sonnet, and Claude 3 Opus, which score extremely high on reasoning and problem-solving benchmarks.

However, Bars Juhasz, a computer scientist and co-founder and CTO of Undetectable AI, suggests that ethics are a key differentiator between these vendors to consider.

“xAI, OpenAI, and Anthropic all have different training sets, but more importantly, different views on ethics in AI.

“While Musk has historically expressed concerns about AI, Anthropic is pushing ethics the most, previously to the point of limiting their model. Grok is certainly the funniest chatbot out of the three. ChatGPT is still the most advanced model all around.

“The new funding for xAI is interesting — it will be interesting to see how the model develops with it.

“One huge factor of xAI is the idea of incorporating Tesla and SpaceX research into it, but until further developers it’s hard to speculate whether it will rival ChatGPT or not.”

The Bottom Line

xAI is perhaps the biggest wild card in the AI startup world today, and with this new funding round Musk has all the financial backing needed to challenge any vendor in the LLM market.

For now though, Grok still has a way to go before it is unseating ChatGPT as the go to chatbot for consumers.


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Tim Keary
Technology Specialist
Tim Keary
Technology Specialist

Tim Keary is a freelance technology writer and reporter covering AI, cybersecurity, and enterprise technology. Before joining Techopedia full-time in 2023, his work appeared on VentureBeat, Forbes Advisor, and other notable technology platforms, where he covered the latest trends and innovations in technology.