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What’s Next for xAI After Grok AI?

Another $30 billion company might be on the way.

On December 5th, Elon Musk’s AI firm xAI filed to raise $1 billion in an equity offering. This news comes one month after the company’s leading and only product so far, Grok AI, was released in its beta phase for a few users in the US.

Perhaps this signals that Musk’s firm is ready to challenge the big fish in the AI chatbot market. Musk’s other companies, Tesla and X could give Grok quite a boost, but first he needs to convince people that xAI and Grok are serious challengers.

What is xAI?

xAI is a brand new company that works on research and development for AI. Upon its launch, Elon Musk, declared very ambitious goals such as ‘understanding the universe’. The company’s first step towards that goal appears to be its first product, Grok AI, which is a chatbot meant to rival ChatGPT.

It’s important to note that xAI is a separate company from X Corps. formerly known as Twitter. But xAI stated that it will work closely with X, Tesla, and other companies to achieve its mission. Besides this, xAI and X are closely linked in other ways.

Right now, 25% of xAI is owned by X investors and xAI also used X to gather data for AI model training and to provide Grok with real-time knowledge of the world. This gives Grok a clear advantage over ChatGPT and is a great example of how synergies between Musk’s companies could push xAI forward.

As for Tesla, Musk has indicated that Tesla might invest in xAI, which will create a stronger link between the two companies. In addition, Tesla is interested in developing autonomous vehicles based on AI so there appears to be a lot of opportunities for future collaboration between Tesla and xAI.

But let’s talk a little more about Grok.

What is Grok AI?

Grok’s purpose is to answer almost any question and even suggest new questions. But this version is just the first step and more features and capabilities will be announced in the coming months.  Unlike ChatGPT, Grok has its own personality. In fact its based on the ‘Hitchhiker’s Guide to the Galaxy’ which gives you an idea of where Musk is heading with this.

Whereas ChatGPT is supposed to be neutral, xAI has put Grok forward as a hip, cool competitor. Still in the beta phase, verified X users can join the waitlist to use Grok. The chatbot will also be a feature of the $16 per month X Premium+ subscription.

You have to admire Elon Musk’s dedication to pushing X’s verified program. By offering more unique features like Grok, X could attract premium subscribers which has yet to become a serious revenue stream for the company.

While Grok is an exciting new product, its still important to understand its position in the AI market more broadly. ChatGPT definitely has a dominant market share based on users, claiming roughly 19.7% of the market so far. The second largest with 13.4% of the market is Jasper Chat and YouChat ranks in third with 12.3%. Other competitors to Grok include Google’s AI chatbot, Bard, and Anthropic, which generates $98.9 more revenue compared to xAI.

Did Grimes Invent Grok?

Although Grimes did not invent Grok AI, she is entering the AI market with something similar. Grimes voiced a new AI plushie toy by Curio which can communicate and hold conversations with children on some subjects. Interestingly, the new toy line launched about a week after Grok began rolling out to X Premium Plus subscribers.

Despite this, the trademark application for the Grok toy was filed by Curio more than a month before Elon Musk’s chatbot. The overlap is a bit uncanny, but the toy company says there is no direct connection between the two.

Can Grok break into the AI market?

Comparing Grok to ChatGPT could help us answer this question. In terms of data sources, Grok’s data comes from X and data scraped from the web which allows it to have real-time knowledge of the world. On the other hand, ChatGPT relies on data from articles, books, and web pages. 

But in terms of capabilities, testing conducted by xAI found that Grok surpasses “all other models in its compute class”. It was only surpassed by models which were trained with more data and had more compute resources like GPT-4. Given the short amount of time Grok was trained for, this is pretty remarkable.

While Musk believes that Grok is the best AI that currently exists – in some aspects at least – ChatGPT-4 still beats Grok thanks to its large dataset and more creative text formats. Grok AI also came under some scrutiny when the chatbot stated that it ‘cannot fulfil the request, as it goes against OpenAI’s use case policy’. Of course this triggered accusations that Grok AI was using OpenAI’s code but Igor Babuschkin – xAI’s Chief Engineer – stated that Grok was trained using a vast amount of internet data which exposed it to data generated by GPT as well.

Besides this minor hiccup, Chat-GPT has another edge over Grok AI in terms of its availability. Because it is publicly available and hit the market first, there will be a larger adoption of this chatbot over Grok for the time being at least. The launch of Grok AI in India could help trigger broader adoption, however the subscription is currently more expensive than ChatGPT Plus when subscribed from a smartphone. As for pricing in the US, Grok has to be subscribed to for $16 per month, while ChatGPT can be used for free or subscribed to for $20 per month. 

It appears that Elon Musk’s Grok AI can definitely hold its own against competitors, but if the xAI team isn’t able to generate wider adoption of the bot, perhaps by leveraging its relationship with X and Neuralink, then it could lag behind. In fact, this could end up being one of the main drivers for users switching to Grok.

Not only will avid X users integrate Grok into their daily lives as it becomes more available, but the potential for Grok to integrate with Elon Musk’s Neuralink could become a driving factor in its adoption. Neuralink’s brain-computer interface technology could allow for more more direct and seamless communication with Grok in the future – something that ChatGPT can’t offer right now.

Overall, Grok AI has an edge thanks to its real-time access to information, but ChatGPT currently has a large user base and its wider availability will put Grok at a disadvantage until it becomes publicly available.

xAI’s Next Product

So far there isn’t any information about what the company’s next product might be, but xAI could end up releasing something similar to Microsoft’s copilot. This product is meant to facilitate work for individuals rather than act as a chatbot. It can also be specialized for specific personnel working in different fields, such as sales, service, security, and development. Considering the success of Copilot, xAI might try to develop something similar.

$1 Billion Equity Offering

Elon Musk’s $1 billion equity offering raised a lot of eyebrows, and rightly so. Up until now Elon Musk hasn’t said much about his company but that seems about to change.

So far Musk has raised $135 million from just four investors but now that Anthropic, which is backed by Amazon and Google, has projected it will generate more than $850 million in annualized revenue by the end of 2024, it may be easier to attract investors plagued by FOMO.

While the current xAI investors haven’t been disclosed, Musk has stated that investors in X Corps would own 25% of xAI. Since they already invested in X when it was Twitter, Sequoia Capital’s Sonya Huang and a16z’s Anjney Midha could be among the xAI investors. However, when they were asked whether they had invested in xAI, they declined to comment.

The minimum amount accepted from any outside investor is $2 million, but there is a possibility that the full $1 billion was already raised. The filing states that “[t]he issuer has entered into a binding and enforceable agreement for the purchase and sale of the Total Remaining to be Sold listed above,” which could be a sign that this is already a done deal.

Interestingly, the initial sale on November 29th was the same day that Elon Musk told advertisers who had suspended campaigns on X to “go f*** yourself.” Given the timing of this equity offering, it could be a sign that Elon Musk is trying to exert his independence rather than give in to the demands of advertisers.

Unlike Elon Musk’s other business ventures, xAI filed as a a for-profit benefit corporation which means it prioritizes being a benefit to society over benefiting its investors. Its important to note that, this does not necessarily mean that it can’t or won’t benefit investors. According to the Nevada Secretary of State, where xAI is incorporated, benefit corporations are defined as “for-profit entities that consider the society and environment in addition to fiduciary goals in their decision-making process”.

In order to filed as a for-benefit corporation, xAI had to outline a general purpose statement. According to this filing, xAI’s general purpose is to “create a material positive impact on society and the environment, taken as a whole”. This seems to be a theme among chatbot companies since Anthropic also filed as a public benefit corporation in Delaware.

Defining xAI in this way will give investors a clearer idea of its mission beyond just “understanding the true nature of the universe”. Given this series of events, it appears that Elon Musk’s decision to conduct an equity offering now could be a result of Grok’s performance and what he’s planning next for xAI. Raising funds now could be so that xAI can add new features and changes to Grok AI – something the company had already intended to do. On the other hand, this funding could be for xAI’s next project…

What is xAI Worth?

Although Grok is currently xAI’s only product, it might not stay that way for long. Investors are considering the value of the company’s current product offering, as well as what it could achieve next. But its undeniable that Grok AI is an important factor when discussing xAI’s potential valuation.

The fact that the chatbot is integrated with Twitter and benefits from synergies with the platform as well as its potential to benefit from synergies with other products is encouraging. Another key factor to consider is Elon Musk himself. Although the man is a controversial figure, he has a disproportional effect on any company he gets involved with. He also has AI expertise having been one of the OpenAI founders before leaving.

Thanks to the “Elon Musk effect”, Deepwater Asset Management managing partner Gene Munster estimated xAI’s valuation at $25 billion to $30 billion. That’s a huge sum, but Anthropic is preparing to raise $750 million despite being valued at $18.4 billion right now so its not totally unrealistic.

After a $100 million Series C funding round earlier this year, xAI’s valuation already reached $1.2 billion. Some have given a more conservative valuation of between $4 to $10 billion after this funding round. As for, OpenAI it is reportedly valued at $86 billion.

Previously, Musk stated that xAI will be “built into the X app,” but has also shared that it will eventually release a standalone xAI app too. While Grok is currently available through a subscription to the X platform, its not entirely clear how integrated they will be.

X Corp. is a standalone company – separate from xAI – but if Elon Musk plans on making X the new WeChat then its possible integrations between the two will become more intertwined. Elon Musk bought Twitter for $44 billion in 2022 and if he one day decides to merge the two together, it could form a company with some very impressive operations.

Clearly, this symbiotic relationship between X and xAI will play a huge role in the future of Grok AI since increased usage for one could translate to the other as well. But as for Tesla, the relationship isn’t this close yet.

Considering the appetite for AI startups and their already sky-high valuations, xAI could be well on its way to becoming a $30 billion company. But whether that valuation is sustainable or even fair largely depends on what xAI manages to achieve over the next few years. No to mention, the speculative enthusiasm for AI could come crashing down – affecting xAI as well.


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