AI: Elon's xAI gets cash from SpaceX. RTZ #781

Some SpaceX assets are being moved around by Elon Musk. About $2 billion from his private company Space X. Which has about $3 billion on hand in the piggy bank. Being tossed into his xAI/Grok AI furnace.

As the expression goes, ‘Rob Peter to Pay Paul’.

One of the points I underlined in my mid-year Survey of the AI Tech Wave landscape last week was that Meta and Elon/xAI/Tesla remain the wild cards amongst the Mag 7. Especially in terms of defining the rising super-sized, AI Table Stakes for the industry.

Founder/CEO Elon Musk was the most aggressive in ‘coming from behind’ on AI Data Centers with its 100 plus GW (gigawatt) infrastructure investment in Tennessee. Then Meta said, ‘hold my beer’. Its founder/CEO Mark Zuckerberg then went onto bid most aggresivel in the ‘coming from behind’ run AI Talent. It’s the other key scarce AI input.

And unlike Meta, Elon, despite his world leading rich person status individually, is relatively cash poor amongst the Mag 7. Especially given the tens going to hundreds of billions dollars of investments required as the AI Table Stakes ante keeps spiraling up.

So it’s no surprise that he’s tapping into another key Musk asset for cash investments of billions to put into xAI and Grok.

The WSJ outlines it all in “SpaceX to Invest $2 Billion Into Elon Musk’s xAI”:

“The startup is leaning on Musk’s business empire to play catch-up in the AI race.”

“Elon Musk’s SpaceX has agreed to invest $2 billion in his artificial-intelligence company xAI, investors close to the companies said, nearly half of the Grok chatbot maker’s recent equity raise.”

As I’ve outlined before, these are part of an ongoing Elon playbook, assembling and re-assembling the companies and people across his ‘Musk-lomerate’ corporate structure, on an ad hoc basis as needed.

“Musk has repeatedly mobilized his business empire to boost the AI startup, which is racing to catch up with OpenAI. Earlier this year, he merged xAI with X, combining what was a small research lab with a social-media platform that helps amplify the reach of its Grok chatbot. The merger valued the new company at $113 billion.”

“The SpaceX investment is part of xAI’s $5 billion equity fundraise announced by Morgan Stanley last month. It is the rocketmaker’s first known investment into xAI and one of its largest in another company.”

This is part of his post-White House moves:

“Since leaving his role in the Trump administration, Musk has turned his attention to training the latest version of Grok, which earned high marks from AI-benchmarking service Artificial Analysis for its performance following its release on Wednesday.”

Grok holds a lot of Elon Musk’s AI’s aspiration via xAI:

“Musk called it “the smartest AI in the world,” though the chatbot it powers hasn’t gained nearly as much traction as OpenAI’s ChatGPT. It recently posted racist and controversial comments in response to users on X. “We deeply apologize for the horrific behavior that many experienced,” xAI said, adding that it investigated and took steps to resolve the issue.”

“Grok powers customer-support features for SpaceX’s satellite internet service, Starlink, The Wall Street Journal reported. Musk’s representatives have said more business partnerships between SpaceX and xAI are likely in the future, according to investors who spoke with them.”

“During Musk’s release of Grok 4 this week, he said he also aims to embed Grok into humanoid robots, like Tesla’s Optimus fleet.”

Elon has a history of moving big chunks of assets desired from one company to the next, regardless of the fiduciary duties to that one underlying company. Like his moving big Nvidia AI GPUs being shipped to Tesla to xAI instead last year. Same with his people across his ventures. This time, it’s cash from SpaceX for now:

“Musk has long used SpaceX to support his other businesses. He personally borrowed $20 million from the company to help fund Tesla early in its history and also used SpaceX’s equipment to set up his tunneling venture, The Boring Company. More recently, he turned to SpaceX for a $1 billion loan around the time he was acquiring what was then-called Twitter, which he paid back shortly after taking it out.”

Hopefully, SpaceX won’t miss it that much in the near-term:

“SpaceX’s investment in xAI may pose risks for Musk’s space company. SpaceX’s revenue has jumped in recent years, but the company is investing billions to develop a new rocket called Starship. The experimental vehicle is behind schedule and has suffered multiple setbacks this year, including three consecutive failures in flight and a large explosion during an engine test last month.”

Yes, that one, as part of the preparation for the Musk Mars exodus.

They can likely make do in the short-term with only a third of their current cash reserves.

“SpaceX recently had more than $3 billion in cash on hand, the Journal has reported. The company has rarely made investments in outside ventures. A major one occurred in 2021, when it acquired a satellite-communications firm for $524 million.”

Leaving Musk on the quest for further investment sources for xAI/Grok AI investments to come:

“At xAI, Musk is spending billions of dollars every year training AI models, an effort that mirrors the high spending levels at rival AI startups, which have similarly garnered high valuations but face almost constant pressures for cash.”

“The startup raised $5 billion in debt alongside its equity financing, and it is expected to raise even more money later this year, one of the investors said.”

In Elon’s empire, any one company can be Peter to another’s Paul. SpaceX for now. Likely public Tesla next. (note: that didn’t take long).

Individual company fiduciary questions notwithstanding.

All this is to highlight the relentless need for AI investments by LLM AI companies large and not so large. It’s a constant drumbeat for all in this AI Tech Wave for now. Stay tuned.

(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here)