SpaceX is said to commit $2B to Elon Musk’s AI startup xAI

Elon Musk’s rocket company SpaceX (SPACE) is investing $2 billion into his artificial intelligence firm xAI, The Wall Street Journal reported Saturday, citing people familiar with the deal. The investment marks the company’s first known financial commitment to the AI venture and one of its largest external investments to date.

The funding represents nearly half of xAI’s $5 billion equity raise, which was led by Morgan Stanley and announced last month. Musk has increasingly leveraged his network of businesses to accelerate xAI’s growth as it races to compete with leading AI players like OpenAI.

Earlier this year, Musk merged xAI with X (formerly Twitter), creating a combined entity that marries a social media platform with an AI research lab. That move, which expanded the distribution potential for xAI’s Grok chatbot, valued the new company at $113 billion.

From AI training to Starlink support

Musk has described the latest version of xAI’s Grok model, released last week, as “the smartest AI in the world,” following strong results from benchmarking group Artificial Analysis.

Despite the hype, Grok has struggled to gain the user traction of rivals like ChatGPT, and it recently came under fire for generating racist and offensive content on X. xAI issued an apology and said it had taken steps to address the issue.

Grok is already in use at Musk’s other companies, including SpaceX (SPACE), where it powers customer support features for the Starlink satellite internet service. According to investors briefed on the matter, Musk’s team expects further collaboration between the two businesses, the Journal reported.

Looking ahead, Musk has said he wants to integrate Grok into Tesla’s (NASDAQ:TSLA) humanoid robots, known as Optimus, further expanding xAI’s reach within his corporate empire.

Pattern of cross-company support

This isn’t the first time Musk has relied on SpaceX (SPACE) to support his ventures. In the early days of Tesla (NASDAQ:TSLA), he borrowed $20 million from the rocket company to help keep the automaker afloat. SpaceX (SPACE) resources were also used to support the launch of The Boring Company. More recently, SpaceX (SPACE) provided a $1 billion loan to Musk during his acquisition of Twitter, which he repaid shortly afterward.

While SpaceX (SPACE) has seen a surge in revenue in recent years, it remains capital-intensive, pouring billions into the development of its next-generation Starship rocket. The project has faced multiple delays and setbacks, including several failed test flights and a major explosion during an engine test last month.

With more than $3 billion in cash reserves, according to prior reporting, SpaceX (SPACE) has rarely made investments in outside companies. One notable exception came in 2021 when it acquired a satellite communications firm for more than $500 million.

xAI’s big spending and fundraising strategy

Like many emerging AI firms, xAI is burning through significant cash to train large language models, echoing the high-stakes spending patterns of its competitors. Alongside its equity raise, the company has secured $5 billion in debt financing and is said to be planning to raise additional capital later this year, the Journal reported.

Investors close to the company say Musk is betting big on AI becoming a core pillar of his broader technology ecosystem, and using every available asset, including SpaceX (SPACE), to get there, according to the report.