In an attempt to compete with rival OpenAI, rocketmaker Space Exploration Technologies Corp, commonly known as SpaceX, plans to sink US$2 billion into Elon Musk's artificial-intelligence startup company xAI as part of the Grok chatbot maker’s recent $US5 billion equity raise.
Earlier this year, Musk, founder of SpaceX, merged xAI’s research lab with X’s (formerly Twitter), social media platform – creating a new company valued at US$113 billion - to expand the reach of its Grok chatbot.
Now powering support for the SpaceX-developed satellite network Starlink, the Grok chatbot is understood to be eyeing future integration into Tesla's Tesla (TSLA.O) Optimus robots.
In response to a post on X about whether Tesla (TSLA.O) could also invest in xAI, Musk said, "It would be great, but subject to board and shareholder approval," without confirming or denying SpaceX's investment plans in xAI.
Despite Musk calling xAI "the smartest AI in the world," the chatbot has attracted some negative press over comments on social media.
Posts on the X account of the Grok chatbot were removed last week after complaints from X users and the Anti-Defamation League that Grok produced content with antisemitic inflections and praise for Adolf Hitler.
The post in question suggested Hitler would be better-placed to combat anti-white hatred, saying he would "spot the pattern and handle it decisively."
The post also referred positively to Hitler as "history's mustache man," and commented that people with Jewish surnames were responsible for extreme anti-white activism.
ADL, the not-for-profit formed to combat antisemitism, encouraged xAI and other producers of Large Language Model (LLM) software that produces human-sounding text to refrain from "producing content rooted in antisemitic and extremist hate."
"What we are seeing from Grok LLM right now is irresponsible, dangerous and anti-Semitic, plain and simple. This supercharging of extremist rhetoric will only amplify and encourage the antisemitism that is already surging on X and many other platforms," ADL said on X.
Last month Musk promised an upgrade to the company's model after attributing these and other racists remarks on xAI to an unauthorised change that was made to Grok's response software.
Meanwhile, Morgan Stanley is understood to be marketing a US$5 billion package of bonds and two loans on behalf xAI.
Last week the bank started discussing a floating-rate term loan B at 97 cents on the dollar with a variable interest rate of 700 basis points (bps) over the SOFR benchmark rate.
While the terms are preliminary and will depend on investor demand, the bank is also offering a second option, loans and bonds at a fixed rate of 12%.
However, in what is regarded as a different approach to marketing the US$5 billion debt for xAI Morgan Stanley is not planning to guarantee the issue volume or commit its own capital to the deal.
The 'best efforts' transaction means that the size of the debt will depend on investor interest, which suggests a more prudent lending approach within an uncertain macro environment.
It’s also speculated that banks have chosen this approach to avoid putting themselves in a similar spot to when it committed to give US$13 billion of debt to Musk to finance his US$44 billion acquisition of X in 2022 and couldn’t exit that position for two years.
Apart from selling debt, xAI is also understood to have entered talks to raise around US$20 billion in equity funding, which would value the company at between $120 billion and $200 billion.
While Musk initially explored raising funds in parallel with a merger of xAI and social media platform X this is understood to be off the table.
What appears to have raised a cloud over the future of the businesses owned by the world's richest man is his recent fallout with U.S. President Donald Trump.
Any future cancellation of contracts or grants by the U.S. federal government could potentially heighten risk premium associated with Musk-related ventures.
