Elon Musk’s artificial intelligence startup, xAI, is reportedly engaged in early-stage discussions to raise a fresh round of capital that could peg the company’s valuation at an eye-popping $120 billion. If the deal materializes, it would represent one of the most ambitious valuations ever achieved by a private AI company—nearly tripling its estimated worth from just over a month ago.
According to a recent report by The New York Times, Musk’s team is in talks with a group of potential investors to raise up to $20 billion in new funding. While the exact figures are yet to be finalized, sources familiar with the discussions indicate that the proposed round would significantly boost xAI’s market stature—positioning it as a formidable rival to industry leaders like OpenAI, Anthropic, and Google DeepMind.
A Meteoric Rise Since July 2023
Founded in July 2023, xAI has seen an aggressive trajectory. The company’s stated mission is to “understand the true nature of the universe,” but its practical focus lies squarely in generative AI models, chatbots, and neural network training. Musk launched the venture as a counterpoint to OpenAI, which he co-founded in 2015 but parted ways with in 2018.
In November 2023, xAI released its flagship product, Grok, a large language model-powered chatbot integrated within X (formerly Twitter). Unlike competitors that maintained a measured tone and safe responses, Grok was marketed as having a more rebellious and humorous personality—closer to Musk’s public persona.
By January 2024, xAI began offering premium access to Grok via X’s subscription service, generating revenue and testing commercial viability. While the initial response was mixed due to performance inconsistencies, recent updates have reportedly improved the system’s capabilities.
The $45 Billion Power Move: xAI Acquires X
In March 2025, Musk made a bold strategic move by merging xAI with social media platform X in an all-stock transaction valued at $45 billion. This acquisition effectively brought generative AI and social media under the same umbrella, accelerating efforts to monetize AI through user engagement and platform integration.
The deal was controversial. Critics argued it was financially risky to intertwine a startup with an unproven revenue model with a declining social media asset. Musk, however, pitched the merger as essential for “creating a unified intelligence system” that combines real-time data from social interactions with AI model training.
Musk said during the announcement, “The futures of xAI and X are now fundamentally linked. This is how we scale AGI responsibly.”
Investor Appetite and Market Sentiment
Despite skepticism about inflated AI valuations, the appetite among institutional investors for exposure to AI technologies remains strong. Reports suggest that sovereign wealth funds and large venture capital firms have expressed interest in xAI’s latest funding round. Some are likely enticed by Musk’s track record of scaling audacious ideas—from Tesla to SpaceX—into market giants.
Yet the proposed $120 billion valuation has raised eyebrows even among seasoned analysts. For context, OpenAI was valued at $86 billion in its last funding round in 2024, despite having enterprise partnerships with Microsoft and a mature product in ChatGPT with hundreds of millions of users globally.
By comparison, xAI lacks enterprise contracts of that scale and is largely reliant on the X ecosystem for user input and feedback. That makes the valuation dependent more on future potential than existing performance—a classic Musk move, but one that invites significant financial risk.
Competitive Landscape and Challenges
xAI enters a competitive AI ecosystem that includes aggressive players such as:
- OpenAI, backed by Microsoft with integrations into Office 365 and Azure.
- Anthropic, with Claude AI gaining traction in legal and enterprise sectors.
- Google DeepMind, which has the technical backbone of Google’s infrastructure.
What sets xAI apart—at least in Musk’s vision—is its integration with real-time user data through X and the brand loyalty of Musk’s followers. But this also invites scrutiny regarding data privacy and moderation, two areas where X has struggled since the Twitter acquisition.
There are also technical hurdles. Grok currently trails ChatGPT-4 and Claude 3 in benchmarks such as reasoning, factual accuracy, and multilingual capabilities, according to third-party evaluations. While xAI has promised improvements and GPU scalability in 2025, it has yet to match the compute resources available to competitors.
The Bigger Picture: AI Hype or Calculated Bet?
AI investments have seen explosive growth over the past two years, with venture capital pouring tens of billions into everything from chatbot development to AI chips. xAI’s valuation jump reflects broader enthusiasm, but also exposes the volatility of tech market hype.
If Musk secures $20 billion in funding at a $120 billion valuation, xAI would become the second most valuable private tech startup in the world—behind only ByteDance, the parent company of TikTok. It would also significantly outpace SpaceX, Musk’s space exploration venture, which is valued at around $180 billion but with tangible contracts with NASA and satellite operations via Starlink.
Some analysts warn that tying xAI’s valuation to Musk’s brand equity rather than actual performance could create vulnerabilities in the event of a product setback or economic downturn.
“The markets are clearly betting on Elon, not just on the tech,” said Kara Chen, an equity analyst at GlobalTech Research. “That’s a double-edged sword.”
What’s Next?
As of now, the funding talks are ongoing and not yet finalized. Insiders suggest a formal announcement could be made by June 2025, depending on investor response. Musk is known to make last-minute changes to deal structures, so the final valuation figure may differ from early reports.
Regardless of the outcome, xAI’s trajectory will continue to be closely monitored by investors, tech leaders, and policymakers alike. Its ambition to challenge incumbents in the AI race while building a uniquely integrated ecosystem of AI + social media could either be visionary—or precarious.
For now, all eyes are on whether Musk can pull off, yet another billion-dollar bet that reshapes an industry.
