Inside Elon Musk’s quest to beat OpenAI at its own game

Elon Musk spent the past year building his artificial intelligence startup xAI at breakneck speed. Now he has to turn it into a real business.

Musk started xAI last summer in an effort to play catch-up with OpenAI, the ChatGPT developer he co-founded and left in 2018 after a power struggle. He poached talent from across the industry. He pushed contractors to build a massive new data center in a matter of months, a nearly unheard of timeframe for a project of that size. Now he is promising the facility in Memphis, Tenn. will help xAI deliver the world’s most powerful AI “by every metric” by December.

Investors have bought into Musk’s vision, or at least his record of success. The startup has raised at least $11 billion and increased its valuation to $50 billion in a new funding round this month, making it the second most valuable private AI developer behind OpenAI.

As a moneymaking venture, though, xAI barely registers. The startup told investors its revenue is on pace to surpass $100 million annually. OpenAI expects to bring in nearly $4 billion of revenue this year.

Most of xAI’s revenue has come from Musk’s own web of companies. xAI’s main product—its Grok chatbot—is available only to subscribers of his social network X. The startup is powering customer support features for SpaceX’s Starlink internet service, people with knowledge of the matter said. It is also expected to help create new AI features for X’s search engine, one of the people said.

The startup has discussed a deal with Tesla whereby xAI would get some Tesla revenue in exchange for providing the carmaker with access to its technology and resources.

Now xAI is trying to stand on its own. Earlier this month it released a paid tool developers can use to build products using Grok, offering discounts as an incentive. As soon as next month, it plans to launch a stand-alone consumer app, like ChatGPT, according to people familiar with the matter.

xAI is getting a late start in a highly competitive market. OpenAI, Alphabet’s Google, Meta Platforms and Anthropic all have better known chatbots that have been widely available for consumers and businesses since at least last year.

“xAI has done a tremendous job of rapidly putting together its own infrastructure and building out its operations and its team,” said Jesse Michael Han, founder of Morph Labs, an AI cloud-infrastructure company. “But they are still obviously breaking into the market.”

In pitches to potential employees and investors, Musk’s team has touted two advantages in the race to build the most powerful AI. One is exclusive data from X and Tesla being used to train xAI’s models. Second is an obsessive focus on building bigger data centers faster than his competitors.

The one in Memphis, Tenn., dubbed Colossus, was constructed in 122 days and uses 100,000 graphic processing units, or GPUs, from Nvidia—making it one of the largest clusters of chips to develop and run AI technology in the world.

xAI has told investors that it will use some of the $5 billion it raised in this month’s funding round to double the number of chips in Colossus and that it plans to raise more money next year, according to people familiar with the matter.

The hunt for chips

After ChatGPT launched in late 2022 and became an immediate sensation, Musk cut off OpenAI’s access to data from X.

In the following weeks, Musk said he would create a less politically correct AI he described as “TruthGPT.” He launched xAI in July 2023, hiring Igor Babuschkin, a veteran of Google’s DeepMind research lab and OpenAI, to help lead it. Early employees worked out of X and Tesla offices or remotely.

Musk turned to Oracle, run by his longtime friend Larry Ellison, to get access to its GPUs, a resource he once described as “considerably harder to get than drugs.”

xAI began reserving a significant number of Oracle GPUs in the spring of 2023 and launched Grok that November. But the chatbot wasn’t as capable as ChatGPT and other competitors.

Musk tried to solve the problem with even more AI chips. He asked Nvidia to divert 12,000 GPUs reserved for Tesla to X and xAI. And he ramped up the pressure on Oracle, at times joining calls with its employees to pressure them into bringing more chips online for xAI.

A sales lead at Nvidia told colleagues in an email viewed by The Wall Street Journal that Musk’s demand for chips was putting strains on the company’s supply chain.

An Nvidia spokesman said the company has worked hard to meet the needs of all its customers.

By this spring, Musk decided Oracle wasn’t moving fast enough to meet his ambitions of a supersize AI data center and set out to build his own.

He settled on a decommissioned manufacturing facility in Memphis and began construction in June. Employees worked nonstop in three eight-hour shifts, said Alex Bouzari, chief executive of DataDirect Networks, which helped build Colossus. Rather than plan the construction ahead of time, which can take seven or eight months, Bouzari said xAI dealt with problems as they arose.

As xAI awaited approval by the Tennessee Valley Authority to use more energy, it put natural-gas generators in the parking lot to power the facility.

Local residents said in a public meeting they weren’t told about the data center in advance and were concerned about pollution. An environmental group sent a letter urging the local utility not to supply xAI with additional power.

In early September, Musk tweeted that Colossus had come online. Many in the AI industry took it as a sign xAI could become a serious player.

“It will take some time, but they’re moving fast,” said Jimmy Chan, co-founder of Dropbase, an AI app builder.

In OpenAI’s space

Despite his company’s progress, Musk remains fixated on OpenAI. This year he sued the ChatGPT maker for allegedly violating a contract to remain a nonprofit and discouraging its investors from giving money to xAI. OpenAI has called Musk’s lawsuit “baseless and overreaching.”

In October, he hosted a recruiting event in a San Francisco building long occupied by OpenAI. xAI had just taken over the office.

In a small space lighted by dim purple lights, dozens of mostly male AI researchers, some squeezed into a stairwell, gathered to hear Musk’s pitch. Some had come from OpenAI’s Developer Day Conference held a few hours earlier.

Musk took several jabs at OpenAI and boasted about how quickly xAI built up Colossus.

Later that month, he spoke on a fundraising call for investors the week before the election, while he was also stumping for Donald Trump. xAI has attracted large investors, including a Qatari sovereign-wealth fund, to bankroll its expansion.

At the same time, Musk says xAI’s technology still has a way to go.

When he appeared on a recent episode of “The Joe Rogan Experience,” the podcaster asked Grok to “roast transgender women competing in women’s swimming.” Grok refused to, saying it was “quite the gentlemanly AI.”

“It’s going woke,” Rogan said.

“OK, we need some work,” Musk replied.