How Musk's xAI could start to make sense — and maybe money
Yes, but: There's one niche of a future AI business ecosystem that xAI fits perfectly. It could end up as the Fox News of the AI infosphere — a right-skewed source of truth for those who view mainstream alternatives as too "woke."
The big picture: Musk is trying to raise an additional $5 billion for xAI, and he's turning to his own companies for cash — including SpaceX and Tesla — presumably because it's convenient and free of strings.
It could also mean that outside investors are tiring of throwing money at the company, which has already raised more than $20 billion in debt and equity but continues to show little return.
By the numbers: xAI's AI business is expected to bring in $500 million in revenue this year, per Bloomberg, chiefly from API fees and subscriptions.
Now that Musk has rolled X into xAI, xAI can add the former Twitter's $2.26 billion estimated ad revenue (per eMarketer).
That figure may look paltry next to the income of social media giants like Meta and YouTube, but it's transformative for xAI's top line.
The company also made headlines last week with an announcement that it has a deal for "up to $200 million" with the Pentagon, which is exploring uses for advanced AI and has also made similar deals with OpenAI, Google and Anthropic.
So the revenue line is beginning to move up — but hardly enough to justify the $200 billion valuation that Musk is reportedly seeking from new investors in xAI, or even cover its estimated $1 billion-a-month burn rate.
The company does have some real assets: Its foundation model, Grok, has matured to a level where, for the moment, it's beating rivals like OpenAI's GPT, Anthropic's Claude and Google's Gemini on a variety of benchmark tests. And its Colossus data center in Memphis is one of the largest AI development facilities in the world today.
But turning those assets into cash flow is going to be very hard.
The AI model business is ridiculously competitive, with those three rivals all boasting larger customer bases, more impressive research records and better reputations.
It's unlikely that the U.S. market will support four separate, wildly expensive and largely duplicative frontier-model makers. That would leave Musk's company as the AI equivalent of the losers in the 1990s search engine wars. Who remembers Lycos or Excite?
xAI's biggest advantage is its integration with X. It gets real-time news and information from X users at the same time that it can promote its chatbot's services to them.
The trouble is, this edge is also an Achilles' heel for xAI, because X itself has become such a troubled media environment.
Since Musk bought Twitter in 2022 and renamed it X, he has opened the doors wide to racists, extremists, Nazis and other hate groups — in the name of free speech.
That's had an impact not only on the social media platform, which has seen an exodus of left-leaning users and nervous advertisers, but also on xAI's Grok, which recently went on a pro-Hitler posting bender.
What's next: The likeliest path for xAI is to continue to cultivate and refine its appeal to the deep red side of America's red-blue split.
Google, Apple, Microsoft, Meta, Amazon, OpenAI, Anthropic and other startups are all in a race to connect consumers and businesses to AI.
The key differentiator will be how well they integrate AI with the rest of the tech we use every day — whether that's phones and desktop software, education and medical platforms, or cars and TV sets.
But some potential AI users will also choose based on ideology.
Many of these users don't want their chatbots telling them that Donald Trump lost the 2020 election, that ivermectin is not a cure-all, and that climate change is real.
There might even be some who don't mind hearing that Hitler was an admirably decisive leader.
AI makers who want their chatbots to provide a middle-of-the-road consensus reality may not satisfy such users. That opens a lane for Musk's Grok — which can be intentionally provocative and, at one point, was instructed to "not shy away from making claims which are politically incorrect."
Of course, it's hard to predict what the size of that market is, or how xAI could tap it for enough revenue to support a ten-figure valuation.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
13 minutes ago
- Yahoo
EU-US trade deals buoy stocks while Tesla plummets
Stock markets mostly bumped upwards Thursday as hopes grew that the European Union could strike a trade deal with the United States, while Tesla shares nosedived on poor earnings results. Investors have profited in recent weeks from wagers that governments will eventually hammer out pacts with Donald Trump ahead of the US president's looming August 1 deadline to avoid steeper levies. analyst Patrick O'Hare said Trump's Tuesday trade announcement with Japan had raised hopes about further agreements. "There is underlying enthusiasm for more trade deals being struck before the August 1 deadline," O'Hare said. This was boosted further by "optimism surrounding trade talks between the US and EU", said Joshua Mahony, chief market analyst at Rostro trading group. On Wall Street, both the S&P 500 and tech-heavy Nasdaq edged higher in the morning's trading, although the Dow slid lower as investors digested mixed company earnings. Google parent Alphabet was among the early gainers, rising about three percent after reporting a whopping $28.2 billion in second-quarter profits as it touted its artificial intelligence offerings. But Tesla fell around nine percent as CEO Elon Musk warned investors of a rough patch for earnings after the electric car maker reported a 16-percent drop in quarterly profits. A survey of US manufacturers released Thursday showed business confidence in the world's top economy also deteriorated in July for the second month running. "Companies cite ongoing concerns over the impact of government policies, notably in terms of both tariffs and cuts to federal spending," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence. In Europe, London's FTSE 100 gained 0.9 percent at the close, lifted by a stream of robust earnings, including from consumer goods group Reckitt, mobile phone giant Vodafone and Lloyds bank. Paris fell, dragged down by a drop in luxury stocks and disappointing profits from fossil fuel giant TotalEnergies. Yet most other European stocks markets including Frankfurt rose, as the European Union and Washington appeared close to a deal that would halve a threatened 30-percent levy on EU goods to 15 percent. A European Commission spokesman said Thursday that he believed a trade deal with the US is "within reach". According to multiple diplomats, the deal could waive tariffs on aircraft, lumber, pharmaceutical products and agricultural goods. The bloc, however, is still forging ahead with contingency plans in case talks fail, with member states approving a 93-billion-euro ($109-billion) package of counter-tariffs on US goods. Meanwhile, the European Central Bank left interest rates unchanged, as widely expected. It warned that the economic environment remained "exceptionally uncertain, especially because of trade disputes" as higher US tariffs hang in the balance. The euro dipped a touch following Thursday's rate decision, but it did perk up after ECB President Christine Lagarde said the central bank was monitoring the dollar-euro exchange rate but had no target. The euro has surged almost 14 percent against the dollar since the start of the year, boosted by investors dumping US assets in the face of Trump's impetuous policymaking and attacks on the US Federal Reserve. The euro's appreciation helps contain inflation but could harm European exports and thus slow already sluggish economic growth. In Asia, stocks advanced with Tokyo adding more than one percent, building on a more than three percent surge Wednesday on the back of the Japan-US trade deal. Hong Kong and Shanghai also rose. - Key figures at around 1530 GMT - New York - Dow: DOWN 0.4 percent at 44,851,07 points New York - S&P 500: UP 0.3 percent at 6,375.34 New York - Nasdaq Composite: UP 0.3 percent at 21,075.70 London - FTSE 100: UP 0.9 percent at 9,138.37 (close) Paris - CAC 40: DOWN 0.4 percent at 7,818.28 (close) Frankfurt - DAX: UP 0.2 percent at 24,295.93 (close) Tokyo - Nikkei 225: UP 1.6 percent at 41,826.34 (close) Hong Kong - Hang Seng Index: UP 0.5 percent at 25,667.18 (close) Shanghai - Composite: UP 0.7 percent at 3,605.73 (close) Dollar/yen: UP at 146.79 yen from 146.47 yen on Wednesday Euro/dollar: DOWN at $1.1774 from $1.1777 Pound/dollar: DOWN at $1.3537 from $1.3579 Euro/pound: UP at 86.98 pence from 86.68 pence West Texas Intermediate: UP 1.3 percent at $66.09 per barrel Brent North Sea Crude: UP 1.1 percent at $69.26 per barrel burs-sbk/rl Sign in to access your portfolio
USA Today
14 minutes ago
- USA Today
Trump says he wants Elon Musk to 'THRIVE' after threatening his subsidies
Elon Musk's companies have benefited from government contracts, including SpaceX through its relationships with the Pentagon and NASA. WASHINGTON - President Donald Trump says he does not want to ruin billionaire advisor Elon Musk's businesses by taking away federal subsidies after recently threatening the former head of the Department of Government Efficiency. 'Everyone is stating that I will destroy Elon's companies by taking away some, if not all, of the large scale subsidies he receives from the U.S. Government,' Trump wrote in a July 24 Truth Social post. 'This is not so! I want Elon, and all businesses within our Country, to THRIVE, in fact, THRIVE like never before! The better they do, the better the USA does, and that's good for all of us. We are setting records every day, and I want to keep it that way!' Musk's companies have benefited from billions of dollars in U.S. government contracts over the past two decades, including SpaceX through its relationships with the Department of Defense and NASA. In all, Musk and his businesses have received at least $38 billion in government contracts, loans, subsidies and tax credits, often at critical moments, a Washington Post analysis found. Trump's latest remarks come after White House Press Secretary Karoline Leavitt said in a press briefing on July 23 that she does not think the president supports federal agencies contracting with Musk's artificial intelligence company, xAI, which developed the chatbot Grok. xAI recently announced a $200 million contract with the Department of Defense. The two men had a dramatic falling out over Trump's signature tax and domestic policy law, with Musk blasting it as a 'disgusting abomination' that would only add to the growing deficit. In July, Trump threatened to have DOGE review the billions of dollars' worth of contracts that Musk's companies receive. "Elon may get more subsidy than any human being in history, by far, and without subsidies, Elon would probably have to close up shop and head back home to South Africa," Trump wrote in a 12:44 a.m. July 1 post on Truth Social. "No more Rocket launches, Satellites, or Electric Car Production, and our Country would save a FORTUNE. Perhaps we should have DOGE take a good, hard, look at this? BIG MONEY TO BE SAVED!!!" Musk, who was co-leader of DOGE, responded shortly afterward, saying, "I am literally saying CUT IT ALL. Now." Musk had warned Tesla investors on July 23 that U.S. government cuts in support for electric vehicle makers could lead to a "few rough quarters" for the company. Contributing: Reuters, Joey Garrison
Gizmodo
14 minutes ago
- Gizmodo
Google Neutralizes Its Rivals… For Now
For over two decades, 'Google it' has been the default way to find answers online. Now that dominance is being tested by a new wave of AI tools like OpenAI's ChatGPT and upstarts such as Perplexity, which deliver conversational answers instead of a list of links. These disruptors are being cast as a mortal threat to Google Search, long the undisputed king of the internet. But on Wednesday, Google CEO Sundar Pichai delivered a powerful counter-narrative, armed with staggering new data that suggests the AI 'threat' is actually making its core product stronger than ever. The story Google is telling is not one of defense, but of offense. Far from cannibalizing its search business, AI is encouraging people to search more, ask new kinds of questions, and engage more deeply with the platform. 'We see AI powering an expansion in how people are searching for and accessing information, unlocking completely new kinds of questions you can ask Google,' Pichai said in remarks for the company's Q2 earnings call. 'Overall queries and commercial queries on Search continued to grow year over year. And our new AI experiences significantly contributed to this increase in usage.' Pichai revealed that the company's new AI features are now driving 'over 10% more queries globally' for the types of searches that show them, a clear sign that AI is expanding the pie, not just slicing it differently. At the heart of Google's strategy is a two-pronged approach designed to serve both casual users and power users simultaneously. The first approach is AI Overviews, the AI-generated summaries that now appear at the top of many search results. This feature has been rolled out at a massive scale, now serving, Pichai claims, over 2 billion monthly users across more than 200 countries and territories. It's the mainstream integration designed to make everyday search faster and more efficient for the masses. The second axis is AI Mode, an end-to-end conversational search experience for more complex and nuanced questions. While still rolling out, this power-user tool has already attracted, the CEO says, over 100 million monthly active users in the U.S. and India. This is Google's direct answer to the advanced capabilities of its new competitors—ChatGPT and Perplexity— offering a space for deeper exploration within Google ecosystem. Is This the End of Google As We Know It? According to Google, this evolution of search is resonating most strongly with the users who will define the next decade of the internet: young people. Pichai emphasized that the growth in new search behaviors, particularly multimodal search—using tools like Google Lens or Circle to Search to ask questions with images—was 'most pronounced among younger users.' By integrating AI in a way that feels intuitive and powerful to a generation that has grown up with visual communication, Google wants to make sure it stays relevant. The ultimate validation of this strategy lies in the numbers. In a direct rebuttal to fears that AI would kill its golden goose, Alphabet reported $54.19 billion in second-quarter search revenue, up 12% year-over-year. The AI-powered experience is proving to be not just engaging, but highly lucrative. Chief Business Officer Philipp Schindler noted during the earnings' call with analysts that advertisers using the company's new AI-powered tools are seeing tangible benefits, with AI Max campaigns delivering '14% more conversions' on average. This proves that a more complex, AI-driven search experience can be even more valuable for advertisers, he claimed. OpenAI's ChatGPT and smaller players like Perplexity AI are winning early adopters who prefer direct, conversational responses over Google's traditional list of blue links. These platforms summarize and synthesize information instantly, bypassing the need to click through multiple sites. This shift threatens Google's core business model: search advertising. A shift from traditional search to AI-generated answers could reshape how people consume information online. Instead of clicking through multiple sources, users may rely on a single AI response, potentially concentrating power in fewer platforms and reducing traffic to independent publishers. For Google, the challenge is to evolve fast enough to keep its users while preserving the revenue streams that make up the bulk of its business. 'We'll focus on the organic experience for the near term,' Pichai told analysts. Google is not simply adding AI to its old search box to keep competitors at bay. It's building an entirely new information engine, one designed to answer questions people never even thought to ask. The AI race has forced Google to evolve fast, and it could make Search more indispensable, and more profitable, than ever. Google wants to stay the gatekeeper of how we access information.
