xAI joins hands with SpaceX to receive "life-saving acceleration"! OpenAI and Anthropic are met with strong competitors.

In the majority of the past three years, Elon Musk's xAI has been trying to compete with leading artificial intelligence (AI) labs, including OpenAI, a company he co-founded and later had conflicts with. But the results have been mixed: xAI's flagship product, the chatbot Siasun Robot&AutomationGrok, has frequently made headlines for anti-Semitic responses and sexually suggestive images, overshadowing its technological advancements to a large extent. Now, Musk is attempting to accelerate xAI's development by merging it with one of his most successful companies. On Monday, he announced that xAI will merge with SpaceX, forming a joint company valued at $1.25 trillion. This combination is expected to help xAI gain more computing power, talent, and data - the trifecta of artificial intelligence development. Like other AI startups, xAI has been burning through money to build AI models - spending close to $1 billion per month on data centers, chips, and other investments. In the process, xAI has accumulated about $5 billion in corporate debt, a significant amount for a young startup. However, its AI infrastructure build-out is still far smaller than OpenAI, which has pledged to invest over $1.4 trillion in data centers and chips. Musk has stated that SpaceX plans to deploy data centers in space, a futuristic idea that could significantly boost xAI's computing power. Musk said, "In the long term, space-based AI is clearly the only path to expansion." Whether these projects will actually come to fruition and when is uncertain, but SpaceX could also provide support for xAI's computing needs on the ground. The rocket manufacturer's balance sheet is much healthier, able to support such investments and possibly make xAI's financial performance more attractive to Wall Street. Crucially, SpaceX also plans to conduct its first IPO this year, providing xAI with more funding and potentially surpassing competitors like OpenAI and Anthropic on the capital markets stage. Joseph Alanya, founding partner of Buttonwood Funds and holder of both SpaceX and xAI shares, said, "This will bring them a substantial amount of capital, likely much more than they could have raised privately." Meanwhile, Mark Hackett, Chief Market Strategist at Nationwide Funds Group, pointed out that the new combined company "will be seen more as a space opportunity in the early stages, rather than simply an AI company." He said, "They can attract not just AI investors, but a broader group of investors." The joint IPO of SpaceX and xAI could also undermine the attractiveness of an IPO for OpenAI to some extent, diverting some public market investors' strong demand for cutting-edge generative AI investments. Furthermore, going public could enhance xAI's ability to recruit and retain talent in the highly competitive talent market - where AI researchers can receive six-figure compensation packages. Similar to Musk's other companies, xAI has gained a reputation for long working hours and employee burnout. Employees have been posting online for long hours, claiming to work over 30 hours continuously and even sleep in the office. Former xAI employee Benjamin De Clark previously wrote on X, "When you create a culture where employees compete to see who is the most exhausted and who is sleep-deprived, there will be consequences. This is what many xAI employees are experiencing, with some even posting that they are so tired that they can hardly stay awake to drive home." However, the market xAI operates in is much more crowded compared to many of Musk's early companies. Of its 11 founding members (excluding Musk), 3 have already left, and key executives such as the CFO and general counsel have also departed. xAI's former CFO Mike Liberatori joined OpenAI last year after only a few months in office. The issue of burnout is likely to persist, but now xAI can attract new and old employees with valuable stock options from a soon-to-be-public company. More importantly, xAI is also under the "halo" of a highly respected company that continuously launches rockets and satellites into space. SpaceX could also provide a valuable data source for xAI. SpaceX's satellite internet service Starlink recently updated its privacy policy, stating that it can collect users' personal information - including financial data, location information, and any files and social media content uploaded via email - for model training. SpaceX could also share this information with its merged companies, like xAI. Any additional data will be a positive for xAI. So far, xAI's social network X has been the main training data source for Grok. In contrast, competitors like OpenAI and Alphabet Inc. Class C (GOOGL.US) have already secured content through licensing agreements with publishers and platforms. Regardless of whether it merges with SpaceX, this AI startup under Musk still faces many challenges, including a controversial brand image and increasing regulatory scrutiny on Grok's suggestive image issues. Ongoing concerns about a potential AI bubble could also put pressure on the merged entity once it goes public. Additionally, the competition among model developers remains intense. Top startups like OpenAI and Anthropic have established close partnerships with large tech companies to stay ahead in the global AI race. Musk is betting that he can achieve the same layout for xAI within his commercial empire. Alanya said, "You can never underestimate Elon, and I really think he has an ace up his sleeve."