Hey Everyone,
More and bigger datacenters are going to be built thanks to demand for AI chips and ever more gigantic and efficient LLMs. The GPU architecture required is going to be immense, and one day the energy and water demands as well.
took a look at some of the Environmental costs of Generative AI recently: Read it: The Environmental Costs of Generative Artificial Intelligence.
This is important because of what real-world demand for Nvidia’s GPUs and Microsoft’s great expansion of datacenters in Europe and APAC region will do to the AI arms race.
I recently took a look at what the “Muskonomy” could become, and it’s more relevant to the future of technology in the 2030s than it seems today.
What should we make of the AI ambitions of Elon Musk?
When will OpenAI release their web-search product to compete with Perplexity and others? Are their media partnerships a sign that it is imminent?
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But first let’s mention that OpenAI continues to partner with media companies, now including The Atlantic (a competitor of Substack) and Vox Media. Nicholas Thompson, CEO of the Atlantic, who started this campaign against Substack, had the following to say after settling a deal to sell out to OpenAI.
Bad Blood in the Subscription Business of Media
The campaign of the Atlantic to smear Substack resulted in a not insignificant exodus of left leaning Newsletters some of which can be seen here. Nicholas admits that the Atlantic is mainly making money via Subscriptions, so being a part of OpenAI’s future web-search product is important for them to obtain new sources of traffic. (Even if it’s short term). The smear campaign was so successful against Substack, The Atlantic even tried it again in early 2024 with this article.
OpenAI has reached “media deals” with many major publishers in recent months including News Corp (The Wall Street Journal, the New York Post, and The Daily Telegraph), Axel Springer (Business Insider and Politico), DotDash Meredith (People, Better Homes & Gardens, Investopedia, Food & Wine, and InStyle), the Financial Times, and The Associated Press.
AGI Hype is coming
Impact of the GoC on the Muskonomy
The Muskonomy is less about xAI being a direct competitor to OpenAI than you might think. xAI’s AI supercomputer with Nvidia H100 chips will be huge, and this “gigafactory of compute” could materially benefit his other companies. This massive datacenter should be ready as early as the Fall of 2025, more likely by early 2026.
xAI is barely 15 months old and for all intents and purposes, has zero product, Grok doesn’t really count. So how were they able to raise $Billion? It’s in part, thanks to Saudi Arabia. While Sam Altman has targeted funding from the Middle East for his projects, it seems Elon Musk has beaten him to it.
The Biggest Series B in the history of AI
On May 26th, 2024 xAI the AI startup started by Elon Musk announced its much anticipated Series B round.
With the series B of Elon Musk’s xAI funding finally complete, we no longer have a duopoly between just Cloud funded OpenAI and Anthropic. With the addition of xAI, we have a significant third player now in the future of large language models. The massive Series B includes investments from a16z, Sequoia, Valor and means that the internal valuation of xAI that competes directly with OpenAI is now a staggering $18 Billion. That’s very close to what Anthropic was valued at when Amazon struck a deal with them.
xAI also plans to build an AI supercomputer first reported by The Information. These developments mean it’s no longer just about waiting for OpenAI’s GPT-5, but now a variety of players that include:
OpenAI
Anthropic
Mistral
Meta
Cohere
Reka AI
Adept AI
And a number of Chinese AI startups, among others.
As impressive as the Series B is for xAI, this still means quite a long ways to catch up to the bleeding edge foundation model builders:
Most players will still be chasing GPT-5 when it comes out likely after the U.S. elections in November, 2024.
Cohere, the top Canadian AI startup that makes foundational models is also seeking to raise between $500 million and $1 Billion. Other major investors of xAI Series B include:
Valor Equity Partners
Andreessen Horowitz (often abbreviated as “a16z”),
Sequoia Capital,
Vy Capital,
Fidelity,
Future Ventures,
Prince Alwaleed Bin Talal and Kingdom Holding
Historic $6 Billion Series B is Unprecedented in AI
To raise $6 billion in a single round is fairly historic for an AI startup, but this is Elon Musk we are talking about.
Musk has said in public that xAI will need up to 100,000 specialized semiconductors to train and run the next version of Grok, and will require a “gigafactory of compute” to house those chips.
Tesla and xAI will be major buyers of Nvidia’s new architecture of chips called Blackwell.
Musk said he wants to get the proposed supercomputer running by the fall of 2025. That’s a pretty intense timeline. For xAI to be world-class it’s likely many months behind Generative AI startups that have had a significant head start. xAI is of course a fairly recent development in the Generative AI space. Since Claude 3 Opus by Anthropic, Llama-3 and Google Gemini, things are getting more competitive.
xAI was founded by Musk in Nevada on March 9, 2023 and has since been headquartered in the San Francisco Bay Area in California. Igor Babuschkin, formerly associated with Google’s DeepMind unit, was recruited by Musk to be Chief Engineer. Musk officially announced the formation of xAI on July 12, 2023. To make matters even more interesting, Musk filed a suit against OpenAI in a California court in early March, 2024, alleging that Altman and other executives had “breached the founding agreement” of the company by pursuing private commercial success instead of working to benefit humanity.
xAI’s massive AI datacenter or supercomputer is likely to be a partnership with Oracle. On paper, it would be at least four times the size of the biggest GPU clusters that exist today, The Information reported quoting Musk from a presentation made to investors in May. So by the time Grok 3 comes around, it should be pretty good. I don’t expect Grok 2 to be anywhere near GPT-5’s level.
Snowflake recently failed to acquire Reka AI – which was founded by researchers from DeepMind, Google, and Meta – that recently launched Reka Core, its first multimodal language model. They have some ties to Singapore. The talks broke down for an acquisition that was to be in the area of $1 Billion. Outside of the U.S. and China, there aren’t that many great foundation model builders, though Aleph Alpha in Germany and A121 Labs in Israel come to mind.
In a sense, xAI may already be in the top ten Generative AI startups in Generative AI model building, although with the compute that $6 Billion affords them they could shoot up to the top five soon enough. With Tesla and X (formerly Twitter) under some pressure in recent times, it’s not clear how much emphasis Elon Musk is putting on xAI or even Tesla’s AI side of the business for that matter, though he is promising Robotaxis by August, 2024 with a reveal supposed to take place on August 8th, 2024.
Musk has recently said training the Grok 2 model took about 20,000 Nvidia H100 GPUs, adding that the Grok 3 model and beyond will require 100,000 Nvidia H100 chips. As LLMs get even bigger and demand more compute, he has publicly stated that he believes this will price many players out of the market.
As part of the Series B funding statement xAI said:
“xAI will continue on this steep trajectory of progress over the coming months, with multiple exciting technology updates and products soon to be announced. The funds from the round will be used to take xAI’s first products to market, build advanced infrastructure, and accelerate the research and development of future technologies.
xAI is primarily focused on the development of advanced AI systems that are truthful, competent, and maximally beneficial for all of humanity. The company’s mission is to understand the true nature of the universe.”
What appears to have taken place to me is that the Middle East decided to come in on the deal in a big way in just the last couple of months. Elon Musk calls this new AI supercomputer for xAI a ‘Gigafactory of Compute’. Musk reportedly holds himself ‘personally responsible for delivering the supercomputer on time’ as the project is very important for developing large language models. xAI’s rivalry with OpenAI is a particularly fascinating part of the AI foundational model race that appears to be building, including some rising Chinese AI startups as well including a recent entrance called Moonshot AI.
During the VivaTech 2024 conference in Paris, Elon Musk expressed optimism regarding xAI’s trajectory. Elon Musk also seems to think AGI is just one year away. Musk also speculated that by the end of 2025, AI systems like xAI’s chatbot, Grok, could surpass human capabilities in various tasks. Five months ago he said AGI was likely less than three years from now.
On May 24th, Logan Kilpatrick, who used to work at OpenAI but now works at Google asked how long until AGI on X. Elon Musk literally replied, next year.
xAI’s Killer Advantage: The “Muskonomy”
Studying the kinds of jobs xAI is hiring for also tells us a lot of what is planned. Musk is one of the earliest and most high-profile entrepreneurs in the AI space and in recent years has become one of the most controversial business figures as well. SpaceX itself could be worth more than $200 Billion making it one of the most valuable private companies in the world. Meanwhile Tesla’s market cap is still over $550 Billion giving Musk incredible leverage in his unusual business empire. You could make an argument that xAI has a huge advantage being tethered to this “Muskonomy” and the advantages that come with all the business relationships of being one of the richest people and trail-blazing entrepreneurs on the planet.
Musk, who also co-founded OpenAI, positions xAI as a formidable challenger in the AI space, but you argue it’s far from accomplishing much pre 2025. X has not yet materialized as a great platform for Grok’s adoption. But it’s early days. It’s not entirely clear to me how xAI will make money yet. Also the funding from the Middle East is going to add scrutiny to the deal.
The latest funding, including from well known venture capitalists and a Saudi prince, takes the firm’s total valuation to $24 billion, based on a pre-infusion figure of $18 billion cited by Musk. Having Saudi Arabia’s Prince Alwaleed bin Talal involved sounds complicated, especially on the huge amount that they likely invested. xAI plans to deploy the funds from the new financing round to take its first set of products to market, build advanced infrastructure, and accelerate the research and development of future technologies, it said in the blog post.
Can the Muskonomy enable xAI to become one of the top Generative AI foundation model builders in the world? As of late April, 2024 Jared Birchall, who heads Musk’s family office, had been telling prospective investors that xAI was raising $3 billion, according to TechCrunch, at a $15 billion pre-money valuation. But it seems the last four weeks they were able to double this amount! Hence the $24 Billion number.
Whether you believe Nvidia’s stock isn’t a massive AI bubble or not, xAI just entered the rarified air of raising more than $5 Billion in a single round for an AI company. Only Microsoft’s unusual deal of $10 billion in early January, 2023 really clearly surpasses it. A large portion of that was likely Azure credits some speculate. Meanwhile you have Google, Meta, Microsoft and Amazon likely spending a lot on their own compute architectures and GPU capabilities at the same time.
The Series B round, announced in a blog post on May 26, comes less than a year after xAI’s debut and marks one of the bigger investments in the nascent field of developing AI tools. More details of their road-map should emerge in the coming months. The company is likely to look for partnerships to introduce Grok to users beyond X.
How special is a $6 Billion Series B? Microsoft Corp. has invested about $13 billion in OpenAI, while Amazon.com Inc. put about $4 billion into Anthropic. xAI’s compute capabilities should be on par with Meta or Microsoft at least, by early 2026 I reckon. Not bad for an AI startup that didn’t exist 18 months ago. The recent funding round will also make it easier for xAI to attract the top talent required. I think it’s entirely possible that Ilya Sutskever, the most celebrated AI scientist to have left OpenAI, joins xAI at this point.
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