One of Elon Musk's newer companies is eyeing an $18 billion valuation

Fast Facts

• The Wall Street Journal reported that investors close to Elon Musk are in talks to organize a new fundraising round for his AI startup. 
• The round would value xAI at $18 billion. 

The Wall Street Journal reported Friday that investors close to Elon Musk are in talks to help xAI raise $3 billion as part of a new fundraising round that would value the artificial intelligence startup at $18 billion. 

Gigafund, a venture capital firm, is reportedly considering investing in the round. The company did not immediately respond to a request for comment. 

This latest funding report comes a few months after a December filing with the Securities and Exchange Commission, in which xAI reported that it is looking to raise $1 billion and has already raised $135 million from four investors. 

Musk has denied previous reports that xAI is raising funds, saying in January that one report was "simply not accurate."

In response to a January FT report that xAI was looking to raise $6 billion at a $20 billion valuation, Musk said: "xAI is not raising capital and I have had no conversations with anyone in this regard." 

It isn't clear if these recent reports are connected to the fundraising detailed in the December SEC filing. 

Related: Researcher has a warning about the future of the AI boom

The AI bubble

This latest funding report is representative of an industry that is seemingly spending as much time looking for cash as it is looking for high-quality data. 

Last year, venture capitalists invested $50 billion (out of the total $285 billion invested in global startups) in AI startups, according to Crunchbase data. This comes as corporate investments and partnerships have steadily become more popular; Microsoft has invested more than $10 billion in OpenAI. The company has also invested millions in Mistral and Inflection. Google has pledged to invest up to $2 billion in Anthropic and Amazon has pledged to invest up to $4 billion. 

These investments come amid soaring startup valuations; OpenAI is valued at $80 billion, Anthropic at $18.4 billion, Cognition Labs and $2 billion, Mistral at $2 billion and Perplexity at $1 billion.

The Information, meanwhile, has reported enormous valuation multiples for many of these companies. Cohere, seeking a $5 billion valuation, is valued at 227 times its projected revenue. Perplexity's valuation is 67 times forward revenue and OpenAI's valuation is 54 times forward revenue. 

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Venture capital firm Sequoia found that last year, AI companies spent $50 billion on Nvidia chips alone. The sector earned only $3 billion in revenue. 

AI researcher and cognitive scientist Gary Marcus said recently that the technology is too costly to develop, on top of being largely unreliable due to security concerns and hallucinations. The end result of all this, he said, is that the current AI boom is really a bubble, and he said it could burst within the next 12 months. 

"The entire industry is based on hype," he said. 

Related: The startup wars: Anthropic for Google, Inflection for Microsoft

Elon's AI journey

Musk launched xAI last year, just a few months after he signed a letter calling for a pause in the development of more advanced AI systems. 

The company has since released Grok, a chatbot available to premium X users that is designed to compete with OpenAI's ChatGPT. 

Part of Musk's vision for xAI is to safely develop a system that is "curious" and "truth-seeking," something Musk thinks will protect humanity from what he views as the existential risk posed by AI. Experts, however, have told TheStreet that such predictions about a world-destroying AI are rooted in hypothetical theory, not science. They have added that Musk's impression of AI safety is dangerous in that these models are algorithms; they are not sentient and so should not be anthropomorphized. 

Before launching xAI, Musk was instrumental in launching OpenAI in 2015. He has since heavily criticized the Sam Altman-run startup, recently filing a lawsuit against the company for violating its original nonprofit charter. 

Contact Ian with tips and AI stories via email, [email protected], or Signal 732-804-1223.

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