Musk Makes $60 Billion Gamble After xAI Slips Behind in Coding

Elon Musk's artificial intelligence startup xAI has spent months trying to convince businesses to use its Grok chatbot for speeding up the process of coding. But Musk's own employees have sometimes been reluctant to do the same.

Some SpaceX engineers have been slow to adopt Grok for technical work because it's not as effective as rival tools, according to people familiar with the matter. Within its xAI division, certain staffers have been using other AI alternatives such as Anthropic PBC's Claude for coding instead of Grok, said some of the people, who spoke on condition of anonymity to discuss internal matters.

AI coding tools, which streamline the process of writing and debugging code, have become a key revenue driver for xAI's competitors. Musk's staff's hesitation to use Grok indicates its long road to building credibility for its offering in the market -- and an even longer road to being a top player. Those challenges have pushed Musk make what could be one of his biggest gambles yet to catch up.

On Tuesday, Musk's rocket company SpaceX - which merged with xAI earlier this year - said it has an agreement giving it the right to acquire AI coding startup Cursor for $60 billion later this year, or pay $10 billion for the companies' work together. The costly tie-up is aimed at developing "the world's best coding and knowledge work AI," SpaceX said.

xAI, meanwhile, has developed an advanced - if often controversial - chatbot powered by data from the Musk-owned social network, X. Grok has yet to prove its coding muscle, however, and the stakes are high for that to change soon. The company's staff has been asked to show they can meaningfully bolster revenue, which until mid-2025 came largely from Musk's other businesses, ahead of SpaceX's expected public offering in June.

In the meantime, the xAI team has been trying to sell Wall Street giants and US government agencies on Grok as a useful product for conducting internal business and delivering performance reviews based on scraping company data, people familiar with the matter said. But that pitch has been hampered by concerns that the chatbot is not as adept at coding and financial modeling, some of the people said.

In finance, most Wall Street banks and asset managers either use their own proprietary AI models or tools from firms like Anthropic, making it that much harder to get them to switch licenses. Government agencies are using a variety of AI models, including Grok, after xAI secured a partnership with the General Services Administration. A spokesperson for the US Department of Agriculture said it is adopting Grok as one of its AI tools.

xAI did not respond to a request for comment.

In the universe of Musk businesses, xAI's chatbot is being used for purposes beyond coding. SpaceX's Starlink, for example, has incorporated Grok for customer service across its platform and Tesla is using the technology in its electric vehicles. SpaceX also has its own version of Grok called Spok. But adoption in specialized areas has been slow.

Some of the top lieutenants at xAI have asked staffers to ramp up their efforts to produce Claude-like products that can handle coding as well as producing slides and spreadsheets, the people said. Musk himself has acknowledged that xAI is "behind" on coding and vowed to overhaul the company to be more competitive after a wave of layoffs and departures, including nearly all of its founding team.

"xAI was not built right the first time around, so is being rebuilt from the foundations up," Musk said in a post on his X social media platform in March.

The company has embarked on a hiring spree for talent on its engineering and training teams to help turn the xAI around, including nabbing two senior employees from Cursor last month. It also brought in Michael Nicolls, a top executive at SpaceX's Starlink, as xAI's president.

Still, the drumbeat of firings and hirings at xAI have left insiders confused, some of the people said, with some noting that directions for coding and other projects change constantly.

While Cursor has become one of the fastest-growing startups of all time and a central player in tech's "vibe coding" era, it too faces stiff competition. The company offers its own proprietary model, as well as others, in an effort to not be overly reliant on technology from any single model maker.