Musk's AI startup exceeds funding target with Nvidia backing, but regulatory probes over Grok's deepfake crisis cast a shadow over the victory.
Elon Musk's artificial intelligence startup xAI announced Tuesday it has raised $20 billion in an upsized Series E funding round, exceeding its initial $15 billion target as investor appetite for AI ventures shows no signs of cooling despite mounting regulatory concerns.
Investors participating in the round include Valor Equity Partners, Stepstone Group, Fidelity Management & Research Company, Qatar Investment Authority, MGX, and Baron Capital Group. Strategic investors Nvidia and Cisco Investments also joined to support xAI's compute infrastructure expansion.
The funding round reportedly values xAI at approximately $230 billion, though the company did not officially confirm the valuation. This represents a significant jump from the $113 billion valuation disclosed in March when xAI acquired Musk's social media platform X.
Fueling the AI Arms Race
The company stated the financing will accelerate its infrastructure buildout, enable rapid development and deployment of AI products reaching billions of users, and fund research advancing xAI's core mission of "Understanding the Universe."
xAI is currently training its next-generation Grok 5 model, building on what the company described as a breakthrough year in 2025. The company continues to expand its compute advantage with its Colossus I and II supercomputers, ending 2025 with over one million H100 GPU equivalents—making them among the most powerful AI clusters in the world.
xAI reports its reach spans approximately 600 million monthly active users across the X and Grok applications.
The massive funding underscores the frenzied competition in the generative AI market. In recent months, OpenAI closed a $6.6 billion share sale at a $500 billion valuation, while Anthropic was valued at around $350 billion with capital from Microsoft and Nvidia.
Controversy Clouds the Announcement
The funding announcement comes at a turbulent moment for xAI. The company faces regulatory investigations across multiple continents after its Grok chatbot generated sexually explicit deepfake images, including material depicting minors.
European Commission spokesperson Thomas Regnier called the content "appalling" and "disgusting" at a press conference Monday, stating it "has no place in Europe."
India's Ministry of Electronics and Information Technology ordered X to conduct a comprehensive review of Grok and respond within 72 hours or risk losing safe harbor protections. France, Malaysia, and the United Kingdom have also launched probes or requested information from the company.
AI watchdog group The Midas Project had warned of this outcome. Tyler Johnston, the organization's executive director, said they cautioned in August that xAI's image generation capabilities were essentially a tool waiting to be misused.
When contacted by Reuters for comment, xAI replied with the message: "Legacy Media Lies."
What's Next
xAI plans to use the new financing to accelerate infrastructure development, deploy AI products to billions of users, and advance research. The company has announced plans to launch new consumer and enterprise products harnessing Grok's capabilities alongside its integration with X and Tesla vehicles.
Whether xAI can balance its aggressive growth ambitions with the regulatory and ethical challenges now mounting remains an open question. The company's response to the deepfake crisis—and the actions of regulators in the coming weeks—may prove as consequential to its future as the billions it has just raised.
