Elon Musk’s xAI is leveraging its Wall Street network to bolster revenues for its Grok chatbot, a strategic push to fortify valuations before the massive $1.75 trillion initial public offering of parent company SpaceX.
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xAI Taps Wall Street to Test Grok Ahead of $1.75 Trillion SpaceX IPO
Elon Musk’s artificial intelligence venture, xAI, has enlisted several Wall Street firms with deep ties to his business empire to test its Grok chatbot, a strategic push to generate revenue before parent company SpaceX’s anticipated $1.75 trillion initial public offering, according to people familiar with the matter.
The move is part of an architecture which, according to analyst Franco Macchiavelli, is designed to benefit its insiders as much as any retail investor. The push into finance comes as xAI contends with high cash burn and a perception that its technology is inferior to rivals like OpenAI and Anthropic for sophisticated financial tasks.
According to a Bloomberg report, Apollo Global Management Inc. and Morgan Stanley have started using Grok internally, alongside longtime Musk ally Antonio Gracias’s Valor Equity Partners, which is an investor in both xAI and SpaceX. The relationships are close: Morgan Stanley has been Musk’s go-to bank for years, while Apollo has worked with xAI on financing for Nvidia Corp. chips. The urgency is underscored by a leadership shuffle, with xAI’s Chief Revenue Officer, Jon Shulkin, stepping back into an advisory role.
The strategy aims to build financial muscle ahead of the SpaceX IPO, which could be one of history's largest. Yet the effort faces headwinds, as financiers are reportedly using the chatbot sparingly. With xAI having burned through almost $1 billion per month before its merger with SpaceX, the pressure is on to demonstrate a viable path to profitability to justify the ecosystem's lofty valuation.
An IPO Priced for Perfection
The expected $1.75 trillion valuation for SpaceX, a figure that exceeds Spain's GDP, has raised eyebrows, particularly as the company has never published audited accounts. As detailed in an analysis by The Corner, this valuation would have SpaceX trading at approximately 110 times its annual sales. For the price to be justified, investors must believe in the near-simultaneous success of its most ambitious projects, including mass commercial transport via Starship and the scaling of its Starlink satellite network, which currently has over 10 million subscribers.
While SpaceX dominates the U.S. launch market, controlling over 80 percent of orbital launches, the valuation hinges on promises that have seen delays. Musk’s track record of announcing ambitious timelines that are not met calls for applying a reasonable discount to anything that still smacks of a promise, Macchiavelli noted.
Rewriting the Rules
Adding another layer of complexity to the IPO is a series of unprecedented rule changes from the world's major index providers. The Nasdaq, S&P 500, FTSE Russell, and CRSP have all amended their inclusion criteria, allowing a company like SpaceX to enter their indices almost immediately after its public debut. This would compel the more than $500 billion in passive funds tracking the Nasdaq alone to automatically buy SpaceX shares, regardless of price.
The impact of this mandatory demand could be magnified by a planned low free float of just 5 to 10 percent of shares. With a scarce supply and immense, forced demand, the initial price may be set more by scarcity than by fundamental market analysis. This dynamic could allow major shareholders, who control 90 to 95 percent of the company, to sell their holdings into a captive market after the 180-day lock-up period expires.
Headwinds and High Stakes
While the IPO mechanics appear favorable to insiders, the underlying business of xAI faces significant challenges. The push into the high-stakes world of finance is a critical test for Grok, which executives have pitched for tasks like scraping internal data for performance reviews. However, its direct competitors in the space, Rocket Lab and AST SpaceMobile, are also making strides, while EchoStar remains the only listed stock with direct equity exposure to SpaceX before the IPO.
For investors looking to gain exposure to the event, the upcoming IPO presents a complex picture. The combination of a sky-high valuation, delayed promises, and unique stock market mechanics creates a high-risk, high-reward scenario that will test the appetite of even the most bullish market participants.
This article is for informational purposes only and does not constitute investment advice.
[1] xAI Pursues Finance Sector Growth Before SpaceX IPO[2] Musk’s xAI Races to Get Wall Street Firms to Use Grok Chatbot[3] Trump lands in Beijing for high-stakes Xi summit as Taiwan tensions, trade disputes test US strength[4] Musk's xAI signs up Wall Street firms for Grok chatbot - report[5] SpaceX: the deal of the century designed for insiders
