Grok Could Undermine SpaceX IPO

By Douglas A. McIntyre Published May 22, 10:59AM EDT

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Grok Is A Loser
Investment In Grok Extends Into Billions
IPO Money Will Get Eaten By Tremendous Competition
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Grok Could Undermine SpaceX IPO — © 24/7 Wall St.

Morningstar warned, “‘Financials Look Reckless’: Lifting xAI’s Hood in the SpaceX IPO”. Its AI division, xAI, lost $2.47 billion on $818 million in the first quarter of this year. “If you compare xAI to a traditional SaaS company, the financials look reckless,” Harrison Rolfes, a senior research analyst at PitchBook, wrote. That may be a stretch, but it makes a point.

The most damning comment about iAI and its anchor product, Grok, was from Reuters. “But xAI’s Grok chatbot has been a flop with one of the world’s largest customers – the U.S. government, according to seven federal employees, three contracting experts, and a Reuters review of government AI inventory documents.” That is only one of several points showing that Grok is in trouble.

There are other warming signals about Grok. An analysis of Apple App Store downloads puts OpenAI’s ChatGPT in first place. Anthropic’s Claude is second. Google’s Gemini is third. Gemini is available across the Google ecosystem from search to Gmail to Docs and Sheets. The App Store figures do not put Grok in the top 25.

SpaceX founder and controlling shareholder Elon Musk won’t give up on Grok. An example of this is SpaceX paying $2.8 billion for gas turbines to power its data centers. He plans to invest $20 billion in a Mississippi data center. According to one estimate, he has already invested $3.4 billion in data centers near Memphis.

It is hard to guess what the xAI investment in physical data centers will be. However, the investments from rivals Microsoft (NASDAQ: MSFT | MSFT Price Prediction) and OpenAI have begun to reach the hundreds of billions of dollars. Many of the largest AI bets are being made by these companies, taking on debt.

Investors in SpaceX have to consider that Musk holds 85% of the voting shares. He can spend SpaceX’s money any way he wants.

Musk has made wild bets in the past. At times from 2017 to 2019, Tesla was in extraordinary financial trouble. Then, sales of the EVs took off. He continues to make extraordinary bets on the Robotaxi and Optimus robots. They will not put Tesla out of business, but they are a drain on Tesla’s financials.

Smart investors look at the Achilles heel in an IPO. For SpaceX, that is Grok.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.