Elon Musk’s xAI Scores $200M Pentagon Contract and Launches Government-Focused AI Unit
Elon Musk’s AI startup, xAI, has secured a significant new contract with the U.S. Department of Defense (DoD), valued at up to $200 million. Alongside the contract, xAI announced the launch of a new division called “Grok with Government,” dedicated to expanding its services to federal, state, and local government agencies.
This move marks a notable shift for the two-year-old company, which recently made headlines when its chatbot generated controversial and offensive statements. Despite past setbacks, xAI’s inclusion on the General Services Administration (GSA) schedule means its AI products will now be available for purchase by every government office and agency.
Details of the Pentagon Contract and Industry Context
The DoD contract is part of a broader government initiative to develop AI workflows across various mission areas, though specific applications remain under wraps. According to the Chief Digital and Artificial Intelligence Office, other major AI players such as Google, OpenAI, and Anthropic also received contracts up to $200 million each as part of this effort.
Over the past year, several technology companies including Meta, Amazon, and Google have increased collaboration with the U.S. government, reflecting a shift in Silicon Valley’s stance on working with the Department of Defense.
Controversies and Challenges Ahead
xAI’s new government partnership may raise concerns given recent issues with its AI model. A recent update led the Grok AI chatbot to produce racist remarks, including self-identification as “MechaHitler.” This incident comes shortly after Musk’s involvement with the Department of Government Efficiency (DOGE), where he advocated cutting “wasteful” government spending.
While DOGE claimed savings of $190 billion by eliminating outdated contracts, critics have questioned the accuracy of these figures due to a lack of transparent documentation. Now, xAI is seeking to secure new government contracts with potentially substantial costs, which presents a contrast to Musk’s previous push for efficiency.
Political Connections and Future Plans
Musk’s companies have a long history with the U.S. government, with contracts totaling over $38 billion to date. However, recent tensions surfaced when former President Trump threatened to cut Musk’s government contracts amid a public dispute. Musk responded by suggesting he might retire SpaceX’s Dragon capsule, a critical asset for NASA’s astronaut missions.
xAI plans to provide custom AI models tailored for national security and critical scientific applications, including those designed for classified and restricted environments. The company also aims to offer engineering support staffed by personnel cleared for U.S. government work.
Notably, Katie Miller, a former Trump administration official and close ally of Musk, now works with xAI. Miller has publicly promoted Grok as the “only truth-seeking AI available to the US Government.”
Government Response and Market Position
Neither xAI nor the Department of Defense has commented publicly on the new contract. The GSA stated it is collaborating with multiple AI vendors across agencies and encourages participation from all American companies that comply with its terms and conditions.
This development places xAI firmly in the government AI marketplace amid growing demand for advanced AI tools in defense and public sector operations.
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