xAI Secures $200 Million Defense Contract Amid Government Tensions

Elon Musk’s AI company, xAI, has secured a significant contract with the U.S. government, marking a notable shift in its business strategy. The two-year-old company, which recently made headlines for its chatbot's controversial statements, announced the launch of a new division called “Grok with Government” and a $200 million contract with the Department of Defense. This contract is part of a broader effort to develop AI agent workflows across various mission areas, as stated by the Chief Digital and Artificial Intelligence Office. Other tech giants, including Google, OpenAI, and Anthropic, have also been awarded similar contracts.

xAI’s new partnership with the Pentagon comes at an intriguing time, given Musk’s recent efforts to reduce government spending through the Department of Government Efficiency (DOGE). DOGE claimed to have saved $190 billion in taxpayer dollars by July, primarily by cutting what it deemed outdated or wasteful government contracts. However, the validity of these savings has been questioned, with investigations suggesting that the figures may have been exaggerated. Now, xAI is positioning itself to secure additional government contracts worth hundreds of millions of dollars, which could be seen as contradictory to Musk’s previous efforts to trim government spending.

The timing of xAI’s announcement is also significant given the recent tensions between Musk and Trump. In June, Trump threatened to cut all of Musk’s government contracts following a public social media dispute. Musk, in response, suggested decommissioning SpaceX’s Dragon capsule, which is crucial for NASA’s astronaut missions to the International Space Station. Musk’s companies have accumulated over $38 billion in government contracts over the years, highlighting the potential impact of such a move.

xAI’s new government division aims to service federal, local, state, and national security customers. The company plans to build custom AI models for national security and critical science applications, which will be available in classified and restricted environments. xAI also intends to provide engineering support with U.S. government-cleared engineers, further solidifying its commitment to government contracts.

Despite Musk’s departure from DOGE, he maintains strong connections within certain government circles. One of his allies, Katie Miller, who served as Mike Pence’s press secretary during Trump’s first presidency, has since joined xAI. Miller has been actively promoting xAI’s new government initiatives on her social media platforms, describing Grok as the “only truth-seeking AI available to the U.S. Government.”

The Defense Department expressed excitement about collaborating with industry leaders like xAI to enhance the DoD’s use of frontier AI capabilities. The General Services Administration (GSA) also welcomed xAI’s inclusion, stating that it works with several AI solutions across various agencies and encourages all American companies that comply with its terms and conditions.