Elon says Grok Bot costs more than it makes

Guys, I've been trying to make a bullish episode on AI for so long, but it keeps getting harder and harder because stories like this keep falling in front of me, and this time it's from one of my favorite advocates in the business, Elon Musk, who announced to hundreds of thousands of people over the weekend that the cost of serving Grokbot, their flag.AI product has become too costly relative to revenue. Now this would be all well and good if not 3 days earlier, he said that it is actually one of their fastest growing products ever and emphasizing the fact that there is no free tier. So people were paying money up to $300 a month to get access to this thing.And he still couldn't generate a profit, and this is weird because it's coming from the guy who's arguably invested the most in AI to the point of tens of billions of dollars a month to stand up GPUs to become the number one neo cloud in the world, but also simultaneously calling potentially the top of the AI bubble and saying that hundreds of other neoclouds are going to crash, and the fact that it's really hard to fund the.Capex buildout in AI. On one hand, he's super bullish about the long-term implications of AI and the money it's going to generate, and on the other hand, he's unable to do so on his flagship product and his Grok AI models, the fundamental bedrock of the entire thing, also hasn't been able to catch up. So something's not quite adding up, and I have to just call it out when I see it, and this is coming from one of the biggest.supporters out there, and one of the biggest AI advocates out there. I promise you, deep in my bones, I feel extremely bullish and optimistic about the future, but I have to look around me and see that markets, stock prices are crumbling, funding is getting really hard, IPO evaluations for Anthropic and Open Air are rumored to be slashed, and I guess we gotta call a spade a spade. Let's get into it on today's episode brought to you by Qualcomm.Now first some quick context, Grokbot is basically SpaceX AI's flagship AI product, it's their AI agent which competes with the likes of Meta Muse, which is their own personal super assistant.OpenAI's Dots, which is a similar product as well, and then you have Claude, what's it called, Duet, right? And so the idea behind these AI agents, and what makes it different to a model is that they're basically your shepherd or effective channel into the rest of the digital world. So the idea is, you can interact with these agents and they'll spin up multiple versions of themselves and go and do a bunch of cool stuff for you, like book tickets for you, book reservations, go sort out and manage a friend's trip, that kind of stuff, but.Also equally on your career side of things, it can go and automate a bunch of your work. And remember, this is the whole core thesis of Elon's long-term AI vision, an idea of a human emulator, AI that can basically automate a bunch of software interactions that humans do today. And since launch, Grokbot has seen a pretty meteoric rise. Honestly, in my opinion, I rank it as either one or two of personal agents out there, and it's really effective at doing work. Specifically, it's been up hundreds of versions of itself, and it can go and effectively take.Things like Slack or Jira or Salesforce or whatever that might be, and actually effectively and competently do that work. And it's scaled to hundreds of thousands of users. I think the most recent data point was 600,000 concurrent daily active users. That's a lot of people that are reaping value from this, and that's a very important point to make, which is, there is no free tier version of this. You can get access to it for as cheap as I think $30 a month, but up to Grok heavy subscription, which is, I think, $300 a month, which is up there with one of the most expensive.Subscriptions out there, I think it's only second to OpenAI's $500 a month thing. If you have that many users using a paid product, the idea is they're reaping enough value from this. So this is probably a product that you want to double down on. So why then has Elon decided to pull back on investing into the flagship product? Well, let's look at the timeline. When Grokbot eventually launched, it had a meteoric rise, at least initially, but over the next two weeks, it then decided to flatline and Elon Musk went back to his team and was like,Hey, what's uh, what's going on here? And essentially the product team told him that the product is actually quite good, but the underlying models which they were using Grok, which is SpaceXcise flagship model, wasn't really working for the product, it wasn't really sufficient enough. So Elon's response to that was to go model agnostic, which is say, hey, use whatever model you want for Grokbot, the most important part is that the product is actually good and service.The user. So they had the bright idea of being like, OK, well let's use Cloud Opus 5.5 or any anthropic model. And so they did that, and the product again, achieved virality to the point of where they had 600,000 concurrent users. So that's all well and good, except I have to put myself in Elon's shoes and think, that must be pretty expensive. Think about it. His whole thesis for Grok the AI model over the last 6 to 9 months.Has not just been, hey, I'll achieve the Frontier LLM and be able to compete with the likes of Fable and Chat GBT 6 Astra, but I'll also be able to be the most cost efficient, Pareto efficient model out there, which means that you can use our models for anything between low-level intelligence tasks as well as high-level intelligence tasks. OK, that's a good and fair enough thesis. So Grok as an AI model definitely serves that bottom low-end task, but.Of course, people want to be able to do longer, complicated, harder tasks, so you need higher intelligence. And to be honest, SpaceXAI has sort of fallen behind. They haven't quite fallen behind to the last place, but they've struggled to scale up models, and that's not a secret at this point. We've seen multiple delays on delivering very effective models, and even when they have, it has been to a lackluster audience or reception where people have basically said,This can get beaten by GPT 6 Lunar, or one of the other cheaper models from one of the flagship AI labs, and that's another thing worth pointing out. The flagship AI labs typically could only put out expensive models, and then they thought, why don't we just distill some of the more expensive models to create cheaper versions so that everyone stays within our ecosystem. And that's the competition that Elon Musk has come up against. And to be honest, I have to give Elon credit, where he's frequently said he doesn't care about optimizing models for.Benchmarks, which is what a lot of other AI labs do. He wants it to actually be meaningful when his users actually end up using the product. So he's taking his time, and I can't fault that. But I have to acknowledge the growing bits of evidence between Elon's recent pullback on Grokbot and other bits of evidence behind his acquisition of cursor and the way that he's spending money on compute that kind of tell another story that is contrary to the one that he's telling us. The first is, on one hand,Elon is saying that compute is the ultimate resource for AI, and I agree with him. Those who acquire the most compute could effectively be the most likely to train the best models or at least serve the best models. And so Elon Musk has been the best at that. He's been able to acquire more GPUs and turn them online than any other company, to the point where SpaceXAI has become the number one neocloud, which means that they're effectively serving the who's who of AI.Labs, the main one being Anthropic, with which they're earning around $3.1 billion per month. So you could argue that he's making enough money from that to fund something like Grokbot, of which is a very important market share to kind of own. So it's worth kind of sinking the costs and taking the costs in order to win this market. But he has a problem, which is his Grok AI models themselves aren't necessarily good enough. And so he's had to resort to.Leasing out or accessing the models from the very AR lab that he's selling compute to, and that definitely eats into his margins pretty aggressively. So if we look at their recent quarterly earnings, which they made a ton of money, the first profitable quarter, they're making a bunch of revenue, it's looking very bullish. Remember, we spoke about that a few episodes ago where like the projections for next year is looking something on the order of magnitude of $500 billion ARR to $1 trillion AR, that yes, that is a real figure that came out.Of Elon's mouth during the quarterly earnings report. Well, why can't we use some of that money to fund the Grokbot acquisition? It's because margins are being eaten into. Well, it seems like that revenue has a lot of costs incurred to it if they have to rely on expensive clouded models, and that's what we're seeing with Grokbot. So there's this really interesting flywheel of Elon being the landlord supplying Anthropic with the compute.But then using the tenant's AI model to make his product functional, which seems a little bit circular. And it's not just Claude Opus that he is renting out, he's also using the likes of Suno, which is a music model, as well as Mid Journey, which is an image and video generation model. So he's taking a very agnostic approach, but all of this incurs a lot of costs. The other elephant in the room is the hefty $60 billion cursor acquisition, which was one of the.Biggest acquisitions at the time, and the whole premise behind this was, we're acquiring the cursor team for two reasons. One, their talent, who will help us build a much better model, specifically better at coding AI. And number 2, we're acquiring their agent harness, which is the data or the harness that they wrap around AI models, which will end up allowing them to make a better AI model. So there's a software stack that they're acquiring, and there's the human density talent.We haven't quite seen the ROI of that. Yes, we've seen cheaper, more effective models that cost fractions of what it is to do a same particular task, but you still also need the frontier level models. And if we think back to cursor pre-acquisition, they weren't necessarily able to build a frontier LLM and the idea was they were going to combine forces with SpaceXAI who had an AI lab at the time to be able to do so. We currently haven't seen the fruition of those results. And so what that's done is it's eaten in.To the quality and cost of the actual flagship product. And so Elon has to go to a much more expensive vendor like Claude in this instance and say, hey, I need you to, you know, plug into my back end and be able to kind of deliver a better superior performance, but it comes at the cost of making money. The other juggling act that Elon is doing here is there's a trade-off between where he allocates his compute. Now, let's say he serves all 600,000 users and they're willing to pay him.$200 a month, which is like they're just below most expensive tier, that will result in around I think $120 million per month, which is around, let's call it $1.5 billion per year. He makes double that from one single vendor, anthropic, in a single month.That's like 100x higher return on compute. So the logical business sense is to just keep selling compute to Anthropic and all these other guys at a premium to make more money and allow SpaceX to be profitable. But that's at the sacrifice of SpaceX no longer being.Uh, frontier rocket company or AI company, it becomes a cloud service or neo cloud company, which isn't necessarily a bad thing, but is very differentiated from the thesis that Elon has pitched for the company. Now, to kind of step back for a second, I think about short-term and long-term goals here. So if you're Elon Musk, you want to be able to own whatever thePanacea looks like 10 years from now, and in my opinion, AI agents or personal assistants are going to be not only abundant, but arguably the most important and valuable layer to anyone's interaction with AI. What do I mean by that? Well, right now, we have to pull up our phone or look at a computer screen, we need to type buttons, scroll, search for apps, navigate, look for which button to click, look for the information, ingest it, think about it and.Then kind of imbue it onto the rest of the world. That is incredibly archaic when you have a personal assistant that can kind of do a bunch of that with you and for you and make you incredibly more competent so you have more time to go do other more productive stuff. So I think that we're gonna see the world shifting towards using these personal agents as the way to interact with the rest of the digital world or the internet. And indeed, we're starting to.See that more now, if you look at Google's recent quarterly earnings, you'll see that their search revenue, although it's increased, has started to slow down because a lot of people are getting their information directly from chatbot LLMs like chat GBT and Cloud. So if I were Elon and I was observing this, I would do a balancing act, which is, I need to make enough money by selling cloud compute to the likes of Anthropic and stuff and make, you know, a bag, a huge amount of money.But I also want to spend some of that money to keep funding the costs of AI agents, in this case Crockpot, which many hundreds of thousands of people seem to be enjoying and paying for, because it means I will capture the market of a much more important or future valuable market.Than anything else that exists right now. So with that said, it wouldn't surprise me if in the next quarterly results, we'll see that Elon has done kind of like a flip flop act and he keeps continuing to do that whilst he's able to kind of like fund this buildout. It's important to note that he hasn't killed Grokbot, he's just reduced the usage limits and it might be a sign of either restricted compute or increasing costs. The other interesting part about this is, I guess compute isn't as abundant as.Elon, or rather industry experts have been making it out to be. Now, listen, this isn't a surprise, right? We have all the GPUs, but it's getting harder and harder to actually power them on. There's hundreds of millions of dollars' worth of GPUs owned by Amazon that are sitting in a warehouse collecting dust. So I get it, it's hard to spin these things up. But at the same time, Elon has been the number one competent individual and company that has been able to do this. And so.The idea here is, and the idea behind this whole thesis is, we'll be able to spin up so much abundant compute that it won't even matter over the next couple of years. If that's the case, then maybe we could read this restriction limit as something that is short-term and temporary, or maybe it's part of a larger problem that might extend to longer term stuff. Remember, the entire thesis of SpaceX's compute hasn't got anything to do with data centers on Earth. It's.To do with data centers out in space that can harness the energy of the sun 24/7 and end up becoming the cheapest source of compute, which could be used to train and inference any kind of model. He'll have so much compute that he can sell it to whoever and use it for his own AI models, which leads me to a few conclusions, which includes a bear case, a bull case, and my overall general take, which is the thing I actually believe in. On today's episode brought to you by Qualcomm.So number one is there's been this huge debate as to whether AI can actually pay for itself. You've had a few reports come out recently, which has said, aside from the top 7 companies in the world, we haven't seen ROI come out from most of the companies that are using AI. Then you look at something like Anthropic S1 and you see that they're obviously making a heck ton of money if they're able to pay 900% more than they eventually started at the start of the year to Anthropic cloud models. So, there's kind of like this mismatch. Now, if you look at the Elon case ofRestricting Grokbot, it shows you that he's probably not making as much money as he would hope, and it's not as profitable, therefore, as an investment in compute or Capex. And listen, if you're looking at the 1 to $2 trillion that are going to be invested over the rest of this year and throughout 2027 in Capex from,7 to 10 companies including SpaceXAI and the likes of Google, Amazon, you could start getting a little hot under the collar and I wouldn't blame you for it because if you don't see necessarily ROI how can you justify the spend. Then you look at the likes of open models where you see a lot of companies, sort of shifting their use of primary frontier LLMs from the likes of Chat GPT and Cloud to these more open models to,Defend them against cybersecurity risks, where we've seen numerous hacks surface over the last couple of weeks, as well as just cheapen down your costs when you're spending hundreds of millions of dollars versus tens of millions of dollars versus hundreds of thousands of dollars to do the same thing. It's obvious what trade-off you should make as a business, but also there's the point of owning your data and owning your model so that you don't leak your product to.The likes of Anthropic or OpenAI who could eventually copy or change your product. So the point here is that there's multiple things coalescing together, which would imply that people aren't spending as much on AI models as they used to, or if they are, they're spending it on different types of models and different types of use cases. And the number one thing you're gonna need to be able to provide if you want to compete in that market is a competent model, which brings me to my second thing.Elon Musk and SpaceXAI so far has been unable to put out a frontier number one model. If I think back to the end of last year, that was at 2025, just as Claude Code was getting up off the ground. Grok had a really competent model. But since then they've been falling behind, and listen, other companies have as well. It's a very tricky business. Google, even with all their money, has been unable to do so. And I think it's a mixture of governance, like Alec.resources within your company to be able to kind of like fixate and actually build a really good model. I think the number 2 thing is data, being able to acquire enough valuable data to train a good model. And then number 3 is acquiring the talent. And when I look at SpaceXAI and I look at Elon Musk, he has certainly been the mostBetting man to try and do this, but it's been tough. And listen, we've seen this being pivoted and turned successfully with other companies, the most obvious one being Meta and their product Muse, who indirectly or directly competes with Grokbot. Now Grokbot is more oriented around work stuff. Muse is more of a personal assistant that kind of like does casual leisure type tasks for you. But the point is, they functionally are the same thing, they both run similarly on the back end, they have their own virtual computer.They can go off and do multiple things whilst you're asleep. And so the idea here is, it is a decent 1 to 1 comparison, and Mehta, who had been spending so much money, arguably even more than Elon Musk has to acquire, compute and build good products, has been able to pull that off. So I think there's a bit of a talent delta between the two companies. Now, if I were to give you the flip side, the bullish side of the argument, Elon has a shortage of compute right now, and it's a good thing because the compute that he's selling to other companies is.Making the company the most money and arguably one of the most profitable companies next year of all time, if he's able to continue doing so. So he would fund the Grokbot buildout, but he currently has limited compute supply, and that is a good thing because it shows that there's overwhelming amounts of demand. And remember, even if Grokbot isn't being highly desired by individuals that are willing to pay for it, although 600,000 is quite a lot, in my opinion, Anthropic obviously does. That's why they're renting.So much compute, so the demand, however you want to look at it, for these AM models is definitely out there and you have people paying to access these things. The other thing is, to Elon's credit, Grok 4.8 still hasn't come out yet, and maybe when it comes out later this year, or by the end of the year, I think he mentioned that Grok 5 is going to come out, and that's gonna be like a 10 to 15 trillion parameter model, which will put it on the same level or playing field as some of these larger astrotype models. Maybe we'll see a flip of sentiment because the models are just good enough to do the thing. Remember.If I use MetaMuse as an example, the model that's powering it on the back end isn't clouded, and it isn't even a frontier LLM. It's Muse Spark 1.3, which is a meta model which isn't the best model. The idea here is, I think if Elon is able to figure out training the model using very proprietary or good data, which to be honest, you can just get from X social media platform or any other one of his companies, he'll be able to create a really good model. So just to leave you with my final thoughts, my collective take is, listen.The market is in a bit of a bearish sentiment right now, and there are some good reasons for that. There's been the largest amount of money, hundreds of billions of dollars invested over the last 3 months alone, 3 to 6 months in building out Capex, GPUs, data centers to fund this AI buildout. And the very valid question that's being asked is, where's the money coming from? And then when you see a headline like this where it's like Grokbot is being restricted because it's not making money, but 3 weeks later you see.It's the fastest growing product ever, you can kind of guess that there's some kind of PR thing going on and I wouldn't blame you, but I think what's really going on behind the hood is,A lot more nuance, which is the compute is there, but there's not enough of it. The demand exceeds the amount of compute that is available, and Elon, as the CEO of one of the big frontier labs, needs to make a decision. Do I sell compute in the short-term to make enough money to fund out the buildout of all my other AI products and Grok models, or do I just go all in on the Grok models now?At the sacrifice of having bad financials, and I see that it's a, listen, I'm not the CEO of a multi-trillion dollar company, but it's a hard decision to make. The other thing I'll say is, I do believe AI agents in the long term aren't going anywhere. If anything, they're going to proliferate, and that is a bet I'll make hands down for the next couple of months, for the next couple of years. Because the point is, people don't want.Just general LLMs, they want personal LLMs. I did a review episode, I think two weeks ago, covering all of these different things and why one is good over the other, but why we should generally be interacting more with these things. If you are someone that last used an AI model or uses it casually as a Google search replacement, I implore you to actually play around with these agents because they're a lot more competent than you'd expect. And the last thing I'll say is.Yes, I think a lot of this seems very circular right now, and in many cases it might be. But if you look at this specific example and any of the more recent examples with the anthropic S1, etc. you'll notice that a few things are very familiar. Number one, there's outsized demand for available compute. Now whether that continues, I don't know. I'm not an expert, we'll see how it goes over the next couple of months. But if that demand is maintained, then we need to be able to effectively allocate.Com to either train or build models or to fund and sell compute to other model providers, which in Elon's case is exactly what he's doing. So I hope to see the return of high usage limits on Grokbot. I wanted to use it as a headline to kind of like discuss this wider topic around, you know, are we in a bubble? Is this thing deflating in any other way? And just give my overall thoughts because I promise you I'm trying to give a more bullish take in general for AI, but.I look at the markets crashing around and I ask myself, why is that happening, and I kind of test my own sentiment and assumptions to try and figure out what is right and what is actually wrong. And hey, I might be wrong in the future, but long-term I'm bullish on this entire industry, so I hope you enjoyed this episode. If you're listening to this on YouTube, Spotify, Apple Music.Please give us a rating, leave us a comment. I love reading your comments. It's amazing. Uh, subscribe, turn on notifications, it helps us out massively. And also, most importantly, share it with a friend. If you think of a friend, colleague, or anyone that might find this episode interesting, share it with them. I'm curious to hear their thoughts as well. But yeah, thank you so much for listening to today's episode brought to you by Qualcomm.