xAI Loses All 11 Co-Founders as Internal Chaos and Staff Turnover Mount at Musk's AI Startup

Elon Musk's AI Startup Is a Complete Disaster Behind the Scenes

Can't-miss innovations from the bleeding edge of science and tech Elon Musk's AI startup, xAI, is in turmoil behind the scenes. The company is constantly playing catch-up with rivals Anthropic, with Musk personally obsessed with having his chatbot Grok match Anthropic's Claude, Bloomberg reports. And its merger with SpaceX, followed by the latter going public in a historic IPO, led to dozens of employees leaving the company, throwing daily operations into chaos. To get the house in order, Musk promoted Michael Nicolls to lead xAI (which was recently renamed SpaceXAI). But his work was cut out for him. As part of Musk's plan to rebuild the company, xAI was seeking to slash up to 30 percent of its workforce in March, and that led to employees being fired without anyone informing them, according to Bloomberg. Its efforts to hire new talent were equally fraught. Promising candidates would get interviewed and not hear back, because the understaffed human resources department couldn't finish the necessary paperwork, according to the reporting. Another challenge was Musk's obsession with Claude. Reportedly, every time the Anthropic chatbot got an update, Musk demanded that Grok should match it. Numerous projects referenced Claude and some Slack channels were even named after it. Keeping up with Claude had become the startup's explicit mission. "Our near-term goals are to match the performance of Claude," Nicolls wrote in a memo to staffers after becoming xAI president, per Bloomberg. Some began to doubt Musk's leadership, believing that the centibillionaire, whose success was built on making cars and engineering rockets, was out of his depth. One of his most ambitious projects, Macrohard, aimed to create a powerful AI agent system capable of emulating an entire software company -- something that experts are skeptical is even possible. Soon, some employees complained that creating large language models was much different from creating hardware, per Bloomberg, believing Musk didn't understand AI. Other controversies further sowed chaos and dampened morale. At the beginning of the year, Grok sparked outrage for being used to generate millions of conconsensual nudes of real people, including children, disturbing some employees, according to Bloomberg. xAI also told employees that it would pay them to feed their tax returns to train Grok, but never did. xAI cofounders soon gave a clear vote of no confidence in the company's direction. In February, some began leaving as Musk prepared to merge xAI with SpaceX ahead of its IPO, and soon after the merger was completed, all eleven of xAI's cofounders had fled the company. As the IPO date loomed ever closer, xAI company found itself in such a precarious position that it sold some of its glut of computing power to Anthropic -- an ironic development given Musk's desperate attempts to have xAI emulate its AI chatbot, Claude. The largest AI companies, including Anthropic, have all struggled to find or build the computing capacity necessary to train and run their powerful systems. xAI is the rare exception, with its model using just 11 percent of its vast array of computing power in April, according to Bloomberg. It also agreed to sell computing power to Google and another AI startup called Reflection. These agreements secured a multibillion dollar revenue stream, but directly benefited xAI's biggest rivals -- and in a way, waved a big white flag. xAI was practically admitting it wasn't on the same level as the industry's top dogs, and was contenting itself with selling hardware, and not building the best AI model.

xAI reportedly loses all 11 co-founders: turnover surges

Former staff cite long hours, top-down decisions and looming layoffs xAI, the Elon Musk AI company behind Grok, is reportedly dealing with a talent problem. Reports say all 11 original co-founders are gone, and staff turnover more broadly has been described as unusually high. Former employees describe xAI as a hard place to work: long hours, decisions concentrated at the top, not much tolerance for disagreement, and constant churn. People watching the company say that could start to show up in execution, hiring, and enterprise credibility, even after reports of a $20 billion raise at roughly a $230 billion valuation and a February 2026 merger with SpaceX that reportedly put the combined company near $1.25 trillion. Reports also say xAI has measured Grok against Claude, Anthropic's competing model, especially on coding. Inside the company, there was said to be frustration that Grok lagged behind. There were also allegations that Claude outputs were used to improve xAI's coding systems, including claims that some employees kept relying on personal Anthropic accounts after official access had been cut off. xAI was also reportedly preparing layoffs of as much as 30% in March 2026, though other reports put the cuts at more than 70%. All of that landed while Grok was already taking heat over deepfake sexual images, misinformation, and a July 2026 allegation that one coding tool sent entire code repositories to the cloud without clear consent. If you follow Grok closely, keep an eye on this. The next round of xAI news will likely come down to one question: can the company behind Grok get itself steady?