{"slug": "xai-president-michael-nicolls-admits-the-company-is-clearly-behind-claude", "title": "xAI President Michael Nicolls Admits the Company Is Clearly Behind Claude", "summary": "XAI President Michael Nicolls admitted in an internal memo that the company is clearly behind rivals, with Model FLOPs Utilization at about 11% and a target of 50% in the next few months, according to The Information. The admission comes as SpaceX, which acquired xAI in an all-stock deal valuing the combined company at $1.25 trillion, priced its June 12 IPO at $135 a share, raising $75 billion and implying a valuation of about $1.77 trillion. Grok 4.5, trained jointly with SpaceXAI, is now available in Cursor at $2 per million input tokens and $6 per million output tokens.", "body_md": "*xAI's own reset memo was blunt about the problem: Grok has had the compute and the money, but Claude still has the product lead where developers actually feel it.*\n\nMichael Nicolls took the title of xAI president in April, and the first message from the Starlink executive was not the usual Musk-company bravado. Business Insider reported that Nicolls told staff xAI was clearly behind rivals and that training performance across its compute stack was embarrassingly low. That is a hard sentence to write when your company has spent billions trying to prove the opposite.\n\nIt still matters now because xAI is no longer a side bet in Musk's private empire. Bloomberg first reported in February that SpaceX had acquired xAI in an all-stock deal valuing the combined company at about $1.25 trillion, with SpaceX at roughly $1 trillion and xAI at $250 billion. Reuters later described the structure as a two-step merger that kept xAI as a wholly owned SpaceX subsidiary. You can call that financial engineering if you want. It was also a way to make Grok part of the SpaceX growth story before the rocket company went public.\n\nThen came the public-market test. Nasdaq said SpaceX priced its June 12 IPO at $135 a share, raising $75 billion and implying a valuation of about $1.77 trillion. A private AI lab can survive on promise for a long time. A public company has to keep giving investors something they can measure.\n\n## The problem is not only the model\n\nThe most damaging part of Nicolls's memo was not the line about falling behind. It was the number under it. The Information reported that xAI's Model FLOPs Utilization, the share of theoretical chip performance that turns into useful model training, was about 11%. Nicolls set a target of 50% in the next few months, according to that report.\n\nThat figure is not a small operational footnote. It tells you xAI's problem is not simply that Claude writes cleaner code or that ChatGPT has more enterprise users. It means the company's giant Memphis compute buildout is not being turned into useful training work efficiently enough. You can buy Nvidia chips. You still have to make them sing.\n\nxAI has tried to answer the gap with people as much as hardware. The Information reported in March that the company hired Andrew Milich and Jason Ginsberg from Cursor, the coding startup whose AI editor has become one of the most visible products in developer tooling. The same report said both would report to Musk. That is not a normal recruiting footnote. It says Musk knows coding is where Grok cannot afford to look second-rate.\n\nThere has been churn too. The Information reported that several xAI co-founders had left in recent months, while infrastructure leadership around the Memphis sites has also shifted. When a company is rebuilding the org chart, fixing GPU efficiency and trying to catch Claude in coding at the same time, you are not watching a tidy product roadmap. You are watching a rescue job.\n\n## Grok now has to prove the rebuild worked\n\nThe better news for xAI is that the story did not freeze in April. Cursor's own model page says Grok 4.5 was trained jointly with SpaceXAI, uses Cursor data from developer-agent interactions and is available in Cursor across desktop, web, iOS, CLI and its SDK. The listed price is $2 per million input tokens and $6 per million output tokens. Those are concrete product facts, not slogans.\n\nBusiness Insider also reported this week that Musk told SpaceX staff Grok would be trained on the company's internal data, including employee contributions. That is a very Musk solution: absorb the company's operating knowledge into the model and turn the workforce into training material. Frankly, it is also the sort of plan that raises hard questions about consent, data boundaries and whether employees know what will be used.\n\nFor readers watching the AI race, this is the useful part. xAI does not lack ambition, money or distribution. Grok is tied to X, SpaceX, Cursor and a public-company story investors are already pricing. The missing piece is proof that all of that produces a model people choose when Claude is sitting right there.\n\nNicolls's memo was embarrassing because it said the quiet part in writing. It may also have been necessary. If your compute stack is running at 11% training efficiency and your coding rivals are already in developers' daily workflow, another triumphant Musk post will not close the gap. Better engineering might.\n\n**Also read:** [The EU AI Act Now Forces Every Chatbot to Admit It Is Not Human](https://startupfortune.com/the-eu-ai-act-now-forces-every-chatbot-to-admit-it-is-not-human/) • [Canva Slashed Its 2026 Growth Forecast After AI Costs Blew Past Expectations](https://startupfortune.com/canva-slashed-its-2026-growth-forecast-after-ai-costs-blew-past-expectations/) • [A Trick Let Researchers Steal Claude, GPT and Gemini's Hidden Reasoning](https://startupfortune.com/a-trick-let-researchers-steal-claude-gpt-and-geminis-hidden-reasoning/)", "url": "https://wpnews.pro/news/xai-president-michael-nicolls-admits-the-company-is-clearly-behind-claude", "canonical_source": "https://startupfortune.com/xai-president-michael-nicolls-admits-the-company-is-clearly-behind-claude/", "published_at": "2026-08-13 01:19:58+00:00", "updated_at": "2026-08-13 01:44:06.899966+00:00", "lang": "en", "topics": ["artificial-intelligence", "ai-infrastructure", "ai-products", "ai-research"], "entities": ["xAI", "Michael Nicolls", "SpaceX", "Grok", "Claude", "Cursor", "The Information", "Business Insider"], "alternates": {"html": "https://wpnews.pro/news/xai-president-michael-nicolls-admits-the-company-is-clearly-behind-claude", "markdown": "https://wpnews.pro/news/xai-president-michael-nicolls-admits-the-company-is-clearly-behind-claude.md", "text": "https://wpnews.pro/news/xai-president-michael-nicolls-admits-the-company-is-clearly-behind-claude.txt", "jsonld": "https://wpnews.pro/news/xai-president-michael-nicolls-admits-the-company-is-clearly-behind-claude.jsonld"}}