RPT-BREAKINGVIEWS-Grok deepfakes expose limits of investor morality

By Jeffrey Goldfarb

NEW YORK, Jan 7 (Reuters Breakingviews) - The investing pendulum has now swung fully from championing social causes to decidedly antisocial behavior. Elon Musk's xAI just raised another $20 billion even as a worldwide backlash against sexualized deepfakes served up by the venture's Grok chatbot escalates. With a who's who of international money managers backing the company, it's the clearest sign yet of how they have lost their way on the meaning of value.

Musk has promoted Grok as an unfiltered source of truth. The chatbot's counterculture attitude took an ugly turn toward the end of 2025, however when it started generating unauthorized images of women and girls in skimpy clothing in response to prompts from users on X, the billionaire's social network. It has sparked an uproar, with government officials from Britain to Indonesia warning that such content may be illegal and urging the artificial intelligence outfit to take immediate action. It also exposes xAI to throngs of individual lawsuits. In an email response to specific questions from Breakingviews, the company responded only: "Legacy Media Lies."

The controversy hasn't deterred, or obviously disturbed, stewards of capital. On Tuesday, xAI finalized its Series E funding round -- raising $5 billion more than originally targeted -- from a group that includes Fidelity Management and Research, Qatar Investment Authority and chipmaker Nvidia NVDA.O. Existing investors include venture capital firm Andreessen Horowitz, billionaire Bill Ackman's Pershing Square Foundation, fund management goliath BlackRock and Saudi Arabian Prince Alwaleed bin Talal's Kingdom Holding.

For some, the silence is unsurprising. Valor Equity Partners, for example, is led by Antonio Gracias, who was a member of Tesla's board from 2007 to 2021 when Musk, the automaker's CEO, routinely ran roughshod over good corporate governance standards. Hypocrisy, moral and otherwise, is more glaring elsewhere. Ackman led a campaign against Visa and MasterCard for processing payments to pornography sites while just a few years ago BlackRock boss Larry Fink was on a crusade to hold boards accountable on environmental, social and governance matters.

Although ESG has become a dirty term under President Donald Trump, the evidence of its worth precedes him. Consultancy Bain was among those to find that in many cases sustainability efforts improve financial results. The influential Business Roundtable in 2019, under then-Chairman Jamie Dimon, rewrote its definition of a corporation to emphasize leadership on behalf of all stakeholders, including customers and communities. Investors in xAI may yet persuade Musk to change course. For now, though, their financial support makes investors complicit in his disregard for such ideals, and puts their own returns and reputations at risk, too.

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CONTEXT NEWS

Elon Musk's artificial intelligence startup xAI said on January 6 it raised $20 billion in a Series E funding round.

Valor Equity Partners, StepStone Group, Fidelity Management & Research and Qatar Investment Authority participated in the round, xAI said. Nvidia and Cisco Investments joined as strategic investors, and xAI said their backing would help it expand computing capacity.

Regulators and government officials in Europe and elsewhere have raised concerns about a surge in nonconsensual imagery on Musk's social media platform X. The condemnation follows reporting that X's built-in AI chatbot Grok was unleashing on-demand images of women and minors in skimpy clothing, a functionality X has in the past referred to as "spicy mode".

Britain's data regulator said on January 7 it had asked Musk's X social network to clarify how it was complying with data protection laws in light of concerns about the use of X's built-in AI bot Grok to produce images.