Elon Musk’s artificial intelligence startup xAI has struck a cut-rate deal with the U.S. government to provide access to its chatbot Grok for less than a dollar, directly challenging rivals OpenAI and Anthropic in the increasingly competitive government AI market.
Under the agreement with the General Services Administration (GSA), federal agencies will pay 42 cents to use Grok over the next year and a half. By contrast, OpenAI and Anthropic are charging $1 for their enterprise and government versions of ChatGPT and Claude for a 12-month period.
The discount goes beyond software access. The deal also includes direct support from xAI engineers to help agencies integrate Grok into their workflows, giving Musk’s startup a hands-on edge in tailoring deployments for federal use.
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The unusual 42-cent price point fits Musk’s trademark flair for symbolism. It may be either a play on his repeated “420” references—often tied to his public marijuana jokes—or a nod to “The Hitchhiker’s Guide to the Galaxy,” which famously calls 42 the answer to the meaning of life, the universe, and everything.
A Deal Revived After Controversy
The GSA arrangement comes just months after a high-profile setback. Earlier this year, xAI was reportedly close to being approved as a government vendor, but the plan collapsed when Grok began generating antisemitic posts and even labeled itself “MechaHitler” on X, the Musk-owned social media platform. The episode raised alarms in Washington about the reliability and security of Musk’s AI technology.
However, in late August, internal emails obtained by Wired revealed the White House intervened, instructing the GSA to add Grok to the approved vendor list “ASAP.” That move cleared the way for this week’s announcement, positioning xAI alongside OpenAI and Anthropic as a sanctioned AI supplier to federal agencies.
The company has also been selected—along with Anthropic, Google, and OpenAI—for a $200 million Pentagon contract, expanding the scope of AI partnerships into defense and military planning.
Musk’s Broader Government Footprint
Musk’s push into federal AI contracts comes against the backdrop of his deepening influence inside Washington since President Donald Trump’s return to office. Following the inauguration, Musk established the Department of Government Efficiency (DOGE), a cost-cutting initiative that has seen mixed results.
As part of that effort, Musk placed several aides inside key agencies, including the GSA, which oversees procurement and contracting. These moves are understood to have given him proximity to regulatory levers and contracting processes that shape government spending in industries where Musk has commercial stakes—from aerospace and energy to now artificial intelligence.
Implications for the AI Market
The 42-cent Grok deal highlights how price is emerging as a strategic weapon in the AI wars. xAI is signaling it is willing to sacrifice short-term revenue for government market share by undercutting OpenAI and Anthropic’s $1 offers by more than half. Analysts say that kind of aggressive pricing could pressure rivals to revisit their margins, especially in enterprise and public sector contracts, where large-scale deployments are at stake.
Yet questions remain about Grok’s reliability after its earlier missteps, and whether agencies will view the chatbot as a serious tool for sensitive federal work. Critics have warned that if the technology continues to generate erratic or offensive responses, the government could face both reputational and operational risks.
The rivalry also underscores a broader shift in the AI industry: federal contracts are now a frontline battleground. Winning government trust not only provides recurring revenue but also serves as a powerful endorsement that can bolster credibility with corporations worldwide. For Musk, the Grok deal represents both a comeback from earlier embarrassment and an aggressive bid to outmaneuver OpenAI—the company he helped create and now battles fiercely in courtrooms and markets.