Cursor Keeps Its Distance From xAI Despite Tie-Up
When Cursor agreed to a $60 billion conditional takeover offer from SpaceX last month—the purchase isn’t definite—some of Cursor’s rivals expected the coding startup to work with SpaceX’s xAI unit to develop new models, specifically for coding.
That’s not happening anytime soon, apparently. Cursor doesn’t currently plan to codevelop coding models with xAI and is focused on improving its own model, Composer, which is powered in part by Chinese model Kimi, according to a person with knowledge of the company’s strategy.
Less surprisingly, Cursor also doesn’t plan to steer customers to xAI’s Grok model when they pick the AI they want to power their coding, the person said.
The top models powering Cursor’s products today are Composer, Anthropic’s Claude and OpenAI’s Codex, the person said. That doesn’t say much for Grok’s coding capabilities.
The situation puts the spotlight on what the two companies are getting from their tentative arrangement. As reported, SpaceX has an option to buy Cursor for $60 billion. If SpaceX doesn’t proceed, it has to pay $10 billion to Cursor.
The immediate beneficiary of the arrangement may be Cursor. It is getting access to xAI’s computational resources, although that may be the result of a separate commercial deal between the companies. Computing costs had been weighing down Cursor’s gross margins, so perhaps the server rental agreement will help.
The arrangement is probably helping xAI make use of its numerous idle chips so it will burn much less cash than it has been. That’s good news for SpaceX shareholders awaiting that company’s initial public offering as soon as next month.
The real advantage for xAI may not come until the company actually acquires Cursor—assuming it does. At that point, xAI could try to use Cursor’s customer data to improve Grok’s’s coding capabilities, and, perhaps, direct Cursor customers toward Grok.
In the meantime, Cursor will want to retain its top research talent. Some of Cursor’s researchers may have mixed feelings about joining Elon Musk’s rocket company, even if the value of their Cursor equity has ballooned like few other companies before it (though they’d end up owning SpaceX stock at what will probably be a very high market capitalization). In the meantime, we’ll be curious to see if any of those researchers get retention bonuses or other incentives to stay.