Elon Musk spent months slashing federal contracts — Now his AI company is celebrating a $200M Pentagon contract and new unit to get government business

The two-year old AI company—most recently in the news when its chatbot praised Hitler—said in a blog post Monday that it has launched a new division, called “Grok with Government” and signed a contract worth up to $200 million with the Department of Defense. xAI also announced that it had been added to the General Services Administration schedule, meaning that xAI products will now be available for purchase across every government office and agency.

xAI’s new DoD contract is part of a new effort to develop AI agent workflows across a “variety of mission areas,” the Chief Digital and Artificial Intelligence Office said in a press release, without giving many more specifics. Google, OpenAI, and Anthropic were also awarded up to $200 million contracts as part of the new effort, according to the Chief Digital and Artificial Intelligence Office. A number of tech companies, including Meta, Amazon, and Google, have either started working with or upped their work with the U.S. government in the last year as the taboo in Silicon Valley of working with the Defense Department has fallen away.

xAI’s new ties with the Pentagon are likely to raise eyebrows, not least because just one week earlier, the company released an update to its Grok AI model that caused it to spew racist comments, including referring to itself as a “MechaHitler.” There’s also the fact that xAI’s CEO, Musk, has spent the last six months trying to trim “wasteful spending” in the government via the Department of Government Efficiency (DOGE). DOGE claims to have saved $190 billion in U.S. taxpayer dollars by July—in large part via cutting government contracts it said were outdated or wasteful (DOGE reportedly hasn’t provided documentation or evidence for 40% of those cuts, and investigations and analysis into the cuts have suggested that these figures have been greatly exaggerated.) Now, xAI is vying to get the U.S. government to add many more contracts that could cost hundreds of millions of dollars.

Another twist is that the Grok announcement comes at a time when existing government contracts at Musk’s various companies appear to be on thin ice. In June, amid the very-public social media spat between Musk and Trump that began with Musk’s criticisms of Trump’s “Big Beautiful Bill,” Trump threatened to cut all of Musk’s government contracts across his various companies. Musk, in turn, had suggested he would decommission SpaceX’s Dragon capsule, currently the primary way for NASA to shuttle astronauts to the International Space Station and back to Earth. Musk’s companies have notched more than $38 billion in contracts with the U.S. government over the years.

xAI says that it wants to start servicing federal, local, state, and national security customers, and that, for these customers, it would start to build custom models for national security or “critical science” applications that would be available in “classified and other restricted environments” and that it would provide specific engineering support with USG-cleared engineers.

While Musk is no longer working with DOGE, he remains well-connected in some government circles. One of his allies within the Trump Administration was Katie Miller, who had served as Mike Pence’s press secretary when he was vice president during Trump’s first presidency. Miller is also the wife of Stephen Miller, Trump’s deputy chief of staff for policy, and she has since started working for xAI since Musk left DOGE. On Monday, Miller was promoting xAI’s new government plans on her social media account, saying that Grok was the “only truth-seeking AI available to the US Government.”

xAI and the Department of Defense did not respond to requests for comment. GSA said it was working with “several” AI solutions across various agencies and that it welcomes “all American companies and models who abide by our terms and conditions.”