Elon Musk’s artificial intelligence startup, xAI, is currently in early discussions to raise new funding that could push its valuation up to $40 billion, up from $24 billion five months ago, according to three people familiar with the matter. Two of these sources noted that the valuation might settle in the mid-$30 billion range as talks progress, with investors considering an additional $5 billion in funding, though this figure could shift as negotiations continue.

This move comes after a significant funding round by OpenAI, the San Francisco-based company behind ChatGPT, which announced this month that it had secured financing valuing the company at a staggering $157 billion. OpenAI’s release of ChatGPT in late 2022 ignited an A.I. investment surge, benefiting startups like xAI.

Investor enthusiasm for A.I. companies has waned slightly recently, as several prominent startups have merged with major tech players like Google and Amazon. However, xAI and OpenAI remain among the few seeking substantial funding to advance cutting-edge A.I. technology.

In May, xAI raised $6 billion, and competitor Anthropic also raised hundreds of millions in 2023, with further funding conversations ongoing.

Mr. Musk did not comment on xAI’s funding discussions, which were initially reported by The Wall Street Journal and The Information. Additionally, The New York Times has filed a lawsuit against OpenAI and Microsoft, alleging copyright infringement of news content by A.I. systems.

Mr. Musk co-founded OpenAI in 2015 alongside Sam Altman and a few A.I. researchers, but he departed less than three years later following disagreements over the organization’s direction. Initially a nonprofit, OpenAI became a for-profit entity under Altman to attract the vast funding needed for A.I. development, requiring significant computing power to analyze extensive data.

In 2022, after ChatGPT’s launch, Mr. Musk founded xAI to develop similar A.I. technologies. Through his social media platform X, xAI has released a chatbot called Grok, and the company leverages a Memphis facility housing thousands of high-performance servers to train its A.I. models.

Around this time, Mr. Musk filed a lawsuit against OpenAI, accusing Altman and co-founder Greg Brockman of prioritizing commercial interests over public welfare, a claim he withdrew before re-filing in federal court in August.

Although xAI operates separately from X, its technology integrates with the social media platform, trained on user posts. X’s premium subscribers can interact with Grok for answers and responses.

Mr. Musk has expressed that this technology could lead to artificial general intelligence (AGI), capable of replicating human brain functions. OpenAI shares a similar vision, but Mr. Musk has pledged that xAI’s technology will be “open source,” making the underlying code accessible to the public and businesses. He argues this approach is safer than restricting access, having long warned about potential risks posed by A.I., which he believes could be harmful, possibly even to humanity’s detriment.

The tech community remains divided on whether A.I. source code should be publicly accessible. Some engineers stress the need for security to prevent misuse, while others argue that transparency’s benefits outweigh the potential risks.