SpaceX has flagged a surprising liability in its path to going public: the company's own AI chatbot, Grok, and its deliberately unfiltered "Spicy" and "Unhinged" modes could expose investors to significant regulatory and legal risks. In a prospectus filed with the Securities and Exchange Commission on Wednesday, SpaceX warned that these AI features, which generate edgier responses with fewer safety guardrails, have already triggered investigations in the United States and other countries over allegations that Grok was used to create sexualized imagery of apparent minors.

The disclosure reveals the financial weight of this problem. As of December, SpaceX had set aside $530 million for potential litigation losses, some of which could stem from ongoing complaints filed against its AI unit over the chatbot's outputs. This represents a concrete acknowledgment that Grok's permissive design philosophy, which Elon Musk has long championed as a selling point, now carries a measurable price tag for shareholders.

What Exactly Are Grok's "Spicy" and "Unhinged" Modes?

Grok is xAI's conversational AI assistant, acquired by SpaceX when Musk's artificial intelligence startup merged with the rocket company in February 2026. Unlike competitors such as OpenAI's ChatGPT, which apply strict content filters, Grok offers modes explicitly designed to bypass typical safety constraints. According to SpaceX's filing, these modes are "designed to generate more candid, direct, or less reserved or irreverent outputs".

Grok

The company acknowledges in its prospectus that because these modes "may be more irreverent and harsher than our standard offerings, they present heightened risks, including reputational harm, the generation of potentially explicit content and misinformation or deceptive outputs, potential nonconsensual or exploitative imagery, intellectual property infringement, or content that could be viewed as exploitative, harmful, harassing, abusive, or discriminatory".

How Big Is Grok's User Base, and Why Does It Matter?

Despite these risks, Grok has attracted a substantial audience. SpaceX disclosed that Grok and X, the social network formerly known as Twitter, have approximately 550 million combined monthly users as of March 31, 2026. Of those, 117 million use Grok's AI features each month, making it a significant platform by user volume, though still smaller than OpenAI's ChatGPT, which boasts more than 900 million weekly users.

The scale of Grok's reach amplifies the regulatory exposure. Each month, tens of millions of users interact with a system that the company itself acknowledges has "heightened risks" for generating harmful content. This creates a compounding liability: the larger the user base, the greater the likelihood of misuse and the more visible any problematic outputs become to regulators and the public.

Why Is SpaceX's AI Division Losing So Much Money?

The financial picture for SpaceX's AI unit, which includes both X and xAI, is sobering. In 2025, the division posted an operating loss of more than $6.3 billion, making it a significant drag on the overall company. This loss occurred despite revenue growth in subscriptions and advertising, suggesting that the costs of running these services far outpace current income.

SpaceX's AI division generated $3.2 billion in revenue in 2025, up about 22 percent from the year before, but this growth has slowed in 2026. Advertising revenue from X plummeted by $100 million in the first quarter of 2026 alone, which SpaceX attributed to an overhaul of its advertiser tools. Meanwhile, subscription revenue from Grok and X combined jumped by $365 million in 2025 and another $177 million in just the first three months of 2026, showing that users are willing to pay for these services.

Steps to Understand SpaceX's IPO Risk Disclosure Strategy

• Regulatory Investigations: SpaceX disclosed that it is currently under investigation in the United States and other countries over allegations that Grok was used to create sexualized imagery of apparent minors, a serious legal exposure that could result in market access restrictions.
• Litigation Reserves: The company has set aside $530 million for potential litigation losses related to its AI products, signaling management's expectation that lawsuits and regulatory penalties are likely to materialize.
• Class Action Lawsuits: SpaceX noted that it is the defendant in several ongoing class action lawsuits, and that future "misuse" of its AI products could expose it to additional regulatory sanctions, including loss of access to certain markets.
• Content Moderation Trade-offs: The company's deliberate choice to offer less-filtered AI modes creates a business model tension: the features that differentiate Grok from competitors also generate the most regulatory and reputational risk.

Disclosing potential business risks is a routine and legally required part of IPO filings, and some of the concerns outlined by SpaceX may never materialize. However, the specificity and magnitude of these disclosures suggest that the company views the risks as material enough to warrant investor attention. A group of nonprofits warned earlier this week that xAI's poor safety record could become a liability for SpaceX investors, underscoring external concern about the AI division's governance.

What Does This Mean for SpaceX's Valuation and IPO Timeline?

SpaceX was valued at $1.25 trillion in February 2026 after merging with xAI, meaning new investors will be buying in at a historically high price. The company plans to list under ticker symbol SPCX on the Nasdaq, with a roadshow expected to begin on June 8, 2026. Goldman Sachs is the lead underwriter, followed by Morgan Stanley, Bank of America, Citigroup, and JPMorgan Chase.

The IPO filing reveals that SpaceX sees a total addressable market of $28.5 trillion, with a $2.4 trillion AI infrastructure market alone. However, investors will need to weigh the company's ambitious growth potential against the concrete legal and regulatory headwinds posed by Grok. The fact that SpaceX has already set aside half a billion dollars for litigation suggests that management expects these risks to materialize, not merely remain theoretical.

Whether the risks posed by Grok and X are worth the headache may be one of the significant questions investors will have to wrestle with ahead of the SpaceX IPO. The company's decision to disclose these risks transparently in its prospectus is legally required, but it also signals that the tension between Musk's vision of "truth-seeking artificial intelligence" with minimal guardrails and the regulatory reality of operating a global AI platform remains unresolved.