Musk’s xAI Joins the Race for a Foothold in the U.S. Government

Summary

Podcast Summary: WSJ What’s News – Musk’s xAI Joins the Race for a Foothold in the U.S. Government

Date: September 25, 2025
Host: Alex Osola (The Wall Street Journal)

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Episode Overview

This PM edition of WSJ What’s News explores several major business headlines, with a particular focus on Elon Musk’s xAI entering a federal government program and what this signals for both AI policy and Musk’s position in Washington. Other topics discussed include U.S. housing market trends, strategic layoffs at Starbucks, and notable developments involving Microsoft and Amazon.

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Key Discussion Points & Insights

1. The U.S. Housing Market: Discrepancies and Ongoing Slump

Guest: Nicole Friedman, WSJ Housing Market Reporter

• Sluggish Existing Home Sales:

  • Sales of existing homes dipped 0.2% in August, less than the expected 1.2% decline, but continue a three-year downward trend.
  • Quote:

    "It's a little bit backward looking. It reflects people putting in offers in June and July and so doesn't really capture the low that mortgage rates hit for the year, which was in early September."
    — Nicole Friedman [01:39]

• Why New vs. Existing Home Sales Diverge:

  • New home sales jumped in August, contrasting with slumping existing home figures.
  • New home sales are recorded when the contract is signed, making them a more forward-looking indicator. Builders are offering incentives—lower prices and mortgage rates—even sometimes in the 4-5% range.
  • Quote:

    "We're seeing nationally that the median price for a new home is lower than the median existing home price, which is a pretty rare situation."
    — Nicole Friedman [02:19]

• Path to Recovery:

  • The same combination remains key to market revival: lower mortgage rates, price reductions, and/or increased incomes for buyers.
  • Quote:

    "Affordability. It is too expensive for a lot of buyers. And that's a combination of mortgage rates being in the sixes and home prices being near record highs."
    — Nicole Friedman [03:15]

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2. U.S. Economy: GDP and Labor Market Updates

Host Analysis:

• Q2 GDP revised up to 3.8% growth, the best in nearly two years.
• Jobless claims are down, with durable goods orders rebounding—mainly from military and aircraft sectors.
• Stock markets fell for a third straight day:
  • S&P 500 and NASDAQ down 0.5%
  • Dow down 0.4%

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3. Starbucks Corporate Layoffs and Store Closures

Guest: Heather Haddon, WSJ Restaurant Reporter

• Strategic Restructuring:

  • Starbucks announced 900 corporate layoffs and some North American store closures—the second major layoff under CEO Brian Niccol.
  • Goal: More streamlined, cost-efficient corporate presence to reinvest in store experience and labor.

• Motivation & Market Headwinds:

  • Customers are pushing back against high prices, reducing purchases; costs for goods, construction, and labor are rising.
  • Starbucks hasn’t seen U.S. growth in over a year and wants to give customers a renewed reason to visit.
  • Quote:

    "He needs to run a leaner organization on the corporate affairs front so he can invest back in the stores and make the experience better."
    — Heather Haddon [05:04]
    "Prices are rising for lots of things, whether it’s coffee or construction materials."
    — Heather Haddon [05:50]

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4. Elon Musk’s xAI Competes for Federal Business

Guest: Amrith Ramkumar, WSJ Tech Policy Reporter

• AI “Hunger Games” Approach:

  • The federal government is entering partnerships with major AI companies—Google, OpenAI, Anthropic, and now xAI—letting agencies test each and favoring the “winner.”
  • Quote:

    "The government is really trying to set up sort of a Hunger Games scenario among all the big AI companies. So they're doing deals with all of the best model providers and saying, here you go, federal workforce. You pick which ones you want to use. Whichever one wins, that'll be the one we'll go with moving forward."
    — Amrith Ramkumar [08:12]

• Why Give Tech Away?

  • Major AI companies are offering their technology at nominal costs (xAI: 42 cents) to gain a government foothold. Eventually, they hope to become indispensable and charge significantly more.
  • Quote:

    "The AI companies are desperate to become the provider of choice for the government. Government is the biggest potential customer out there."
    — Amrith Ramkumar [09:16]

• Musk-Trump Relationship:

  • Despite a recent public falling out, Musk’s xAI is joining this government pilot, indicating rapprochement. Musk appeared in the press release and was seen with Trump publicly, suggesting thawing relations.
  • Quote:

    "There was also a quote from Musk in the press release on the deal saying he looks forward to working with the President on deploying AI. So definitely seems like dying and moving in a better direction than they were a few months ago."
    — Amrith Ramkumar [09:59]

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5. Other Business & Tech Headlines

• Microsoft’s Israel Move [10:31]:

  • Microsoft disabled Defense Ministry access after discovering Azure use for civilian surveillance in Gaza—issue under internal and public scrutiny.

• Amazon’s FTC Settlement:

  • Amazon agrees to a historic $2.5B settlement on allegations of deceptive Prime sign-up/cancellation practices. Most claimants eligible for a $51 payout.

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Notable Quotes & Timestamps

• “We’re seeing nationally that the median price for a new home is lower than the median existing home price, which is a pretty rare situation.”
  — Nicole Friedman [02:19]

• “The government is really trying to set up sort of a Hunger Games scenario among all the big AI companies.”
  — Amrith Ramkumar [08:12]

• “The AI companies are desperate to become the provider of choice for the government. Government is the biggest potential customer out there.”
  — Amrith Ramkumar [09:16]

• “There was also a quote from Musk in the press release on the deal saying he looks forward to working with the President on deploying AI.”
  — Amrith Ramkumar [09:59]

• "He needs to run a leaner organization on the corporate affairs front so he can invest back in the stores and make the experience better."
  — Heather Haddon [05:04]

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Episode Flow & Timestamps

• [00:18] Headlines: Home sales dip, Musk’s xAI enters government race
• [01:39] Nicole Friedman on why August housing data lags recent mortgage rate drops
• [02:19] New home sales forward indicators and builder incentives
• [03:15] Affordability persists as the core housing hurdle
• [05:04] Heather Haddon explains Starbucks’ new wave of layoffs and strategy
• [06:36] Preview of xAI government partnership story
• [08:12] Amrith Ramkumar details the "AI Hunger Games" and xAI’s strategy
• [09:59] Musk-Trump relationship commentary
• [10:31] Briefs: Microsoft disables Israeli Defense access, Amazon FTC settlement

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Summary

This episode distills a busy news day across U.S. housing, tech, and business. The star segment unpacks the federal government’s plan to let departments test-drive advanced AI models—including from Musk's xAI—in a winner-take-all pilot program. The show underscores how AI companies are courting Washington at loss-leader prices, hoping for lucrative government contracts down the road, and highlights shifting dynamics between Musk and Trump. Elsewhere, Starbucks confronts sluggish growth and rising costs with a new strategic reset, while headlines round out with action from Microsoft and Amazon in the regulatory and geopolitical arena.

Listeners gain a fast yet comprehensive look at how big tech and established names are jockeying for relevance and revenue amid changing markets and persistent economic uncertainty.

Transcript

[Nicole Friedman]

The US Forest Service is improving wildfire prediction models with Google AI. This is a new era of American innovation. Find out more at G Co. American Innovation.

[Alex Osola]

Why home sales dipped last month despite a recent decline in mortgage rates. Plus, Elon Musk's X AI becomes the latest tech company to gain a foothold in the federal government.

[Amrith Ramkumar]

The government is really trying to set up sort of a Hunger Games scenario among all the big AI companies. So they're doing deals with all of the best model providers and saying, here you go, federal workforce. You pick which ones you want to use. Whichever one wins, that'll be the one we'll go with moving forward.

[Alex Osola]

And Microsoft disables some cloud services used by Israel's Defense ministry. It's Thursday, September 25th. I'm Alex Osoleh for the Wall Street Journal. This is the PM edition of what's News, the top headlines and business stories that move the world today. The national association of Realtors said today that sales of existing homes were down 0.2% in August from the prior month to a seasonally adjusted annual rate of 4 million. That was less than the 1.2% decline economists surveyed by the Wall Street Journal had forecast. But the drop comes amid three straight years of dismal home sales. Nicole Friedman covers the housing market for the Journal. Nicole, we recently reported that mortgage rates had hit their lowest point of the year so far and yet August sales were still down. What's up with that?

[Nicole Friedman]

It takes about 30 to 60 days to close a home sale between going under contract and the actual close of the contract. So the August data, it's a little bit backward looking. It reflects people putting in offers in June and July and so doesn't really capture the low that mortgage rates hit for the year, which was in early September. So we'll have to look ahead to see if the data next month shows a little bit of an uptick in activity.

[Alex Osola]

It's also interesting that August existing home sales fell, given that we reported yesterday on the show that new home sales actually jumped in the same month. What is going on with that discrepancy?

[Nicole Friedman]

One is that existing home sales are logged when the home sale closes, whereas new home sales track when a contract was signed. So new home sales can be more of a forward looking indicator and may have captured a little bit more of that response to the drop in mortgage rates. The other thing going on is that home builders are offering a lot of incentives right now. They have homes to sell and they are eager to sell them. And so often a buyer can get a better deal with a new home than an existing home. We're seeing nationally that the median price for a new home is lower than the median existing home price, which is a pretty rare situation. And on top of that, builders are offering incentives, especially lower mortgage rates. They're often advertising a rate in the fives, even in the fours.

[Alex Osola]

What would it take to get the housing market back on track after these three years of slump?

[Nicole Friedman]

What's going on is the same old story. Affordability. It is too expensive for a lot of buyers. And that's a combination of mortgage rates being in the sixes and home prices being near record highs. And so it's really going to be a combination of the two mortgage rates. Any amount that they come down will help bring more buyers to the market. And for some people, it might take either home prices coming down or waiting for their incomes to rise and catch up.

[Alex Osola]

That was WSJ reporter Nicole Friedman. Thank you, Nicole.

[Nicole Friedman]

Thanks for having me.

[Alex Osola]

Meanwhile, other data is painting a rosier picture of the US economy. The latest revision of second quarter GDP growth came in stronger than expected at 3.8% versus a prior estimate of 3.3%. That was the strongest quarterly growth in nearly two years. Weekly jobless claims showed a drop in the number of Americans who newly filed for unemployment benefits, a reassuring sign amid growing unease about the job market. And demand for US Durable goods recovered after two months of declines driven by a surge in orders for military and civilian aircraft. Even so, US Stocks dropped today, with the three major US Indexes posting a third day of declines for the first time in six months. Months. The S&P 500 and the NASDAQ both fell half a percent, while the dow dropped roughly 0.4%. Starbucks said today that it is laying off 900 more corporate workers and closing some North American stores. The layoffs are the second round the coffee giant has undertaken since CEO Brian Niccol took the helm roughly a year ago. For more, I'm joined now by Heather Haddon, who covers restaurants for the Wall Street Journal. Heather, what is the company trying to do with these moves?

[Heather Haddon]

CEO Brian Nichols says he wants a more streamlined, efficient organization on one hand. And he says he needs to make cuts so he can invest back in the company stores. So he is in the midst of a transformation where he's trying to really improve service in the stores, make them warmer. Better to just sit and linger in and have more labor to hand over those beverages as opposed to them just sitting on the counter in a mosh pit. And that takes money. And he said that he needs to run a leaner organization on the corporate affairs front so he can invest back in the stores and make the experience better.

[Alex Osola]

What headwinds is Starbucks facing that it says make these moves necessary?

[Heather Haddon]

Customers are sick of paying high prices and maybe reducing their visits or just not coming and getting as much as they used to. And that's a problem for Starbucks and other restaurant chains. Starbucks is really trying to return to growth, which they haven't had in the US for more than a year. And to do that, the CEO says he needs to give people a reason to come to Starbucks. In addition to sales slowing, costs are not slowing. Prices are rising for lots of things, whether it's coffee or construction materials. If you're building new stores, labor and wages. Starbucks is a global empire and it touches lots of different things in the supply chain and lots of those things are getting more expensive.

[Alex Osola]

That was WSJ reporter Heather Haddon. Thank you, Heather.

[Heather Haddon]

Thanks so much.

[Alex Osola]

Coming up, XAI is the latest company to essentially give away its technology to the government. We'll get into why after the break. Eczema isn't always obvious, but it's real. And so is the relief from Ebglis. After an initial dosing phase, about 4 in 10 people taking EBGLIS achieved itch relief and clear or almost clear skin at 16 weeks. And most of those people maintain skin that's still more clear at one year with monthly dosing.

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[Alex Osola]

Ask your doctor about ebglis and visit eglis.lilly.com or call 1-800-lilyrx or 1-800-545-5979. The Trump administration will offer artificial intelligence models from Elon Musk's X AI to federal agencies through a new partnership. It's a move that could boost Musk's AI company and signal that his relationship with the White House is thawing WSJ tech policy. Reporter Amrith Ramkumar joins me now. Amrit, what is the government's goal of partnering with xai?

[Amrith Ramkumar]

The government is really trying to set up sort of a Hunger Games scenario among all the big AI companies. So they're doing deals with all of the best model providers and saying, here you go, federal workforce. You pick which ones you want to use, and whichever one wins, that'll be the one we'll go with. Moving forward, they had done deals with Google and OpenAI and Anthropic, and this is the fourth most advanced model company, XAI. So it is just another step in what they're trying to do, which is accelerate the use of AI. The really interesting part is right now they're saying this is to augment the workforce productivity and make people better and more effective. But this all relates to the broader conversation that we've been having about will AI start replacing even more workers.

[Alex Osola]

You mentioned a number of the companies that the federal government is already working with besides xai. Each of these companies is charging a nominal fee to access its technology. I believe for Xai, it's 42 cents. Why are these companies effectively giving their technology to the federal government?

[Amrith Ramkumar]

The AI companies are desperate to become the provider of choice for the government. Government is the biggest potential customer out there, especially for a technology like AI, where you have all these old government processes that rely on tons of paperwork. They see dollar signs when they do something like this. So right now it is free. But the idea is over time, you would develop maybe a more advanced partnership, then you would start charging more. They're just trying to get a foothold and jockey against the other companies.

[Alex Osola]

Of course. This makes me wonder about the relationship between Musk and Trump. Now that the government is going to license xai's technology. I mean, the two had a very public blow up over the summer. What does this say about their relationship?

[Amrith Ramkumar]

It's funny, if you talk to people in the government, they say there's no connection. Basically that they've been working on this deal for months. But the timing is notable. We saw Musk and Trump shake hands and talking at the memorial for Charlie Kirk. And there was also a quote from Musk in the press release on the deal saying he looks forward to working with the President on deploying AI. So definitely seems like dying and moving in a better direction than they were a few months ago.

[Alex Osola]

That was WSJ reporter Amrith Ramkumar. Thanks, Amrit.

[Amrith Ramkumar]

Thanks for having me.

[Alex Osola]

In other news, Microsoft has disabled the Israeli Defense Ministry's access to certain services and subscriptions, according to a person familiar with the matter. The move comes after an internal investigation found that the ministry violated Microsoft's Terms of Service by using its Azure cloud services for surveillance. Microsoft opened the probe after the Guardian reported in August that Israel used Azure to store data on Gaza civilians and surveil them. The issue has been the source of protests at the company. The probe is ongoing. A spokeswoman for the Israeli Defense Ministry declined to comment. The prime minister's office and the Israeli military didn't immediately respond to a request for comment. And Amazon has reached a $2.5 billion settlement with the Federal Trade Commission just days into a civil trial examining whether the company duped customers into signing up for its Signature prime service and creating a confusing process to cancel. According to court documents, Amazon will pay a $1 billion civil penalty, the largest in FTC history, and create a one and a half billion dollar fund to pay back to consumers. The company agreed to settle the case without admitting or denying the FTC's allegations it misled customers in violation of federal consumer protection laws. It said today that the resolution allows it to move forward and focus on its business. The court settlement states that consumers who used three or fewer prime benefits during any 12 month period from June 2019 to June 2025 are automatically eligible for a $51 payment. People who used prime benefits fewer than 10 times in that time frame will be eligible to receive the same amount through a claims process. And that's what's news for this Thursday afternoon. Today's show is produced by Rodney Davis and Pierre Bienname, with supervising producers Jan and Michael Cosmides. I'm Alex Osola for the Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.