SpaceX has warned investors that its AI chatbots, Grok in particular, could expose the company to regulatory scrutiny and reputational damage. The firm set aside $530 million for potential litigation losses related to ongoing complaints about sexualized imagery generated by Grok’s ‘Spicy’ mode.

The disclosure comes as SpaceX takes on new financial risks following its acquisition of Elon Musk's artificial intelligence startup, xAI, which has sent the company’s valuation soaring. Some features, like Grok’s free-wheeling nature, are seen as a selling point but have landed the firm in hot water with regulators.

SpaceX is currently under investigation over allegations that Grok was used to create sexualized imagery of apparent minors and faces several ongoing class action lawsuits. The company notes that future misuse of its AI products could lead to more regulatory sanctions, including loss of access to certain markets.

The potential risks are one of the significant questions investors will have to consider ahead of SpaceX’s IPO. As it stands, SpaceX's AI division is a drag on the rest of the company with an operating loss of over $6.3 billion last year, despite growing sales from ads and subscriptions.