WSJ What’s News - Musk’s xAI Joins the Race for a Foothold in the U.S. Government

Episode Date: September 25, 2025

P.M. Edition for Sept. 25. Elon Musk’s xAI is the latest tech company to make its models available to federal agencies. WSJ tech policy reporter Amrith Ramkumar discusses why that appeals to the government, and to tech companies. Plus, U.S. existing home sales fell in August, despite a decline in mortgage rates in recent months. We hear from Journal reporter Nicole Friedman about what’s behind the latest numbers. And Microsoft disables the Israeli Defense Ministry’s access to some services after finding evidence that the ministry used the tech company’s cloud services to surveil Gaza citizens. Alex Ossola hosts. Sign up for the WSJ's free What's News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

When you're with Amex Platinum, you get access to exclusive dining experiences and an annual travel credit. So the best tapas in town might be in a new town altogether. That's the powerful backing of Amex. Terms and conditions apply. Learn more at Amex.ca. Why home sales ditch 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.

The government is really trying to set up sort of a hunger game 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. And Microsoft disables some cloud services used by Israel's defense ministry. It's Thursday, September 25th. I'm Alex O'Sullough 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? 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 it 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. 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? 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. What would it take to get the housing market back on track after these three years of slump. 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. That was WSJ reporter Nicole Friedman. Thank you, Nicole. Thanks for having me. Meanwhile, other data is painting a rosier picture of the U.S. 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 U.S. durable goods recovered after two months of declines, driven by a surge in orders for military and civilian aircraft. Even so, U.S. stocks dropped today, with the three major U.S. indexes posting a third day of declines for the first time in six 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 at closing some North American stores. The layoffs are the second round that the coffee giant has undertaken since CEO Brian Nicol 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?

CEO Brian Nichol 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's 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. What headwinds is Starbucks facing that it says make these moves necessary? 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. That was WSJ reporter, Heather Hadden. Thank you, Heather.

Thanks so much. Coming up, X-AI is the latest company to essentially give away its technology to the government. We'll get into Y after the break. The Trump administration will offer artificial intelligence models from Elon Musk's XAI 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. Amrith, what is the government's goal of partnering with XAI? The government is really trying to set up sort of a hunger game 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 will go with moving forward. They had done deals with Google and Open AI 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? 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? The AI companies are desperate to become the provider of choice for the government. The 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 people. where 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. 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? 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 thying and moving in a better direction than they were a few months ago. That was WSJ reporter, Amrith Ram Kumar. Thanks, Amrith.

Thanks for having me. 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 $1.5 billion 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 Biennameh, with supervising producers Jana Heron and Michael Cosmides. I'm Alex O'Sullough for the Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening. Thank you.