Anthropic just lost its biggest competitive advantage in the defense AI market. The company faces a Friday deadline in an escalating clash with Defense Secretary Pete Hegseth after xAI, Elon Musk's AI startup, became the second company cleared to deploy AI models on classified military networks. Until this week, Anthropic held the exclusive authorization for over a year, giving it unmatched access to sensitive defense contracts worth hundreds of millions.
Anthropic woke up Tuesday to find its fortress walls crumbling. The AI safety company that's spent the past year as the Pentagon's sole trusted AI partner now has company - and it's run by the man who helped start Anthropic before walking away in acrimony.
Elon Musk's xAI secured clearance to deploy its Grok models on classified defense networks, breaking Anthropic's exclusive grip on what industry insiders call the holy grail of AI contracts. The authorization, confirmed by sources familiar with the matter, came just days before Defense Secretary Pete Hegseth imposed a mysterious Friday deadline on Anthropic for undisclosed compliance issues.
The timing isn't coincidental. Anthropic's Claude models have been running on classified systems since early 2025, processing sensitive intelligence data and supporting mission-critical operations across multiple defense agencies. That exclusivity translated into leverage - the kind that lets you charge premium rates and dictate terms. Now xAI can offer the same capability, presumably at whatever price Musk decides will win contracts.
"This changes the entire calculus for defense AI procurement," said one former Pentagon official who requested anonymity to discuss sensitive matters. "You went from a sole-source situation to a competitive bidding environment overnight."
The Defense Department hasn't publicly explained what triggered Hegseth's deadline or why xAI suddenly gained clearance after Anthropic enjoyed solo access for over a year. But the decision reflects broader tensions inside the Pentagon about AI vendor concentration and the Trump administration's close relationship with Musk, who's become an informal advisor on technology procurement.
