Standing inside the HumanX conference in San Francisco’s Moscone Center, it’s hard not to feel like you’re at the center of the AI universe. Technology leaders swarm the building, and the headquarters of OpenAI and Anthropic are just down the block. But a 70-person startup headquartered 5,000 miles away in Germany’s Black Forest—a region famous for its ham—has become a top competitor to Silicon Valley’s leading labs in AI image generation.

In December, Black Forest Labs raised funds at a $3.25 billion valuation, after signing deals to power AI image-generation features in Adobe and the graphic design platform Canva. It has even struck agreements with major AI labs like Microsoft, Meta, and xAI to power similar features in their products.

Nearly two years after launch, Black Forest Labs can afford to be picky about who it works with. In 2024, Elon Musk’s xAI tapped Black Forest Labs to power Grok’s first image generator. That partnership put Black Forest Labs on the map but generated a lot of controversy due to the chatbot’s limited safeguards. It ended months later when xAI developed an in-house AI image model.

In recent months, xAI approached Black Forest Labs about licensing the startup's technology again, sources familiar with the matter tell WIRED. This time around, Black Forest Labs declined, the sources said, deeming it too operationally difficult to partner with xAI, which has a famously chaotic work environment. xAI did not immediately respond to WIRED’s request for comment.

In September, Black Forest Labs struck a $140 million multiyear deal to give Meta access to its AI image-generation technology.

These AI labs want to work with Black Forest Labs because its image generators are among the world's best, ranking just below OpenAI and Google's offerings on the third-party firm Artificial Analysis' benchmarks. The startup also offers some of the most downloaded text-to-image models on Hugging Face, indicating that a lot of AI image tools on the market are likely powered by a free version of Black Forest Labs’ technology.

It’s particularly impressive since the company has historically had far fewer resources than its competitors. This has led it to a more efficient line of research called latent diffusion, which is essentially when an AI model first sketches out a rough blueprint of an image, and then paints in more detail.

Latent diffusion “enabled us to put out very powerful models that took orders of magnitude less resources than our competitor’s models,” said cofounder Andreas Blattmann in an interview with WIRED onstage at HumanX this week.

Despite its success, Black Forest Labs believes image generation is just the beginning. Blattmann said the startup plans to unveil a robot powered by one of its AI models later this year. (He did not reveal what company is making the hardware.) The push is part of a larger opportunity the company sees to build AI that can perceive and take actions in the physical world.

“Visual intelligence is so much more than content creation. Content creation is just the first segue into this entire technology,” said Blattmann. “What I’m personally super excited about—and that’s a pattern throughout this conference—is physical AI.”

Black Forest Labs is also in talks with a handful of hardware companies, to power features in products like smart glasses and robots, sources tell WIRED.

Building in the Black Forest

Blattmann and his cofounders, Robin Rombach and Patrick Esser, made a name for themselves publishing some groundbreaking research on AI image models in 2021. In 2022, they were hired by Stability AI and released Stable Diffusion, a popular open source AI image generator based on their prior research. But two years later, they announced their departure and launched Black Forest Labs.

Rather than move to San Francisco, the trio decided to maintain a headquarters near their hometowns in Freiburg, Germany. Blattmann said the decision has been key to the company’s success.