Elon Musks xAI AI Startup Acquires Social Media Platform X: What Lies Ahead?

Elon Musk’s AI startup, xAI, has acquired his other company, X, in a deal that involves the purchase of all shares. The valuation of xAI is reported to be $80 billion, while X is valued at $33 billion ($45 billion minus $12 billion in debt), according to the entrepreneur.

Musk highlighted the achievements of his businesses, stating, «The future of xAI and X is interconnected. Today, we are officially taking steps towards integrating data, models, computing, distribution, and talent. This alliance will unlock tremendous potential by combining the advanced capabilities and expertise of xAI in artificial intelligence with the vast reach of X.»

Since both companies are privately held, the transaction likely involves a stock exchange in which X investors will receive a stake in xAI, as noted by CNBC.

According to The Wall Street Journal, the deal entails exchanging shares of X and xAI for a stake in a new holding company called xAI Holdings Corp. Executives from both firms believe this move will make it easier to secure funding for the joint venture.

The combined value of the new entity is over $100 billion, excluding debt, as reported by Bloomberg.

Humor has arisen online regarding the idea of selling companies back to oneself. The prediction platform Polymarket remarked in comments that even it couldn’t foresee such a move.

In 2022, Musk acquired Twitter for $44 billion and subsequently rebranded it as X. He launched xAI in 2023 with the aim of «understanding the true nature of the universe.» The startup aims to compete with OpenAI, which Musk co-founded in 2015 as a nonprofit before departing over disagreements about its direction.

Sam Altman’s firm is currently negotiating with the California Attorney General’s office regarding changes to its corporate structure into a for-profit entity.

In August 2024, Musk revived legal action against OpenAI, claiming that the AI startup and its co-founders, Altman and Greg Brockman, violated the company’s founding agreement by prioritizing commercial interests over public good.

xAI and X have previously collaborated, with the chatbot Grok integrated into the social network. In July 2024, the platform automatically activated a function for AI training using user data.

Bloomberg highlighted the benefits of the X and xAI merger: «As investors in both xAI and X, this combination makes a lot of sense. Grok provides the brains, while X offers distribution (600 million users) and unique data. OpenAI has intelligence and brand reach (like Apple), but lacks X’s proprietary data. xAI has a long-term advantage.»

Another advantage is the potential to assign «any» value to X and xAI, provided investors do not object. Earlier, the AI startup raised $6 billion at a valuation of $50 billion. No new investments are anticipated in this latest deal, which reflects a higher valuation.

A New York Times reporter, Ryan Mac, mocked the figures provided: «I also sold my 2008 Honda Accord for $1 million,» he remarked.

X is valued at the same amount Musk paid for Twitter, even though its worth had previously dropped to as low as $9.4 billion, according to Fidelity.

Analyst Gil Luria from D.A. Davidson believes that X’s $45 billion valuation, taking into account the debt, is not coincidental. This amount is $1 billion more than the price Musk paid for Twitter in 2022.

One investor in xAI views the deal as Musk consolidating his leadership within his enterprises, stating that the billionaire did not seek permission from other shareholders.

Companies involved in AI development may take a cue from Musk and consider acquiring social networks for the datasets needed to train their AI.

«We believe that smaller players in the social media space will actively seek alliances with providers of large language models, especially given xAI’s premium $80 billion valuation, which exceeds the total market capitalization of Snap, Pinterest, and Reddit,» noted Bloomberg Intelligence analyst Mandip Singh.

In January, the startup Perplexity AI announced intentions to acquire the American TikTok.

In July 2024, Musk posted a poll on X proposing that Tesla invest $5 billion in his AI startup xAI at a valuation set by reliable and independent investors.

Previously, Tesla shareholders had filed a lawsuit against the CEO and board of directors over Musk’s decision to establish xAI.