Anyone who has been following the financial collapse of Twitter/X at a slow pace probably knows that Elon Musk will eventually find a solution to inject money from his xAI company into the app.
He was very upfront. I did not expect that.
Elon Musk announced today that xAI has acquired X, the platform, for a price of $33 billion.
As per Musk:
“xAI acquired X as a stock-only transaction.” The combined value of xAI and X is $80 billion (45 billion less 12 billion in debt). xAI, founded two years ago has quickly become the most advanced AI lab in the world. It builds models and data centres at an unprecedented pace and scale. X, the virtual town square where 600 million users can find real-time ground truth is transformed in two years into one of most efficient businesses in the world.
There’s quite a lot to decipher here.
Elon claims that X’s value is $45 billion now, which is higher than the $44 million he spent on it in 2022.
Most market analysts will disagree.
Fidelity valued the company in October of last year at $9.4 Billion.
Since November’s U.S. elections, however, X appears to have seen a slight turnaround. According to reports, various large advertisers are reassessing the X ad budget in an effort to stay in Musk’s good graces, given his influence in the Trump Administration. This still would not be enough to raise its valuation to $44 billion or higher. When you are arranging to sell your business to another company, I suppose you can decide what the story is.
Elon Musk’s AI company, xAI has experienced rapid growth and is now able to match the computing power of OpenAI. This gives it a significant advantage in the AI race.
Musk says that xAI raised more than $12 billion to fund its development and valued it at $75 billion. However, with the deal, this value has now risen to $80 Billion.
Why is xAI so expensive?
AI, the current tech trend, is a big draw for investors. Finding them to fund major AI projects shouldn’t be a problem. xAI’s vast database of real-time information is considered a major market advantage. The project also receives a boost from posts by X.
Musk is rumored to have funneled some of the $12 billion to X to help solve its financial problems.
What are the most important?
The data X provided to potential investors in January was based off of data they shared. The X team revealed that they had earned $1.2 billion for the last year. This is not the same as what X made before Musk became the CEO of the app. (X produced over $5b income in 2021). That, combined with Musk’s drastic cost cuts (Musk sacked 80% staff members and closed many Twitter offices among other measures to cut costs), brought X back up to the income level it had before Musk purchased the app.
X either fell short or was just flat. Musk’s debt load and the lack of advertisers have made X look like it will be in bankruptcy this year or the next.
Until the U.S. elections, some major brands reassessed their X ad spending.
Now, X is also sharing cash with xAI. This will help ensure its financial stability, at least for the near future.
” xAI’s and X’s futures will be intertwined. We are officially combining data, models and compute with distribution, talent, and distribution. The combination of xAI’s AI expertise and advanced capability with X’s vast reach will unleash immense potential.
X’s CEO Linda Yaccarino also expressed her optimism and said that the future “could not be more bright” as a result of this deal.
But, I’m not sure. I haven’t seen xAI as a money maker yet. Even if the deal gives X greater financial stability, the company is also weighed against the performance of its app. If X continues to lose money, xAI will lose money too, and this could be a problem for Elon’s AI project.
He only did it out of spite because he had a bad relationship with OpenAI. OpenAI was a company he initially invested in and then rejected when they refused to let him become the CEO. Musk created xAI to be his answer for AI.
Since then, he has been trying to undermine OpenAI, presenting his AI software as a more accurate, real-time alternative with greater insight based upon X posts.
Many of the responses from xAI are biased in the same way, given that there is a lot of misinformation about X. This problem has become worse than ever due to Musk’s recent changes.
This could prove problematic. However, since Elon Musk’s DOGE group, a government reform organization, is looking for an AI-based system to increase bureaucratic efficiency you can bet xAI has a major advantage. It could mean that xAI gets some big government contracts and stays in business.
To clarify: xAI now funds X. xAI has been funded by investors that believe the project’s technological advancements will make it a profitable venture. This money will likely come from the U.S. tax payers once xAI becomes the main operating system of the new AI-based approach.
There are some significant issues within that. I also doubt that xAI will ever get anywhere without Elon Musk. Musk is a powerful leader, and his X Corp project empire has been bolstered by the belief that he can get things done.
Will it all work out?
Well, probably.
Once the DOGE group announces its AI reformation plan, you can anticipate that xAI will secure a large government contract. This means it and X are financially stable, regardless of ad concerns or usage issues.
Elon and Co. could then relax X’s moderating rules, since they won’t be as concerned about brand safety. The more changes X implements, however, the less impact they will have on the Grok AI bot and other tools that are built using its LLM.
Trump’s win in the election last year has saved X, as it was about to disappear from existence.
Musk also says that X has 600 millions monthly active users (MAU), up from the 570 MAU Musk reported in July.
Overall, this is a good day for Musk, his fans, and it serves to remind us of the importance of tapping into market trends.
