In a bizarre move that demonstrates the financial wrangling inside the world’s wealthiest man’s corporate empire, Elon Musk said on Friday that he had sold X, his social network firm, to xAI, his artificial intelligence start-up.
Mr. Musk said on X that the all-stock acquisition valued X at $33 billion and xAI at $80 billion. The price of X was greater than the $12 billion estimate that some of its investors had gave it, but it was lower than the $44 billion that Mr. Musk paid for the social network business in 2022. During a December fundraising round, xAI was last valued at about $40 billion.
Both businesses currently share a large number of resources, including engineers, and are privately owned. Grok, a chatbot created by xAI, is accessible on X and is trained on data uploaded by X users. X’s bankers informed investors last month that xAI accounted for a portion of the social media company’s earnings.
In his essay, Mr. Musk said that “the futures of X and xAI are intertwined.”
“We formally take the step to combine the data, models, compute, distribution, and talent today,” he said. “The combined company will stay true to our core mission of seeking truth and advancing knowledge while delivering smarter, more meaningful experiences to billions of people,” he said.
The transaction demonstrates how Mr. Musk might experiment with various aspects of his corporate organization. He merged a business that had been losing value (X) into one that was increasing value (xAI) in this instance. In 2016, Mr. Musk used a similar tactic when he purchased SolarCity, a sustainable energy firm, using shares from his electric vehicle company, Tesla, where he was the biggest shareholder and his cousin, Lyndon Rive, was the CEO.
The majority of Mr. Musk’s businesses are privately owned and less transparent than Tesla, which is a publicly listed corporation required to report its financials and other information to shareholders. These include the brain interface startup Neuralink, the tunneling start-up the Boring Company, and the rocket maker SpaceX. In defiance of conventional business practices, Mr. Musk often transfers personnel and resources across his firms, running them as a single, massive Musk operation.
“The future could not be brighter,” commented X CEO Linda Yaccarino on X about the agreement. X chose not to respond.
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The San Francisco headquarters of X (previously Twitter). Thanks, Mike The New York Times’ Kai Chen
According to analysts, some bosses who own many businesses have taken advantage of their position by building cross-pollinating empires. The hedge fund billionaire Eddie Lampert supported his faltering retail company, Sears, for years with the help of the pricey real estate he owned.
However, Andrew Verstein, a professor at the U.C.L.A. School of Law, said that notwithstanding that precedence, Mr. Musk’s version is unique.
According to Mr. Verstein, “the Elon version really does seem to say: I have a company — maybe not bankrupt, just not my crown jewel.” “I’ll use one of my other businesses to purchase it in a way that makes it appear successful.”
The paths taken by X and xAI have diverged. Since X is much more well-known, Mr. Musk has used it as a hammer to push his political agenda, running on the platform of President Trump and rallying support for his Department of federal Efficiency, a federal cost-cutting initiative.
However, since Mr. Musk acquired the business, X’s financial prospects have deteriorated. Advertising accounts for the majority of the site’s income, but since Mr. Musk has courted controversy and abandoned the company’s content control guidelines in favor of a more free-for-all environment, marketers have been reluctant to invest in X.
One of the investors that took part in Mr. Musk’s transaction, Fidelity, claims that X’s value fell to $12 billion in December.
The business has not yet recovered its financial stability, despite the fact that several advertisers have lately returned to X in an attempt to win over Mr. Trump after Musk became a close advisor to him. Mr. Musk informed staff members in January that the company’s income was “unimpressive” and that it was “barely breaking even.”
An internal email obtained by The New York Times revealed that X was still having trouble meeting its sales goals this month. The letter said that as of March 3, X has served $91 million in advertisements this year, much less than its goal of $153 million for the first quarter.
The email urged salesmen to up their pace, saying, “The time to sprint to the finish line is now.”
On the other hand, xAI has expanded quickly. In December, the A.I. start-up collected $6 billion from investors, increasing its valuation from $24 billion in May to $35 billion to $40 billion.
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near October, the xAI supercomputer facility was being built near Memphis. The New York Times’ Whitten Sabbatini is credited.
The business has also established itself in Memphis, where Mr. Musk is constructing what he claims will be the biggest supercomputer in the world.
In 2023, Mr. Musk launched xAI to take on OpenAI, the artificial intelligence lab he co-founded that produces ChatGPT. Since leaving OpenAI in 2018, Mr. Musk has sued the business and made an acquisition offer, claiming that only he is capable of properly developing artificial intelligence that won’t wipe out mankind.
In December 2023, The Times filed a lawsuit against OpenAI and its partner, Microsoft, alleging copyright infringement of news articles on artificial intelligence (AI) systems. Microsoft and OpenAI have refuted the allegations.)
X’s bankers sold off a large portion of the company’s debt last month, something they had considered almost unthinkable before to Mr. Trump’s presidency. Investors who purchased the debt were informed that xAI was paying X to license its data, which effectively transferred money from one of Mr. Musk’s businesses to the other, and that this was one reason why X’s income had increased.
According to Columbia Law School professor Eric Talley, investors in the firms may embrace the deal because of the mutually beneficial connection between X and xAI.
According to Mr. Talley, “it’s possible that the cook was able to play fast and loose, taking ingredients from one and giving them to the other, and vice versa.” “You were unaware of whether you were the one who gave or received that.”
In a sense, the transaction resolves that issue. “Everything is being stirred together now that it’s all in the same pot,” Mr. Talley said.
However, the number of shares that investors get in return for their holdings in the new firm X will determine how satisfied they are.
“You probably feel like you got the shaft if it turns out that the terms of exchange are such that they really stacked the deck in favor of one versus the other,” Mr. Talley said.
Inside X, the news of Friday’s agreement was greeted with joy.
In an email sent to staff members that The Times was able to see, Ms. Yaccarino said, “This is a very exciting step for all of us.”
