Elon Musk said Friday that his social media company X sold his artificial intelligence startup Xa in an unusual arrangement showing financial manipulation within the world's wealthiest man's business empire.
All stock transactions valued Xai at $80 billion and X at $33 billion, with X's price falling from the $44 billion he paid to social media companies in 2022, but higher than the $12 billion valuation that some X investors recently allocated. Xai's final valuation in the December funding round was about $40 billion.
The two companies are private and already share important resources such as engineers. A chatbot created by Xai called Grok is trained with data posted by X users and is available in X. Last month, a banker at X for X told investors that a portion of the social media company's revenue came from Xai.
In his post, Musk wrote, “The future of Xai and X are intertwined.”
“Today,” he said, “We have officially taken a step towards combining data, models, calculation, distribution and talent,” he added, “The total company will provide a smarter, more meaningful experience to billions of people, while still remaining true to our core mission of improving knowledge in search of truth.”
The deal shows how Musk can play with different parts of his business empire. In this case, he folded the company that had lost its value into the company that had acquired its value, Xai. Musk used the stock of electric vehicle company Tesla to do the same in 2016 when he purchased SolarCity, the clean energy company where he was the largest shareholder and his cousin Lyndon Lib was the CEO.
Tesla is a stock trading company that requires shareholders to disclose finances and other information, but most of Musk's companies are private and unclear. These include rocket maker SpaceX. A boring company, a tunnel startup. and Neuralink, Brain Interface Company. Musk often moves resources and employees between his companies, running his various companies as one big mask company, contrary to traditional business norms.
X's CEO Linda Jaccarino wrote to X, “The future didn't brighten.” X declined to comment.
Other executives who control multiple companies are using their positions by creating mutually pollinating empires, experts said. Hedge fund billionaire Eddie Lampert has supported his struggling retailer Sears for many years using the valuable property he owns.
But even in that precedent, Musk's version stands out, said Andrew Welstein, a professor at the UCLA Law School.
“The Elon version really seems to say. I have a company. I'm probably not bankrupt, it's not a jewel in my crown,” Verstein said. “I buy it in a way that makes it look successful using one of the other companies.”
X and XAI are in various orbits. X is much more widely known, and Musk uses it as an abuse ram to advance political views, whipping up campaigns on the platform for President Trump, support for government cost-cutting efforts known as government efficiency.
However, X's financial outlook has declined since Musk acquired the company. The site's revenues come from advertising, but brands have become more cautious about spending on X as Musk threw controversy and abandoned the company's content moderation rules in favor of more vibes.
X's valuation slumped to $12 billion in December, according to Fidelity, one of the investors who took part in Musk's acquisition.
Some advertisers have recently returned to X, but they hope for Curry's favor as Musk has become Trump's close adviser, but the company has not yet regained financial stability. In January, Musk told employees that the revenues were “unimpressive” and that the company was “barely not broken.”
X continued to struggle to reach its revenue target this month, according to an internal email seen by The New York Times. As of March 3, X had been offering $91 million this year, a message that is well below its first quarter goal of $153 million.
“It's time to sprint to the finish line,” the email said, urging salespeople to pick up the pace.
In contrast, Xai grew rapidly. The AI startup raised $6 billion from investors in December, significantly valuing $35 billion to $40 billion from $24 billion in May.
The company also has its roots in Memphis, where Musk built what he says will become the world's largest supercomputer.
Musk started Xai in 2023 and competed with Openai, the AI lab that he co-founded and created ChatGpt. Musk left Openai in 2018 and has since sued the company and offered to win it.
(The Times sued Openai and its partner Microsoft in December 2023 for copyright infringement of news content related to AI Systems. Openai and Microsoft denied the claim.)
Last month, X's banker sold much of the company's debt. This is a task that was considered nearly impossible before Trump took office. Because Xai had paid X to license the data, the investment that X's revenue had improved and the debt bought its debt concentrated its funds from one of Musk's companies.
Given the symbiotic relationship between X and XAI, corporate investors may welcome the deal, said Eric Tully, a professor at Columbia Law School.
“The cook was probably in a position to play fast and loose, stealing ingredients from one side, stealing the other and vice versa,” Tully said. “You didn't know if you were at the end of that gift and was the recipient of it.”
This transaction solves that problem in a way. “Now, everything's all together in the same pot, so it's all just being stirred together,” Tully said.
However, investors' satisfaction depends on the number of shares in the new company X Investor's stock.
“If the exchange criteria turn out to be enough to really stack decks than one and the other, you'll probably feel like you've got a shaft,” Tully said.
News of Friday's trading was celebrated within X.
“This is a very exciting step for all of us,” Jaccarino wrote in an email to employees seen by the Times.
Ryan Mack contributed to the report.
