Elon Musk Says He Has Sold X to His A.I. Start-Up xAI

On Friday, Elon Musk made a surprising announcement: he had sold X, his social media company, to xAI, his artificial intelligence start-up. The move highlights the financial maneuvering within Musk’s vast business empire and raises questions about his strategy for managing his various enterprises.

The transaction, an all-stock deal, values xAI at $80 billion and X at $33 billion, according to Musk’s post on X. This figure represents a decline from the $44 billion he originally paid for the social media platform in 2022, but it surpasses the $12 billion valuation assigned by some investors in recent months. xAI’s last known valuation, following a fundraising round in December, was estimated at approximately $40 billion.

Although both companies are privately owned, they have already been closely integrated, sharing resources such as engineers. xAI’s chatbot, Grok, is trained using data from X users and is embedded within the social media platform. Furthermore, bankers representing X recently informed investors that a portion of the company’s revenue originates from xAI.

Musk emphasized the interconnected future of both businesses in his statement, declaring, “Today, we take the official step to unite our data, models, computing resources, distribution channels, and talent.” He went on to say, “The newly combined entity will provide smarter, more meaningful experiences to billions while remaining committed to our mission of seeking truth and expanding knowledge.”

This deal illustrates Musk’s ability to leverage his various enterprises strategically. By merging X, a company experiencing financial struggles, with xAI, a rapidly growing venture, he mirrors a tactic he previously employed in 2016. That year, he used Tesla stock to acquire SolarCity, a clean energy company where he was the largest shareholder and his cousin, Lyndon Rive, served as CEO.

Unlike Tesla, a publicly traded company required to disclose financial and operational details to its shareholders, most of Musk’s other ventures remain private and operate with greater opacity. His privately held businesses include SpaceX, the aerospace manufacturer; The Boring Company, which focuses on tunnel construction; and Neuralink, a brain-interface technology firm. Musk often shifts resources and personnel among these enterprises, operating them in an unconventional manner that disregards traditional corporate structures.

Linda Yaccarino, the CEO of X, expressed her enthusiasm for the deal, posting on X, “The future could not be brighter.” However, the company declined to provide further comments.

Experts note that other executives managing multiple companies have historically leveraged their positions to build interconnected business empires. For instance, hedge fund billionaire Eddie Lampert used his real estate holdings to support Sears, his struggling retail venture. However, Andrew Verstein, a professor at UCLA School of Law, pointed out that Musk’s approach is unique. “Elon’s version seems to follow the pattern of taking a company—one that isn’t necessarily bankrupt but isn’t thriving—and making it appear successful by integrating it with another of his enterprises,” he explained.

The contrasting trajectories of X and xAI further illustrate Musk’s decision. X remains widely recognized, and Musk has frequently used it to voice his political opinions, endorse former President Trump, and push for his government cost-cutting initiative, known as the Department of Government Efficiency.

Despite this visibility, X’s financial performance has suffered since Musk’s acquisition. The platform’s primary revenue stream, advertising, has been negatively impacted as brands hesitate to invest due to Musk’s controversial stances and his overhaul of content moderation policies. Fidelity, one of X’s investors, estimated its valuation had dropped to $12 billion in December.

Although some advertisers have cautiously returned, particularly as Musk strengthens his ties with Trump, X has yet to regain financial stability. In January, Musk acknowledged to employees that the company’s revenue was lackluster and that it was barely breaking even. An internal email reviewed by The New York Times revealed that as of March 3, X had generated only $91 million in advertising revenue for the year, significantly below its first-quarter target of $153 million. The email urged sales staff to intensify their efforts to close the gap.

In stark contrast, xAI has experienced significant growth. In December, the artificial intelligence start-up secured $6 billion in funding, boosting its valuation to between $35 billion and $40 billion, a sharp increase from $24 billion in May. The company has also established a base in Memphis, where Musk is constructing what he claims will be the world’s largest supercomputer.

Musk founded xAI in 2023 to rival OpenAI, the artificial intelligence research lab he co-founded but departed in 2018. He has since sued OpenAI and proposed acquiring it, arguing that he alone can ensure the responsible development of AI to prevent existential threats to humanity.

(The New York Times filed a lawsuit against OpenAI and its partner, Microsoft, in December 2023, alleging copyright infringement related to AI-generated content. OpenAI and Microsoft have denied the claims.)

Last month, X’s bankers managed to offload a significant portion of the company’s debt—a task that was previously considered nearly impossible before Trump’s inauguration. Investors who acquired the debt were informed that X’s revenue had improved, partly because xAI was paying X for access to its data. This effectively funneled funds from one Musk-owned company to another.

Given the intertwined nature of X and xAI, investors may welcome this consolidation, said Eric Talley, a professor at Columbia Law School. “There was always the possibility that resources were being shuffled between the two companies in an unclear manner,” Talley noted. “This deal essentially brings everything under one roof, making the financial relationships more transparent.”

However, the extent to which investors benefit will depend on the terms of the share exchange between X and xAI. “If the terms heavily favor one company over the other, some investors may feel shortchanged,” Talley warned.

The announcement was met with excitement within X. In an internal email obtained by The New York Times, Yaccarino described the transaction as a significant and promising step for the company’s future. “This marks an incredibly exciting milestone for all of us,” she wrote.