When Elon Musk introduced that his AI startup, xAI, had acquired his social media firm, X (previously often known as Twitter), in an all-stock deal, it raised some eyebrows. However in some ways, the deal made sense. xAI’s chatbot, Grok, was already deeply built-in with X, X was floundering financially, and Musk wanted a option to make his $44 billion Twitter acquisition look much less like an impulsive takeover and extra like a strategic play for AGI dominance.
It additionally pointed to one thing deeper about how Musk’s empire works: investing in any certainly one of his firms isn’t a few fast return on funding. It’s about shopping for into the mysticism round Musk and swallowing entire a story of success that outpaces the precise numbers.
Some name it a grift, pointing to Musk’s historical past of overpromising and underdelivering. However the market is more and more extra tolerant – welcoming, even – of narrative-led investments, significantly when the thread that ties the story collectively is among the president’s right-hand males.
“All of Elon’s firms at this time are mainly one firm,” Yoni Rechtman, a principal at Sluggish Ventures, instructed TechCrunch. “It’s all already Elon, Inc. There are individuals who work throughout a number of firms concurrently. They share an internet of capital connections. They do enterprise with each other, and he treats all of them successfully as one firm. So [the xAI-X merger] simply ends a number of the fiction that the 2 companies had been separate.”
The considering amongst Musk bulls like Ron Baron, the founding father of funding administration agency Baron Capital, is that “each single factor [Musk] does helps all the pieces else he does,” as Baron phrased it. Different companies beneath Musk’s management embody Tesla, SpaceX, The Boring Firm, and Neuralink – a few of which reportedly share assets.
“When [Musk] purchased Twitter, did he have in his thoughts that there’s a possibility to have this knowledge, an amazing worth for licensing? When he determined he wished to go to Mars with SpaceX, did he actually assume initially that there’s an actual alternative right here for the web all over the world, and there’s gonna be tons of of billions of {dollars} of income alternative? When he began off with EVs for Tesla, did he actually assume that that is gonna merge into self-driving, the place you can also make tons of of billions of {dollars} a 12 months of additional income, and Grok […] and also you’re gonna have related vehicles all all over the world? […] All these companies hyperlink up. It’s the ecosystem. It’s the Elon ecosystem, and I believe it’s actually fascinating whenever you have a look at it that method.”
Baron Capital has invested throughout Musk’s ecosystem, an instance of the investor crossover between the billionaire’s varied firms. Companies like 8VC, Andreessen Horowitz, DFJ Progress, Constancy Investments, Manhattan Enterprise Companions, Saudi Arabia’s PIF, Sequoia Capital, Vy Capital, and others additionally maintain positions all through Musk’s company net.
That brings us again to the xAI-X deal. Pundits questioned how the acquisition may worth X at $33 billion, greater than triple its valuation just some months in the past, and the way it may worth xAI at $80 billion contemplating the AI firm reportedly has little in the way in which of income. However valuations aren’t at all times primarily based on what exists at this time. Fairly, they keep in mind what buyers are hoping for – and that’s significantly true in terms of Musk’s ventures.
Simply have a look at Tesla. The electrical automobile maker has been handled like a tech inventory for years even though it has automaker margins, primarily based largely on the assumption that Tesla will in the future unlock groundbreaking autonomy within the type of self-driving vehicles and humanoid robots.
“The rationale why [Tesla’s] inventory trades at 80 occasions earnings and the comp group trades at 25 occasions earnings is that persons are having a bet on the long run, and it’s not about what occurs to numbers this 12 months,” Gene Munster, managing accomplice at Deepwater Asset Administration, instructed TechCrunch. “That’s certainly one of Elon’s superpowers, this capability to maintain buyers engaged for the long run.”
Munster’s agency has invested in X, xAI, and Tesla. It’s precisely the kind of all-in Musk backer that stands to profit essentially the most from a deal like xAI shopping for X, assuming Musk can certainly ship on his pledge of marrying X’s real-time knowledge trove and distribution platform with xAI’s infrastructure and AI experience.
After all, consolidated worth additionally comes with elevated danger.
Dan Wang, a professor at Columbia Enterprise Faculty whose analysis lies on the intersection of enterprise and society, instructed TechCrunch that the largest instant danger issue for buyers is the continued lawsuit that X is dealing with from the Securities and Change Fee (SEC). The go well with accuses Musk of deceptive buyers by delaying the disclosure of his earlier investments in Twitter. The SEC has argued that this allowed Musk to purchase extra Twitter shares at artificially low costs.
Wang listed just a few different danger concerns, akin to anticompetition and person privateness issues, significantly relating to how X quietly opted all customers into knowledge assortment for AI mannequin coaching. The opt-in change has already raised the ire of 1 regulator, Eire’s DPC, which not too long ago started investigating it as a possible breach of Europe’s GDPR legislation.
“One other sort of danger right here is that there isn’t a consensus framework for a way the AI market goes to be regulated, however you’re already seeing traces of this in Europe and, up till not too long ago, in California,” Wang mentioned. “A variety of these frameworks need to do with how AI fashions are deployed when it comes to distributing data […] They ascribe duty to the businesses which can be creating AI fashions, in addition to offering entry to these fashions.”
Musk may also merely lose curiosity in a challenge, Rechtman mentioned.
“I believe that’s what quite a lot of Tesla shareholders are feeling proper now,” he mentioned, “the place for the final a number of months, Elon’s primary firm has been the Trump marketing campaign, and his different initiatives have languished.”
When requested about a few of these danger components, Munster appeared nonplussed. He urged they’re inconsequential given the enormity of, for instance, xAI’s worth proposition and potential to grow to be a dominant participant in AI.
“We’re betting the agency on the assumption that AI goes to be extra transformative than what individuals assume,” he mentioned. “What’s the worth […] of one of many 4 brains that the world goes to run on?”
Rechtman mentioned that Musk bulls aren’t blindly loyal, per se, however merely belief in Musk’s superpower to “bend capital markets to his will” in a method that enables him to do issues and construct companies that no one else can.
“The people who find themselves in these companies have simply gone lengthy Elon, and they’re going to proceed to go lengthy Elon,” Rechtman mentioned. “So it’s not stunning to me that they are going to simply proceed to inform you that the emperor is sporting garments.”
Not for nothing, shopping for into Musk’s extra speculative bets, like X, is one option to doubtlessly unlock extra funding alternatives within the Muskverse, Rechtman mentioned.
“SpaceX is an actual factor, and it’ll by no means go public,” he mentioned. “So the one option to spend money on SpaceX is to get entry to the tenders. And the one option to get entry to the tenders is to be in Elon’s good graces.”
