When Elon Musk introduced that his AI startup, xAI, had acquired his social media firm, X (previously often called 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 solution 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 one among his corporations isn’t a few fast return on funding. It’s about shopping for into the mysticism round Musk and swallowing complete 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 without doubt one of the president’s right-hand males.
“All of Elon’s corporations right this moment are principally one firm,” Yoni Rechtman, a principal at Gradual Ventures, informed TechCrunch. “It’s all already Elon, Inc. There are individuals who work throughout a number of corporations 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 have been separate.”
The pondering amongst Musk bulls like Ron Baron, the founding father of funding administration agency Baron Capital, is that “each single factor [Musk] does helps every thing else he does,” as Baron phrased it. Different companies underneath Musk’s management embrace Tesla, SpaceX, The Boring Firm, and Neuralink – a few of which reportedly share resources.
“When [Musk] purchased Twitter, did he have in his thoughts that there’s a possibility to have this knowledge, an incredible 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 lots 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 may make lots of of billions of {dollars} a yr of additional earnings, and Grok […] and also you’re gonna have linked 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 once you have a look at it that means.”
Baron Capital has invested throughout Musk’s ecosystem, an instance of the investor crossover between the billionaire’s varied corporations. Companies like 8VC, Andreessen Horowitz, DFJ Development, Constancy Investments, Manhattan Enterprise Companions, Saudi Arabia’s PIF, Sequoia Capital, Vy Capital, and others additionally maintain positions all through Musk’s company internet.
That brings us again to the xAI-X deal. Pundits questioned how the acquisition might worth X at $33 billion, more than triple its valuation just some months in the past, and the way it might worth xAI at $80 billion contemplating the AI firm reportedly has little in the best way of income. However valuations aren’t all the time based mostly on what exists right this moment. Relatively, they keep in mind what traders 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 if it has automaker margins, based mostly largely on the assumption that Tesla will someday 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 individuals are betting on the long run, and it’s not about what occurs to numbers this yr,” Gene Munster, managing associate at Deepwater Asset Administration, informed TechCrunch. “That’s one among Elon’s superpowers, this capacity to maintain traders 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 probably 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.
In fact, consolidated worth additionally comes with elevated danger.
Dan Wang, a professor at Columbia Enterprise College whose analysis lies on the intersection of enterprise and society, informed TechCrunch that the largest speedy danger issue for traders is the continued lawsuit that X is going through from the Securities and Trade Fee (SEC). The go well with accuses Musk of deceptive traders 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 a number of different danger concerns, akin to anticompetition and person privateness considerations, significantly concerning 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, Ireland’s DPC, which lately started investigating it as a possible breach of Europe’s GDPR legislation.
“One other form of danger right here is that there isn’t a consensus framework for the way the AI market goes to be regulated, however you’re already seeing traces of this in Europe and, up till lately, in California,” Wang mentioned. “Plenty of these frameworks must do with how AI fashions are deployed by way of distributing info […] They ascribe duty to the businesses which are creating AI fashions, in addition to offering entry to these fashions.”
Musk may also merely lose curiosity in a venture, Rechtman mentioned.
“I believe that’s what numerous 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 tasks 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 develop into 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 means that permits 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’ll proceed to go lengthy Elon,” Rechtman mentioned. “So it’s not shocking 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 solution to probably 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 solution to put money into SpaceX is to get entry to the tenders. And the one solution to get entry to the tenders is to be in Elon’s good graces.”