When Elon Musk introduced that his AI startup, xAI, had acquired his social media firm, X (previously generally 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 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, notably when the thread that ties the story collectively is among the president’s right-hand males.
“All of Elon’s corporations immediately are principally one firm,” Yoni Rechtman, a principal at Gradual Ventures, instructed 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 considering amongst Musk bulls like Ron Baron, the founding father of funding administration agency Baron Capital, is that “each single factor [Musk] does helps every part else he does,” as Baron phrased it. Different companies below 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 information, 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 world wide, 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 12 months of additional earnings, and Grok […] and also you’re gonna have linked vehicles all world wide? […] All these companies hyperlink up. It’s the ecosystem. It’s the Elon ecosystem, and I feel it’s actually attention-grabbing whenever you take a look at it that manner.”
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 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 all the time primarily based on what exists immediately. Relatively, they take into consideration what buyers are hoping for – and that’s notably true relating to Musk’s ventures.
Simply take a look at Tesla. The electrical automobile maker has been handled like a tech inventory for years even supposing it has automaker margins, primarily based largely on the idea that Tesla will someday unlock groundbreaking autonomy within the type of self-driving vehicles and humanoid robots.
“The explanation why [Tesla’s] inventory trades at 80 instances earnings and the comp group trades at 25 instances earnings is that individuals are having a bet on the long run, and it’s not about what occurs to numbers this 12 months,” Gene Munster, managing associate at Deepwater Asset Administration, instructed TechCrunch. “That’s one among Elon’s superpowers, this means 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 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 information 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 rapid danger issue for buyers is the continued lawsuit that X is dealing with from the Securities and Alternate 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 a couple of different danger concerns, equivalent to anticompetition and person privateness issues, notably relating to how X quietly opted all customers into information 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 regulation.
“One other form 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. “Quite a lot of these frameworks should do with how AI fashions are deployed by way of distributing info […] They ascribe accountability to the businesses which can be creating AI fashions, in addition to offering entry to these fashions.”
Musk may additionally merely lose curiosity in a venture, Rechtman mentioned.
“I feel 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 elements, Munster appeared nonplussed. He steered 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 idea that AI goes to be extra transformative than what folks 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 manner that enables him to do issues and construct companies that no person 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 may simply proceed to let you know that the emperor is carrying 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.”
