Elon Musk made headlines again when he revealed his artificial intelligence enterprise, xAI, would be taking over his struggling social media outlet, X, through an all-stock acquisition. Many were surprised by the news; however, the move was viewed as a strategic step by many industry insiders. The xAI chatbot named Grok had already become a fundamental part of X’s system, and with X’s dwindling financial scenario, this acquisition was a necessary strategic maneuver. More importantly, the acquisition was aimed at making Musk’s $44 billion deal to take over Twitter appear less spontaneous and more focused on achieving AGI supremacy.
This significant move also sheds light on the intriguing dynamics of Musk’s varied ventures. Investing in any of Musk’s companies is more than the expectation of immediate profits; it’s about becoming part of Musk’s larger than life narrative of success that doesn’t always reflect in numerical terms. While skeptics label it as cunning promise-management, the market seems to be shifting towards embracing ventures driven by compelling narratives.
Renowned investors like Ron Baron, the pioneer behind Baron Capital, believe every move made by Musk augments his other ventures. Musk’s ecosystem is extensive and diverse, ranging from electric vehicle giant Tesla to neural technology firm Neuralink, from space exploration enterprise SpaceX to The Boring Company, all known to reportedly leverage shared resources.
Baron exemplarily points out Musk’s unorthodox thinking: Was Musk aware of the potential data perks when he acquired Twitter? Did he foresee the possibilities of global internet coverage when deciding to rocket off to Mars via SpaceX? While ushering in electric vehicles through Tesla, did he envision the inevitable convergence with autonomous driving technology? All these questions highlight the holistic ecosystem Musk has designed.
Well-known enterprises such as 8VC, Andreessen Horowitz, Sequoia Capital, Fidelity Investments, DFJ Growth, Saudi Arabia’s PIF, Manhattan Venture Partners, and Vy Capital, among others, have also invested in different facets of Musk’s intertwined businesses. The complexities of these investments bring us back to the extraordinary xAI-X acquisition.
Critics have questioned the deal’s nuances, especially the $33 billion valuation of X, more than three times its worth just months prior, and xAI’s lofty $80 billion valuation, even though it reportedly generates minimal revenue. Still, such valuations are not always a reflection of the current state but rather a prospect of future potential, especially in the context of Musk’s unique undertakings.
Take Tesla for example. The leading electric vehicle manufacturer has been considered a tech company rather than a traditional automaker for years, even though its profit margins resemble the latter’s. This discrepancy is due to an overall investor mindset that focuses not on present earnings but on the anticipated long-term success of Tesla.
Munster’s firm, for instance, has capital ties with X, xAI, and Tesla. It believes that a higher stock price to earnings ratio, such as Tesla’s with 80 versus the typical 25, is more about faith in a company’s long-term roadmap than short-term earnings.
Nevertheless, it’s crucial to acknowledge that increased value consolidation is often accompanied by elevated risk factors. As pointed out by Columbia Business School Professor Dan Wang in an interview with TechCrunch, the most immediate threat to investors stems from the ongoing lawsuit X faces from the Securities and Exchange Commission (SEC).
The SEC has accused Musk of misleading investors by delaying the revelation of his earlier investments in Twitter. Allegedly, this allowed Musk to acquire more shares of Twitter at prices that were artificially low, thereby misleading the investors.
Wang mentioned a range of other risk factors investors should be aware of, including anti-competition concerns and issues related to user data privacy. Particularly concerning was X’s decision to automatically opt all of its users into data collection for AI model training, a move that has raised several eyebrows.
This policy change has caught the attention of Ireland’s DPC, a regulatory body currently probing it as a potential violation of Europe’s GDPR laws. Wang notes another risk: the lack of a universal framework for regulating the AI industry, though traces of progress are visible in Europe and formerly in California.
There is also the risk of Musk losing interest and abandoning a venture. Despite these potential setbacks, Munster remains unfazed, brushing off these risks as trivial compared to the grand proposition and potential of xAI becoming a leader in the AI domain.
Rechtman, another investor in Musk’s ventures, argues that those backing Musk aren’t doing so blindly but out of faith in Musk’s proven ability to create unrivaled businesses. As he puts it, ‘Those who are part of these enterprises have simply taken a long position on Elon.’