(March 29): Elon Musk said his xAI artificial intelligence start-up has acquired the X platform, which he also controls, at a valuation of US$33 billion (RM146.36 billion), marking a surprise twist for the social network formerly known as Twitter. 

“The combination values xAI at US$80 billion and X at US$33 billion,” the billionaire wrote on Friday in a post on X. The value of X is US$45 billion when including US$12 billion of debt, he said, describing the purchase as an all-stock transaction.

The deal gives the new combined entity, called XAI Holdings, a value of more than US$100 billion, not including the debt, according to a person familiar with the arrangement, who asked not to be identified because the terms weren’t public. Morgan Stanley was the sole banker for the deal, representing both sides, other people said. 

For Musk, the deal streamlines his businesses and solidifies the relationship between the former Twitter and xAI, which has used information from the social network to hone its chatbot. The deal also offers a resolution to X’s other backers, following months of uncertainty over the state of their investment as Musk’s changes led to an exodus of users and advertisers.

“XAI and X’s futures are intertwined,” Musk posted. “Today, we officially take the step to combine the data, models, compute, distribution and talent. This combination will unlock immense potential by blending xAI’s advanced AI capability and expertise with X’s massive reach.”

Musk, the world’s richest person, acquired Twitter for US$44 billion in late 2022, a transaction that included debt. After taking control of the platform, he quickly moved to cut costs by slashing thousands of jobs, closing offices and renegotiating contracts. He also tried to make Twitter more aligned with what he calls “free speech absolutism” by eliminating certain content restrictions and allowing some banned accounts to return.

But Musk also eroded a significant portion of the network’s advertising business in the process. Marketers fled the site for fear that their promoted posts would appear alongside unsavoury content from users. Even with an expected boost in sales for 2025, X’s advertising business is still projected to be roughly half of what it was when Musk acquired the company. 

Over the past year, Musk has used the service to promote Grok, a chatbot developed by xAI that was trained, in part, with posts from X users. The start-up is competing with AI firms such as OpenAI, which Musk co-founded before an acrimonious split with that company.

“This helps integrate the system quite nicely,” said Shweta Khajuria, a Wolfe Research analyst who views the deal as a positive for both of Musk’s businesses. “This gives Grok a unique advantage” by providing access to vast amounts of training data while also allowing xAI to control — or even cut off — that data flow to other companies.

Gene Munster, a managing partner of Deepwater Asset Management and an investor of both companies, wrote on X that the deal “makes a lot of sense” by giving xAI an in-house proprietary data set that other companies don’t have access to. “Grok brings the brains. X brings the distribution,” he posted. “OpenAI has the brains and brand distribution (for example, Apple), but lacks X’s proprietary data. Long-term edge: xAI.”

A spokesperson for X declined to comment, pointing Bloomberg to a post from X chief executive officer Linda Yaccarino. “The future could not be brighter,” she wrote. It is unclear whether this merger will affect her role as X’s CEO. 

Musk has a long history of blending his various operations by sharing investors, technology and employees. His AI business, in addition to training on X user data, has also shared office space with X in the San Francisco Bay area. X also amassed a US$6 billion stake in xAI as of January, which further intertwined the businesses. 

Investors of xAI have included Sequoia Capital, Andreessen Horowitz, Fidelity Investments and BlackRock Inc. Some of the AI start-up’s investors were also backers of X, including Andreessen Horowitz and Sequoia. 

Bloomberg Intelligence analyst Mandeep Singh wrote on Friday that xAI’s acquisition of X could set a framework for deals involving other social networking companies. 

The deal “might be a sign that rivals including OpenAI, Anthropic, Perplexity and Mistral will pursue deals to enhance their consumer reach and distribution”, Singh wrote. “We believe smaller social-media players will actively seek alliances with providers of large language models, given the premium valuation for xAI at US$80 billion, which is more than the combined market values of Snap, Pinterest and Reddit.”

For most of Musk’s tenure as X’s owner, the social networking company was believed to be valued well below the US$44 billion that Musk paid in late 2022. Fidelity, for example, had marked down its equity stake in the company by more than 70% as recently as November. 

But X has seen a slight business resurgence since Musk became a top adviser to US President Donald Trump, a relationship that has brought some advertisers back in an effort to curry favour with the two men. X raised close to US$1 billion in new equity from investors, Bloomberg reported this month, in a deal that gave the company a valuation in line with when Musk took it private in 2022. 

Banks that had also been holding onto debt from Musk’s Twitter purchase were also finally able to offload it earlier this year without taking a loss. At one point in 2022, that debt was marked at 60 cents on the dollar by some firms.

X is on pace for its first year of advertising revenue growth since the Musk takeover, though some of those marketers are believed to be returning out of fear that Musk may sue them. The company is projected to generate US$1.31 billion in US advertising sales in 2025, an increase of 17.5%, according to research firm Emarketer. Globally, X’s ad sales are estimated to be US$2.26 billion this year, up 16.5%.

Uploaded by Tham Yek Lee