“Sociable” is the latest commentary on essential social media developments and trends from industry expert Andrew Hutchinson of Social Media Today.
Okay, anybody who’s been closely watching the slow-speed financial crash of Twitter/X probably knew that Elon Musk was eventually going to search out a technique to funnel money from his xAI startup into the troubled app.
I didn’t, nonetheless, think that he could be this upfront about it.
Late last week, Elon Musk announced X the platform has been acquired by xAI, in a deal that values X at $33 billion.
As per Musk:
“xAI has acquired X in an all-stock transaction. The combination values xAI at $80 billion and X at $33 billion ($45B less $12B debt). Since its founding two years ago, xAI has rapidly grow to be one among the leading AI labs in the world, constructing models and data centers at unprecedented speed and scale. X is the digital town square, where greater than 600M energetic users go to search out the real-time source of ground truth, and in the last two years, has been transformed into one among the most effective corporations in the world, positioning it to deliver scalable future growth.”
So, there’s a bit to unpack here.
First, Elon says that X is now effectively valued at $45 billion, which is greater than the $44 billion that he paid for it in 2022.
Which most market analysts would dispute.
Given Musk’s various unpopular changes at the app, and the resulting advertiser exodus, the actual value of X is seemingly lots lower than this, with Fidelity valuing the company at just $9.4 billion in October last yr.
Since the U.S. election in November, nonetheless, X has seen something of a turnaround, with various big advertisers reportedly reassessing their X ad spend in order to maintain in Musk’s good books, attributable to his influence inside the latest Trump administration. That still wouldn’t be enough to bring its valuation back as much as $44 billion, or more. But I suppose, if you’re arranging the sale of your individual business to a different one among your corporations, you get to determine the narrative.
In terms of xAI, Elon’s AI startup has grown at a rapid rate, and now matches the compute power of OpenAI, giving it significant capability to compete in the broader AI race.
xAI has raised over $12 billion in funding to power its development, and pegged its value at around $75 billion, though as Musk notes, that’s now been bumped as much as $80 billion with this deal.
So why is xAI price a lot?
Well, AI is the tech trend of the moment, and as such, finding investors for major AI projects isn’t seemingly a serious challenge. xAI can also be considered to have a key market advantage, attributable to its expansive trove of real-time data, with the project being fueled by posts from X.
Which is why the assumption has been that Musk would eventually funnel a few of that $12 billion on to X, in order to resolve the app’s financial woes.
Which are significant.
As a personal company, X doesn’t publish its financial data anymore, so we don’t know exactly where it’s placed, but reports suggest that X was near breaking even for 2024, based on data that X shared with potential investors back in January. In that presentation, the X team shared that it brought in $1.2 billion in adjusted income for last full yr, which is significantly lower than X was earning before Musk took over at the app (X generated over $5b in income in 2021). But in combination with its drastic cost reductions (Musk sacked 80% of staff and eliminated many Twitter offices, amongst other cost-cutting measures), that took X to around the same overall income levels that it was seeing before the Musk purchase.
Though either way, X was either just in need of, or simply on a flat result. And with advertisers still staying away, and Musk saddling the app with an enormous debt burden to search out his purchase of the business, X has been looking like it might eventually be eyeing bankruptcy, either this yr or next.
Till the U.S. election, which, as noted, saw some big brands reassessing their X ad spend.
And now, X will even share money with xAI, which can ensure that it stays solvent, for the immediate future a minimum of.
“xAI and X’s futures are intertwined. Today, we officially take the step to mix the data, models, compute, distribution and talent. This combination will unlock immense potential by mixing xAI’s advanced AI capability and expertise with X’s massive reach.“
X CEO Linda Yaccarino has also shared her optimism, saying that “the future couldn’t be brighter” in response to the deal.
But I don’t know, I don’t see xAI being a serious money spinner as yet. And even when this deal does give X more financial stability for the time being, it also weighs the startup with the financial performance of the app, which suggests if X loses money to any extent further, xAI loses money as well, which could grow to be an anchor for Elon’s AI project.
Which he only initiated out of spite, attributable to his bad blood with OpenAI, an organization that he originally invested in, then spurned once they rejected his push to grow to be CEO of the project. As a result, Musk launched xAI as his “non woke” answer to AI development.
And ever since, he’s been attempting to cut down OpenAI at every opportunity, framing his own AI tools as a greater, more truthful alternative, with more real-time insight based on X posts.
Though given the massive amount of misinformation on X, which is now a bigger problem than ever due to Musk’s changes to its moderation approach, lots of the responses provided by xAI tools are also skewed in the same direction.
That may very well be problematic, but on the other hand, considering that Elon Musk’s DOGE government reform group can also be seeking to integrate an AI-based solution to enhance bureaucratic efficiency, you possibly can bet that xAI can have a major advantage in offering such an answer, which could also mean that xAI finally ends up getting some major government contracts, keeping it in business for a very long time.
So, to make clear, xAI is now funding X, and xAI is being funded by investors who imagine that the project will eventually make loads of money through its technological advances. And that money is probably going going come from U.S. taxpayers, once xAI finally ends up becoming the key operating system for the government’s latest AI-based systematic approach.
Yeah, there are a pair of great conflicts inside that, and likewise I highly doubt that xAI could be getting anywhere if it wasn’t Elon Musk at the helm. But belief in Musk’s power to get things done helps to prop up his entire X Corp empire of questionable projects.
So will it work out?
Well, probably.
Again, once the DOGE group does announce its AI reformation plans, you possibly can expect to see xAI secure a large government contract, which can mean that it, and X, are then financially secure, independent of ad or usage concerns.
That could also unencumber Elon and Co. to loosen X’s moderation rules once more, as they’ll now not be burdened by brand safety concerns. Though, at the same time, the more changes that X makes at this end, the more the responses pumped out by its Grok AI chatbot, and another tools built on its LLM, might be impacted.
But, essentially, Trump’s victory in last yr’s election has now saved X the platform, which was looking prefer it wouldn’t be around for for much longer as a solo concern.
Also, Musk says that X now has 600 million monthly energetic users, up from the 570 million MAU that Musk reported back in July.
So overall, it’s a fairly good day for Musk and his supporters, while it also serves as a reminder of the impact of tapping into broader market trends.
Read the full article here
