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Elon Musk’s artificial intelligence group, xAI buys X for $45bn

  • peachgardenpartner
  • Apr 2
  • 5 min read

By Kristian Ivanov



Overview of the Deal

Acquirer: xAI

Target: X

Transaction Value: $45 billion

Equity Valuation: $33 billion



Strategic Rationale

This all-stock acquisition positions xAI to capitalize on “X’s massive reach” by integrating X’s 600mn active users with xAI’s advancing AI capabilities. By leveraging X’s large user database, the transaction is expected to enhance the xAI’s AI power, solidifying its position in the AI industry amid competitors such as, OpenAI and Deepseek.  



Transaction Details


Acquirer Profile: xAI


Industry and Core Operations: xAI is an AI company, focused on developing advanced AI models to enhance reasoning and understanding. Their mission is to “understand the universe” and their key product is Grok, an AI chatbot integrated with X, that emphasises transparency, real-world reasoning and minimal bias.


Founded: March 2023

Headquarters: San Francisco

Key Financials (as of 1/4/25):

  • Enterprise Value (EV): $80 billion

  • 2024 Revenue: $100 million

  • EV/Revenue Multiple: 800x


 Recent Acquisitions: March 17th, they acquired Hotshot, an AI-powered video generation start-up

 

Target Profile: X (formerly Twitter)


Industry and Offerings: X is a social media platform for real-time news, discussions and content sharing. Under Elon Musk it is striving to become an “everything app”, integrating social networking, commerce and financial services.


Founded: April 2006

Headquarters: San Francisco

Key Financials (as of 1/4/25):

  • Enterprise Value (EV): $45 billion

  • 2024 Revenue: $2.5 billion

  • 2024 EBITDA: $1.2 billion

  • EV/Revenue Multiple: 18x

  • EV/EBITDA Multiple: 37.5x


Notable Moments: X (formerly Twitter) was bought by Elon Musk in 2022 for $44 billion, who then changed its name to X in 2023. In Musk’s ownership, he has been attempting to create a super app, similar to WeChat in China, and plans to do so by integrating AI, payments and enhanced multimedia capabilities into the app



Short-Term Implications


Market Synergies

xAI’s main product, Grok, is already integrated into X, but through this deal Musk is able to establish a value for his privately held businesses and consolidate his leadership and management within the two. It also brings him closer to achieving his goal of creating an X super app.


Revenue Growth

By bringing the two companies together, xAI can more effectively distribute their products through X, leading to more users of Grok, increasing revenues. There is also potential for X using xAI to improve their advertising as well as subscription business, potentially leading to an increase in customers, and therefore revenues.


Cost Efficiencies

The two companies can consolidate cloud and data centres, reducing their computing costs, especially with xAI’s “Colossus” data centre, which is claimed to be the largest in the world. The combination can also lead to a reduction in payroll expenses by merging teams and eliminating redundant roles, although Musk has already significantly cut X’s workforce when he acquired the company in 2022.



Long-Term Strategic Upsides


Revenue Expansion

The combined entity brings together X and xAI’s revenues and allows for closer integration of AI into X, which can lead to more efficient revenue generation by attracting customers to their advertising business which can easily become AI powered, utilising the large amount of data point and AI computing power to deliver highly targeted adverts, similar to Meta, improving the success of advertising for their customers. They can also improve the benefits of an X premium subscription, leading to more subscribers and revenues in the long run.


Profitability Gains

The improved efficiency from having a high level of AI integration in X can lead to massive cost reductions in the long-term, by making processes faster and more effective. This will greatly reduce the manual task load within the firm, leading to further workforce reduction and hence decreases in payroll expenses. Overall, this will greatly improve the margins within the merged company and lead to a high level of long-term profitability.


Market Leadership

This deal has a high potential to propel xAI ahead of competitors, such as Oracle and Deepseek, within the AI industry. By integrating the two platforms, the accessibility of xAI’s Grok greatly improves, reducing any friction for X’s 600mn active users to start using Grok. This also has another benefit, where an increase in the user-base of Grok leads to an increase in the level of machine learning undertaken by the system, leading to improvements in responses and overall creating a better product.


ESG Impact

xAI’s commitment to developing an unbiased and transparent AI system places it at the forefront of ethical standards, ensuring that political bias is not embedded in its responses. However, an issue arises when looking at their practices from an environmental perspective. Currently their Colossus supercomputer cluster in Memphis has 100,000 Nvidia GPUs and following this deal the combined computational power required is highly likely to increase, with aims to increase the GPU count to 1 million. These GPUs use an extraordinary amount of electricity, often from unsustainable sources, therefore an increase in the GPUs likely to come following this deal is likely to cause extensive environmental damage.



Risks and Uncertainties


Regulatory Hurdles

X is currently undergoing a fraud lawsuit, alleging that Musk misled former Twitter investors by delaying the disclosure of his preliminary investment. This deal puts xAI in a position where they may be affected to financial penalties, as well as potential reputational risk.


Valuation Concerns

There are concerns that X’s $1.2 billion EBITDA figure was “wildly adjusted” in an attempt to increase X’s valuation. One of these adjustments could be the exclusion of stock-based compensation from EBITDA. It’s been found that companies in the Nasdaq Composite index have a median 7% higher EBITDA when stock-based compensation is excluded.


Integration Challenges

Musk’s aim for this deal is seamless integration, however as Musk attempts to integrate AI to become more efficient, employees are at risk of redundancy, leading to them potentially resisting the change.


Competitive Landscape

The integration of the two companies brings Musk closer to his goal of creating a super app. The prospect of an app where you can do everything may incentivise other social network providers, such as Meta, to produce their own version of a super app, in fear of losing market share.  



Key Takeaways


  • The acquisition of X allows xAI to integrate its AI with X’s large user base, advancing Musk’s vision of a super app and positioning xAI as a stronger competitor to rivals like OpenAI and Deepseek.

  • The deal drives revenue growth through wider AI adoption and cost savings via cloud and data centre consolidation, while streamlining operations by reducing workforce redundancies.

  • Risks include regulatory issues and integration challenges. Mitigation strategies involve ensuring compliance, providing transparency on valuation, and managing workforce transitions effectively.



Sources


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