Elon Musk’s xAI Merges With X in $113 Billion Deal, Redefining AI-Social Media Integration

Elon Musk’s AI startup xAI bought the social media platform X (the former Twitter) in an all-stock transaction, bringing Musk’s influence into both domains. The deal values xAI at $80 billion and X at $33 billion and will create the new xAI Holdings Corp.

The merger is poised to harness X’s massive data streams to augment the learning capabilities of xAI’s AI models and, conversely, for xAI to utilize xAI’s generative AI tools such as Grok to roll out additional features at a faster rate on X — but that poses obvious concerns regarding data privacy and monopolistic practices, as well as the viability of the X social networking business over the long term.

How xAI Has Quietly Taken Over X

Musk has integrated AI into X’s platform, limiting the access of competitors to user data and deploying the social network as a testing ground for xAI’s work. Grok was the first significant AI product launched by xAI, and it was initially limited to X users, providing suggestions for AI and generating content for users, as well as information for posts and location-based queries.

Plus, xAI has become a deeply integrated part of X’s infrastructure. According to multiple reports, all xAI employees are considered X employees, which continues to muddy the water between the two companies. This unofficial tie-in may make collaboration easy, but it raises serious issues regarding transparency and accountability.

Funding and Investor Interest

The merger has attracted strong interest among investors, especially those financing Musk’s larger AI ambitions. Earlier this month, X had secured $900 million from a range of existing and new investors, bolstering a belief in the future of the platform despite recent challenges. XAI was also in negotiations regarding a funding raise at $75 billion valuation prior to the merger, demonstrating its accelerated growth trajectory.

Leading investment firms including Sequoia Capital, Vy Capital and Valor Equity Partners backed the merger, seeing it as a way to realize the maximum potential of AI while expanding monetization channels on X. Morgan Stanley and law firm Sullivan & Cromwell LLP advised the deal, both of which played major roles in helping Musk to acquire Twitter previously.

However, the financial dynamics between the two companies remain uneven. Though xAI valuation shot through, immediately after Musk’s $44 billion acquisition, X’s worth had fallen drastically. Still, X has made an impressive rebound back to the original $44 billion valuation, though it took quite a while since it fell to below $10 billion in September 2024. This revival was fueled by Musk’s drastic cuts to spending, his own reinvestment of funds and deals—particularly his close personal relationship with President Donald Trump.

Investor Reactions and Market Implications

Restructured under an umbrella organization, it’s intended to ease capital raising for AI innovations. xAI’s valuation has skyrocketed, with its most recent funding round valuing it at $50 billion. In contrast, X is back on solid financial footing, reclaiming its $44 billion valuation, after a secondary deal that saw investors swap existing interests in the company.

Musk has also personally doubled down on X, buying $150 million of new shares over the last year. X is also planning a $2 billion primary funding round, from which $1 billion would be used to pay down junior debt from Musk’s original 2022 acquisition. With these moves, investors view the future of X as more stable, and some once wary advertisers—including Amazon, Nestlé, Lego, Pinterest and Shell—have rejoined the platform.

Challenges of AI Integration on X

Ultimately, though, xAI’s integration into X hasn’t gone without a number of hiccups. An example of the potentially misleading content generated by a Grok-powered version Stories has been misinformation, including that which has been falsely reporting on political incidents and international conflicts. These errors underscore the potential hazards of unregulated AI-driven content production in a real-time journalism environment.

Further, despite Musk’s dreams of X becoming the ultimate “everything app” the transformation has not been smooth. Plans for payments and financial services have bogged down, while rivals such as Bluesky and Threads are further eroding X’s user base. Many in the industry wonder — and debate among themselves — whether Musk’s A.I. ambitions eclipse X’s primary job as a social platform.

Nevertheless, X appears to be taking steps towards diversification, especially with the anticipated launch of X Money, a peer-to-peer payment service created together with Visa. The move is likely to diversify revenue sources and strengthen Musk’s long-range vision of turning X into an all-in-one digital hub akin to WeChat in China.

Cybersecurity and Platform Stability Concerns

Recent cybersecurity issues have revealed X’s weaknesses. There was a big denial-of-service (DoS) attack that took down the platform, Musk said, and it was likely a large, organized group or a state actor. But Kevin Beaumont and other cybersecurity experts now say the attack used a variant of a Mirai botnet attack, which is a classic malware that independent hacker groups use, not governments.

The attack is raising questions about X’s dwindling workforce. Since Musk’s takeover, X has made drastic cuts to its cybersecurity and site reliability engineering teams. A cutback that experts say has left X more vulnerable to cyber-attacks and outages. Unlike Meta, TikTok, or LinkedIn, which spend heavily on threat detection and infrastructure resilience, X has not allocated as much money to guard against such attacks.

Increasingly frequent outages and security breaches might erode user trust and advertiser confidence. Another example: Without reinvesting in its security and technical infrastructure, further disruptions may become inevitable, posing long-term threats to its stability and reliability.

The Future of xAI and X

Musk has a history of consolidating his companies — like Tesla’s purchase of SolarCity — and for better or for worse it seems that xAI and X are likely to be joined at the hip for the time being. With X’s recovery in finances and Musk’s success in attracting investor confidence, the platform could be ready for sustained growth.

But X’s cybersecurity vulnerabilities and continued instability on the platform might undermine those gains. If Musk remains more focused on cost-cutting than on infrastructure resilience, X may find it hard to keep users engaged and advertisers interested over the long term.

As Musk reshapes his empire and Pseudonym makes an early move to protect its users’ rights, the question remains: Is X a social media platform, or is it a data engine fueling Musk’s AI ambitions?

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