When Elon Musk announced that his AI startup, xAI, had acquired his social media company, X (formerly known as Twitter), in an all-stock deal, it raised some eyebrows. But in many ways, the deal made sense. xAI’s chatbot, Grok, was already deeply integrated with X, X was floundering financially, and Musk needed a way to make his $44 billion Twitter acquisition look less like an impulsive takeover and more like a strategic play for AGI dominance.
It also pointed to something deeper about how Musk’s empire works: investing in any one of his companies isn’t about a quick return on investment. It’s about buying into the mysticism around Musk and swallowing whole a narrative of success that outpaces the actual numbers.
Some call it a grift, pointing to Musk’s history of overpromising and underdelivering. But the market is increasingly more tolerant – welcoming, even – of narrative-led investments, particularly when the thread that ties the tale together is one of the president’s right-hand men.
“All of Elon’s companies today are basically one company,” Yoni Rechtman, a principal at Slow Ventures, told TechCrunch. “It’s all already Elon, Inc. There are people who work across multiple companies simultaneously. They share a web of capital connections. They do business with one another, and he treats them all effectively as one company. So [the xAI-X merger] just ends some of the fiction that the two businesses were separate.”
The thinking among Musk bulls like Ron Baron, the founder of investment management firm Baron Capital, is that “every single thing [Musk] does is helping everything else he does,” as Baron phrased it. Other businesses under Musk’s control include Tesla, SpaceX, The Boring Company, and Neuralink – some of which reportedly share resources.
“When [Musk] bought Twitter, did he have in his mind that there’s an opportunity to have this data, a tremendous value for licensing? When he decided he wanted to go to Mars with SpaceX, did he really think initially that there’s a real opportunity here for the internet around the world, and there’s gonna be hundreds of billions of dollars of revenue opportunity? When he started off with EVs for Tesla, did he really think that this is gonna merge into self-driving, where you can make hundreds of billions of dollars a year of extra profits, and Grok […] and you’re gonna have connected cars all around the world? […] All these businesses link up. It’s the ecosystem. It’s the Elon ecosystem, and I think it’s really interesting when you look at it that way.”
Baron Capital has invested across Musk’s ecosystem, an example of the investor crossover between the billionaire’s various companies. Firms like 8VC, Andreessen Horowitz, DFJ Growth, Fidelity Investments, Manhattan Venture Partners, Saudi Arabia’s PIF, Sequoia Capital, Vy Capital, and others also hold positions throughout Musk’s corporate web.
That brings us back to the xAI-X deal. Pundits questioned how the acquisition could value X at $33 billion, more than triple its valuation just a few months ago, and how it could value xAI at $80 billion considering the AI company reportedly has little in the way of revenue. But valuations aren’t always based on what exists today. Rather, they take into account what investors are hoping for – and that’s particularly true when it comes to Musk’s ventures.
Just look at Tesla. The electric vehicle maker has been treated like a tech stock for years despite the fact that it has automaker margins, based largely on the belief that Tesla will one day unlock groundbreaking autonomy in the form of self-driving cars and humanoid robots.
“The reason why [Tesla’s] stock trades at 80 times earnings and the comp group trades at 25 times earnings is that people are making a bet on the long term, and it’s not about what happens to numbers this year,” Gene Munster, managing partner at Deepwater Asset Management, told TechCrunch. “That’s one of Elon’s superpowers, this ability to keep investors engaged for the long term.”
Munster’s firm has invested in X, xAI, and Tesla. It’s exactly the type of all-in Musk backer that stands to benefit the most from a deal like xAI buying X, assuming Musk can indeed deliver on his pledge of marrying X’s real-time data trove and distribution platform with xAI’s infrastructure and AI expertise.
Of course, consolidated value also comes with increased risk.
Dan Wang, a professor at Columbia Business School whose research lies at the intersection of business and society, told TechCrunch that the biggest immediate risk factor for investors is the ongoing lawsuit that X is facing from the Securities and Exchange Commission (SEC). The suit accuses Musk of misleading investors by delaying the disclosure of his previous investments in Twitter. The SEC has argued that this allowed Musk to buy more Twitter shares at artificially low prices.
Wang listed a few other risk considerations, such as anticompetition and user privacy concerns, particularly regarding how X quietly opted all users into data collection for AI model training. The opt-in change has already raised the ire of one regulator, Ireland’s DPC, which recently began investigating it as a potential breach of Europe’s GDPR law.
“Another kind of risk here is that there isn’t a consensus framework for how the AI market is going to be regulated, but you’re already seeing traces of this in Europe and, up until recently, in California,” Wang said. “A lot of these frameworks have to do with how AI models are deployed in terms of distributing information […] They ascribe responsibility to the companies that are creating AI models, as well as providing access to those models.”
Musk might also simply lose interest in a project, Rechtman said.
“I think that is what a lot of Tesla shareholders are feeling right now,” he said, “where for the last several months, Elon’s number one company has been the Trump campaign, and his other projects have languished.”
When asked about some of these risk factors, Munster appeared nonplussed. He suggested they’re inconsequential given the enormity of, for example, xAI’s value proposition and potential to become a dominant player in AI.
“We’re betting the firm on the belief that AI is going to be more transformative than what people think,” he said. “What is the value […] of one of the four brains that the world is going to run on?”
Rechtman said that Musk bulls aren’t blindly loyal, per se, but simply trust in Musk’s superpower to “bend capital markets to his will” in a way that allows him to do things and build businesses that nobody else can.
“The people who are in these businesses have just gone long Elon, and they will continue to go long Elon,” Rechtman said. “So it’s not surprising to me that they will just continue to tell you that the emperor is wearing clothes.”
Not for nothing, buying into Musk’s more speculative bets, like X, is one way to potentially unlock more investment opportunities in the Muskverse, Rechtman said.
“SpaceX is a real thing, and it will never go public,” he said. “So the only way to invest in SpaceX is to get access to the tenders. And the only way to get access to the tenders is to be in Elon’s good graces.”
