In a surprise deal, Musk’s xAI swallows his social media platform X

An investor in xAI, and now in the combined entity, told Reuters they were not surprised by the deal, viewing it as Musk consolidating his leadership and management at his own companies. The investor declined to be named.

Musk did not ask investors for approval but told them that the two companies had been collaborating closely and the integration would drive deeper integration with Grok.

OpenAI rivalry

Musk’s xAI startup was launched less than two years ago and recently raised $US10 billion in a funding round that valued the company at $US75 billion, according to a media report.

In February, Musk, 53, made a $US97.4 billion bid with a consortium for the ChatGPT maker OpenAI, which was rejected, with OpenAI saying that the startup was not for sale. Musk co-founded OpenAI with CEO Sam Altman in 2015.

Musk competes directly with the popular OpenAI platform and has sued in federal court in California to prevent his rival from converting from a non-profit to a for-profit business. A judge earlier this month denied Musk’s request for a preliminary injunction that would prevent the changeover.

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The wide release of AI software has set off a flurry of investment and competition in Silicon Valley. In an effort to be more efficient, companies are seeking ways to integrate the software into nearly every part of their operations.

As competition in AI intensifies, xAI has been ramping up its data centre capacity to train more advanced models, and its supercomputer cluster “Colossus” in Memphis, Tennessee is touted as the largest in the world.

xAI introduced Grok-3, the latest iteration of its chatbot, in February, as it tries to compete with Chinese AI firm DeepSeek and Microsoft-backed OpenAI. The X platform can serve to further distribute xAI products, while also providing a real-time feed of users’ musings, screenshots and other data.

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Twitter freed

Musk clinched a deal in 2022 to buy X, then Twitter, for $US44 billion, ending its run as a public company since its 2013 initial public offering, declaring that “the bird is freed” once the acquisition closed.

He gutted the company’s workforce after the acquisition, prompting advertisers to flee the platform and a rapid decline in revenue. Recently, brands have been returning to X as Musk’s influence grows in the Trump administration.

The seven banks that extended $US13 billion in loans to Musk to buy X kept the debt on their books for two years until they could sell it all at once last month, according to a source familiar with the transactions.

This was made possible after a surge in investor interest for exposure to AI companies along with X’s improved operating performance over the previous two quarters, among other factors, according to two people familiar with the matter.

After the merger, investors who bought the debt from the banks will profit, said Espen Robak, founder of Pluris Valuation Advisors, which specialises in illiquid assets. “For sure the debt is worth more now, if not fully paid off.”

Separately, a US judge on Friday rejected a bid by Musk to dismiss a lawsuit claiming he had defrauded former Twitter shareholders by waiting too long to disclose his initial investment in the company.

Reuters