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Elon Musk has once again taken ownership of X (formerly Twitter), but this time, through his AI startup. In just three years, he has gone from acquiring Twitter to rebranding it as X, and now, effectively buying it again—but with a different strategy. This move isn’t just about restructuring a social media platform. It signals something much bigger, tying into Musk’s larger ambitions in AI and technology. So, what’s really going on? Let’s break it down.
The Surprise Announcement That Wasn’t Really Surprising
On March 28, 2025, the world’s richest person used his artificial intelligence startup, xAI, to purchase X (formerly Twitter) in an all-stock deal valuing the social media platform at $33 billion, excluding debt. The new combined entity, christened XAI Holdings, reportedly carries a valuation exceeding $100 billion.
“XAI and X’s futures are intertwined,” Musk posted on X, announcing the transaction. “Today, we officially take the step to combine the data, models, compute, distribution and talent. This combination will unlock immense potential by blending xAI’s advanced AI capability and expertise with X’s massive reach.”
While the announcement caught many off guard, industry insiders weren’t completely shocked. The two businesses have collaborated closely since xAI’s inception in 2023, particularly on data licensing and distributing xAI’s chatbot, Grok. They share many investors, and in some cases, employees even work from the same office space in Palo Alto.
Unpacking the Financial Engineering
Let’s dissect the financial architecture of this deal:
- xAI is valued at a staggering $80 billion, according to Musk
- X carries a $33 billion equity valuation, plus approximately $12 billion in debt
- Combined, XAI Holdings represents a $113 billion behemoth (excluding debt)
What makes these numbers particularly interesting is their trajectory. Just months ago, in November, xAI was valued at around $50 billion during its last funding round. Without any new financing, its valuation has mysteriously jumped by 60% as part of this transaction.
Meanwhile, X’s $33 billion valuation represents a significant discount from the $44 billion Musk paid in October 2022, but it’s substantially higher than recent valuations. Fidelity, an X investor, had previously marked down its equity stake between 60% and 70%, suggesting a valuation closer to $12-15 billion.
“This is a deal in which Musk is buying one of his private companies with another one of his private companies, both of which were represented by the same bank, Morgan Stanley,” noted one source familiar with the arrangement. “This unique arrangement means that Musk could theoretically assign any value he wants to X and xAI, so long as none of the investors revolted.”
The King of Related Party Transactions
As the Financial Times aptly described him, Musk is “the king of the related party transaction.” This merger follows a pattern established nearly a decade ago when Tesla acquired SolarCity, a clean energy startup backed by Musk and his brother.
What makes the X-xAI merger particularly interesting isn’t just the absolute valuations, which are eye-popping, but the ratio between the two companies’ sizes. This ratio determines how the combined pie gets sliced among shareholders. In this case, xAI shareholders receive approximately 70% of the new entity, while X shareholders get the remaining 30%.
Is this division equitable? That’s difficult to determine. xAI generates very little revenue but offers considerable promise. Its valuation has jumped from $45 billion a few months ago to $80 billion in this deal—a “particularly juicy” premium that reflects the current excitement surrounding AI technology.
Meanwhile, X’s financial situation has seen wild swings. After trading at distressed levels in late 2024, banks have recently sold its debt at close to face value—a dramatic turnaround. According to financial disclosures, X’s annual EBITDA (with “heavy adjustments”) stands at just $1.2 billion—approximately equal to its interest payments. This implies an enterprise value of more than 35 times EBITDA, an extraordinarily rich multiple for a company dependent on sluggish advertising revenue.
The Most Basic Question: Was This Deal Necessary?
Perhaps the most puzzling aspect of this merger is whether it was required at all. Proponents highlight the benefits: xAI gains exclusive access to X’s proprietary dataset of billions of user posts, while X can distribute xAI’s Grok chatbot to millions of users.
But here’s the catch—these benefits were already in place before the merger.
xAI has been using X’s data to train Grok for well over a year. The chatbot is already available on X, with premium features sold through subscriptions. Given Musk’s control over both companies, there was no apparent risk that these arrangements would change.
From an industrial standpoint, combining these companies may indeed make sense. One is a mature social network while the other is a rocket-ship AI startup. xAI’s Grok chatbot already feeds off X’s data, and Grok is “tirelessly flogged to X users.” The operational synergies exist whether or not the companies formally merge.
So if the operational benefits were already secured, what’s the real motivation behind this corporate reshuffling?
A Tale of Two Companies: Diverging Fortunes
To understand this merger, we need to examine the contrasting trajectories of both companies under Musk’s ownership.
X (formerly Twitter) has struggled mightily since Musk’s $44 billion acquisition in 2022. Advertisers fled the platform following content moderation changes and controversial statements from Musk himself. By December 2024, Fidelity had slashed its valuation of X to roughly $12 billion—a devastating 73% decline from the purchase price.
Internal communications paint an equally grim picture. In January 2025, Musk told employees that X’s revenue was “unimpressive” and the company was “barely breaking even.” By early March, X had served just $91 million in ads against a first-quarter target of $153 million, according to an internal email that urged salespeople to “sprint to the finish line.”
Meanwhile, xAI has been on an entirely different trajectory. Founded in 2023 to compete with OpenAI (which Musk co-founded but later left), xAI raised $6 billion from investors in December 2024. Its valuation skyrocketed from $24 billion in May to $35-40 billion by year-end—and now stands at a Musk-proclaimed $80 billion after this deal.
The startup has been building what Musk claims will be the world’s largest supercomputer in Memphis, positioning itself as a serious contender in the AI race against OpenAI, Anthropic, Google, and others.
The SolarCity Playbook: Déjà Vu All Over Again
Students of Musk’s business history will recognize familiar patterns in this transaction. In 2016, Musk orchestrated a similar maneuver when Tesla, his publicly traded electric vehicle company, acquired SolarCity, a struggling clean energy firm where Musk was the largest shareholder and his cousin Lyndon Rive served as CEO.
That deal faced significant shareholder backlash and legal challenges, with critics arguing it primarily served to bail out SolarCity at Tesla shareholders’ expense.
The current X-xAI merger follows a similar template: using a high-flying company (xAI) to absorb a troubled one (X). The key difference is that both X and xAI are privately held, shielding the transaction from the public scrutiny and shareholder approval processes that complicated the Tesla-SolarCity deal.
As Andrew Verstein, a professor at U.C.L.A. School of Law, observed: “The Elon version really does seem to say: I have a company—maybe not bankrupt, just not my crown jewel. I will buy it in a way that makes it look like a success using one of my other companies.”
The Musk Corporate Universe: Breaking Traditional Boundaries
This transaction highlights how Musk operates his business empire in ways that defy conventional corporate governance. Unlike most business leaders who maintain clear separations between their various ventures, Musk frequently moves resources, employees, and capital among his companies.
“Mr. Musk often moves resources and employees among his companies, defying traditional business norms and operating his various companies as one big Musk enterprise,” noted industry observers.
This approach creates a complex web of related-party transactions. Last month, X’s bankers sold off much of the company’s debt—a task previously deemed nearly impossible—by telling investors that X’s revenue had improved partly because xAI was paying X to license its data. In essence, Musk was funneling funds from one of his companies to prop up another.
Common Shareholders: A Safety Net for Valuation Concerns
An important factor mitigating potential conflicts in this merger is the significant overlap in ownership between X and xAI. As the Financial Times notes, “The two companies have many common shareholders, starting with Musk but including some venture capital investors. Indeed, Musk has given investors who backed his acquisition of Twitter a quarter of xAI’s shares.”
This common ownership creates a natural hedge. If the exchange ratio between X and xAI turns out to be lopsided, many investors will have been on both sides of the deal, reducing the risk of shareholder revolt. Only investors exclusively in one company or the other would have reason to scrutinize the relative ownership percentages closely.
With both companies “suffering from serious grade inflation,” the 70-30 split may, “by happenstance,” make sense even if the absolute valuations seem inflated. And ultimately, as the FT pointedly concludes, “Musk controls both companies and almost certainly gets the final say.”
The Data Play: AI’s Insatiable Appetite
Looking beyond financial engineering, there’s a strategic dimension to this merger that centers on data—the lifeblood of AI development.
“The merger is primarily about combining user engagement—posts, messages, comments, likes—with xAI’s insatiable need for unique training data,” explains Angus Allan, senior product manager at CreateFuture. “As content providers increasingly restrict access to their data or strike exclusive deals, like Reddit licensing access to OpenAI, X’s wealth of user interactions becomes an extraordinarily valuable proprietary dataset for Grok.”
By formally bringing X under xAI’s control, Musk ensures that no rival AI companies can license X’s data, potentially giving Grok a competitive advantage over other language models. It also removes any theoretical barriers between users’ social media activity and AI training data.
This data advantage could prove crucial as AI companies increasingly seek exclusive datasets. Bloomberg Intelligence analyst Mandeep Singh suggests that “smaller social-media players will actively seek alliances with providers of large language models, given the premium valuation for xAI at $80 billion, which is more than the combined market values of Snap, Pinterest and Reddit.”
We’re already seeing this trend emerge: Reddit has licensed its content to Google for hundreds of millions annually, while Perplexity AI has proposed a merger with TikTok US as a solution to keeping the ByteDance-owned service operating in America.
Privacy Implications: The Enormous Cost Users May Bear
For X users, the privacy implications of this merger are “enormous,” according to industry experts. While xAI and X were already collaborating, the formal combination “completely redefines the established relationship between the platforms,” says Allan.
“Previously, Grok was essentially a tool available on X that users could choose to engage with. Now, with xAI taking over and becoming the parent company of the social media platform, that separation disappears entirely,” he explains.
X updated its terms of service in November 2024, significantly expanding its rights over user content to include “training of our machine learning and artificial intelligence models” and the right to “upload and download” user content “for any purpose.” The merger brings both entities under single ownership, removing any remaining barriers between social media activity and AI training data.
“The merger means that xAI now has direct access to all the data flowing through X—we’re talking about posts, messages, images, maybe even location data, depending on what people share. That data is likely being used to train Grok and any future AI tools they build,” warns Camden Woollven, group head of AI product marketing at GRC International Group.
The inclusion of publicly shared images is particularly concerning, according to Adrianus Warmenhoven, a cybersecurity expert at NordVPN: “Photos often contain metadata, facial features, or sensitive details that could be misused. Without clear safeguards, this could lead to unintended consequences, including identity misuse or unauthorized facial recognition applications.”
Users technically have some control—European users can object to data processing for AI training through account settings thanks to GDPR protections, and anyone with an X account can opt out of future model training through privacy settings. However, these settings don’t retroactively remove data from existing models, meaning users’ digital history remains in the system.
Organizational Questions: Who Will Lead XAI Holdings?
The merger announcement leaves several operational questions unanswered, including the leadership structure of the combined entity.
X CEO Linda Yaccarino celebrated the deal, posting that “The future could not be brighter.” However, Musk didn’t announce any formal corporate structure for XAI Holdings, leaving observers to speculate about Yaccarino’s future role.
It’s possible she could continue running X as a business unit within the new company, but as merger veterans know, such combinations often lead to significant organizational restructuring. The degree to which Musk integrates X and xAI operations will likely determine the final leadership arrangement.
Product Integration: What Changes for Users?
For everyday X users, the immediate impact of this acquisition may be limited, given that Grok is already available on the platform. However, we can expect deeper AI integration into X’s core experience over time.
Potential future developments could include:
- More sophisticated versions of Grok with enhanced capabilities
- AI-powered photo and video editing tools
- Voice assistant features integrated throughout the platform
- AI-driven content recommendation systems
- Expanded premium AI features for subscribers
These additions were likely in the pipeline regardless of the merger, but formal combination may accelerate their development and deployment.
The Winner’s Circle: Who Benefits Most?
The clear winners in this transaction appear to be X’s investors, who have endured more than two years of uncertainty and diminishing valuations since Musk’s takeover. They now own stakes in a promising AI startup with significant perceived upside rather than a struggling social media platform.
For xAI investors, the picture is more complex. While they gain a massive distribution platform and proprietary dataset, they’re also absorbing a company with substantial debt and uncertain revenue prospects. The increase in xAI’s valuation from $40 billion to $80 billion as part of this deal may offset some of these concerns.
Musk himself emerges with a streamlined corporate structure and the ability to focus his attention on fewer entities. The merger also potentially allows him to attract additional investment for the combined company at valuations that might have been unattainable for X alone.
The Broader Implications: A New Model for Tech Integration
Looking beyond Musk’s empire, this merger signals a potential shift in how technology companies view the relationship between social media and artificial intelligence.
Social media platforms that were once valued primarily for their advertising potential now represent treasure troves of training data for AI systems. Meanwhile, AI companies are increasingly seeking direct consumer distribution channels rather than relying on third-party platforms.
This convergence could accelerate similar deals across the tech landscape, potentially reshaping power dynamics in Silicon Valley and beyond. Companies with large user bases but struggling business models may suddenly find themselves attractive acquisition targets for data-hungry AI firms.
The Bottom Line: Musk’s Power Play
Merging X and xAI isn’t just business—it’s strategy. Musk is using AI’s momentum to revive a struggling social platform while securing a valuable data asset for his AI ambitions.
For users, privacy concerns are bigger than ever. For investors, it’s another example of Musk moving pieces within his empire to fit his vision. And since he controls both companies, the deal happens on his terms.
Who benefits most—users, shareholders, or just Musk? Time will tell. But owning both the data and the AI gives him a serious edge. And the world is watching his next move.
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