Elon Musk Sold X to His Startup xAI Amid Litigation

The transfer of ownership took place on March 28 - the same day a U.S. judge denied Musk's motion to dismiss the case.

Cinneamhain Ventures partner Adam Cochran noted in a post that the class action lawsuit against Elon Musk, which accuses him of defrauding former Twitter shareholders by delaying disclosure of the initial investment, is now much more heated.

The acquisition could increase ”risks” for xAI

When Musk announced that ”xAI acquired X in an all-stock transaction,” a U.S. judge rejected Musk's attempt to halt the lawsuit. Cochran emphasized that this ”opened up his AI company to additional risks, with a much larger scale now involved.”

Musk said the deal values xAI at $80 billion and X at $33 billion, taking into account $12 billion in debt from an initial valuation of $45 billion. He originally bought X, formerly known as Twitter, for about $44 billion in April 2022.

”The future of xAI and X are tightly intertwined, and today we are officially taking a step toward combining data, models, computing power, distribution systems and talent,” Musk said.

”This merger will unlock tremendous potential by combining the advanced artificial intelligence capabilities and expertise of xAI with the massive reach of X,” he added. ”It will allow us to create a platform that doesn't just reflect the world, but actively accelerates human progress.”

However, Cochran claims that ”Musk used xAI's artificially inflated stock price to pay several times the real value for X, yet record an $11 billion loss on the deal.” He said Musk was ”defrauding xAI and X investors” and the deal was done to sell xAI's user data.

xAI is known for its chat bot ”Grok” integrated into the X platform. When Musk launched it in November 2023, he claimed that the bot outperformed the first version of OpenAI's ChatGPT on several academic tests.

Musk explained that the motivation for creating Grok was to develop artificial intelligence tools that would help humanity by supporting research and innovation.

While Cochran called Grok's $80 billion valuation ”incredibly stupid,” the cryptocurrency developer known as ”Keef” disagrees. ”The whole situation looks questionable, but given the current moment, Grok is probably really the best model for various tasks,” he said.

The issue of social network X being acquired by startup xAI raises serious questions about Musk's corporate strategy and potential legal implications. The merger of these companies could lead to significant changes in the development of artificial intelligence and social media in the near future.