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The xAI–X merger is a good deal — if you’re betting on Musk’s empire

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The xAI–X merger is a good deal — if you’re betting on Musk’s empire

Elon Musk caused a stir when he announced that his AI startup, xAI, had acquired his social media company, X (formerly known as Twitter), in an all-stock deal. However, the acquisition made sense due to the integration of xAI’s chatbot, Grok, with X, X’s financial struggles, and Musk’s strategic vision for AGI dominance.

Investing in Musk’s companies isn’t solely about immediate returns but about buying into the mystique surrounding Musk and a narrative of success that surpasses the financial figures. Musk’s businesses, including Tesla, SpaceX, The Boring Company, and Neuralink, are interconnected, forming what some call the “Elon ecosystem.”

Investors like Ron Baron believe that every move Musk makes benefits his entire portfolio, creating a cohesive ecosystem of interconnected ventures.

Baron Capital and other firms have invested across Musk’s businesses, highlighting the interconnectedness of his corporate empire. The xAI-X deal, despite raising questions about valuations, reflects the optimism and long-term potential investors see in Musk’s ventures.

Tesla, for example, is viewed as a tech stock due to the belief in its future innovations, such as self-driving cars and humanoid robots, rather than its current financial metrics.

However, consolidated value also brings increased risks, such as ongoing legal issues and regulatory concerns surrounding data privacy and AI deployment. There is also the risk of Musk losing interest in a project, as seen with some Tesla shareholders feeling neglected due to his focus on other endeavors.

Despite these risks, investors like Gene Munster remain optimistic about Musk’s ability to deliver on his promises and drive long-term value across his portfolio.

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He proposed that the significance of other ventures pales in comparison to the immense potential of xAI’s value proposition and its ability to emerge as a prominent player in the AI industry.

“We are staking our entire company on the belief that AI will revolutionize beyond current expectations,” he stated. “What is the worth of being part of the select few powering the world’s technological advancements?”

Rechtman noted that supporters of Musk are not blindly devoted, but rather have faith in Musk’s unique ability to influence capital markets to his advantage, enabling him to accomplish feats and establish enterprises that others cannot.

“Those involved in these ventures have placed their trust in Elon’s vision and will continue to do so,” Rechtman explained. “Therefore, it is not surprising that they will uphold the perception that the emperor is indeed clothed.”

Investing in Musk’s more speculative ventures, such as X, could open up additional investment prospects within the Musk ecosystem, according to Rechtman.

“SpaceX is a tangible entity that will remain privately held,” he mentioned. “Thus, the sole means of investing in SpaceX is through securing access to private tenders, which is contingent on maintaining a positive relationship with Elon.”

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