In a Unique Move, Elon Musk Rewards X Investors with Shares in xAI

When Tesla CEO Elon Musk bought Twitter (now X) for $44 billion, he did so with the backing of major investors. However, analysts point out that X’s valuation is now 80% lower than when Musk bought it two years ago. Now, the billionaire has found a unique way to compensate those investors.

Value drop. After the deal, banks like Morgan Stanley and Barclays held $13 billion in outstanding debt, while venture capitalists invested $7.1 billion, according to the Financial Times. That investment has steadily declined in value following Musk’s controversial management. Now, he's made a striking decision.

Shares of xAI. Musk has given the investors 25% of xAI’s shares as compensation. The startup, aiming to compete with OpenAI and Anthropic, is about to close a $5 billion funding round, which could bring its valuation to $50 billion.

Beneficiaries. Among those receiving shares are Fidelity, Oracle co-founder Larry Ellison, Saudi Prince Alwaleed bin Talal, Twitter co-founder Jack Dorsey, and venture capital firms Sequoia Capital and Andreessen Horowitz. Some of these investors also participated in xAI’s funding round last May. They may further benefit from Musk’s strengthened position following President-elect Donald Trump’s victory.

Conflicts of interest. Speaking anonymously, one of the investors from these companies told the Financial Times, “It’s hard to manage conflicts of interest on this sort of stuff. You have to be a fiduciary and you’re on both sides.” Indeed, while this way of compensating investors is interesting, it also poses problems when acting and making decisions both as a shareholder of xAI and as an officer or partner of these investment firms.

xAI remains a mystery. The funding round gives xAI new resources to develop its AI systems. According to The Wall Street Journal, the startup could launch its AI model in December. Musk has claimed that such a model would be the most powerful in the world “by any metric,” but significant doubts remain. Grok, xAI’s chatbot, is currently only available to X subscribers and is largely seen as ineffective.

ChatGPT competitor in sight. This could soon change. Sources close to the company say xAI is preparing to launch a standalone end-user app that could compete with ChatGPT.

Colossus. Musk seems well-positioned to achieve this: He built his data center, Colossus, in just 122 days. It boasts 100,000 Nvidia GPUs—a feat few companies can match. Part of the recent funding is reportedly aimed at doubling the number of chips in Colossus to continue training AI models. This goal contrasts with recent concerns about a slowdown in the AI industry.

Image | Steve Jurvetson | Alexander Shatov (Unsplash)

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