| A Cheeky $1 Billion More |
| The press and the media are positioning it as a failure of X. |
| They are parroting that X has been acquired at $33 billion, a value significantly below the $44 billion that Musk and his investors paid in 2022. |
| Even Reuters got it embarrassingly wrong with this headline: "Musk's social media firm X bought by his AI company, valued at $33 billion." |
| xAI's acquisition of X is happening at a $45 billion valuation, a cheeky $1 billion more than what Musk paid in 2022. The enterprise valuation is the equity plus the net debt of the company. X has $12 billion in debt. $33 billion is the equity of X. |
| What's truly remarkable about this transaction, though, is the turnaround story that Musk achieved in X. |
| Musk knowingly overpaid at $44 billion for one simple reason: To restore freedom of speech and fight against the censorship industrial complex. |
| We will all recall: Musk and his team identified – during the acquisition negotiations of Twitter in 2022 – that a material percentage of Twitter's active users weren't real. Said another way, Twitter management was artificially inflating the value of the company to get a higher price in the acquisition. |
| Of course, the team at Twitter said that Musk's claims were nonsense. But we now know that they were spot on. An independent analytics firm analyzed Twitter and determined that 13.7% of all accounts on Twitter were spam and bot accounts. A second analysis by the same firm refined its work, landing on 11% of accounts being spam and bot accounts. |
| In any acquisition process, a misrepresentation of material data would result in a lawsuit or a revised acquisition price. 11% should have resulted in a reduction of the acquisition price by $4.84 billion or a price tag of $39.16 billion. |
| But it wasn't worth the headache. The acquisition wasn't about money. It was about ensuring the survival of the First Amendment rights of freedom of speech. Without freedom of speech, a free and civil society cannot exist. And without that, free markets and unbridled innovation simply cannot exist. |
| So, Musk bought it anyway. And in less than six months, he removed 80% of Twitter's workforce and improved the performance of Twitter. Within one year (i.e., by October 2023), Twitter, now X, was free cash flow positive less the cost of servicing the debt payments. And last year, X generated $1.2 billion in adjusted EBITDA. |
| But even more impressive has been the growth of monthly active users (MAU) from 229 million before the acquisition to more than 600 million today – a feat Twitter only dreamed of. |
| Musk and his team overcame all of the fake spam and bot accounts, restructured the entire business, rearchitected the platform, more than doubled the monthly active users, and made X the single best place for news on the planet. |
| X is the number one news application in 140 countries around the world. |
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| Source: Tesla Owners of Silicon Valley |
| No news media platform on the planet has anywhere near the reach of X. |
| And this is why it makes so much sense to combine the two entities – X and xAI. |
| The Everything App |
| X has now become one of the most valuable sources of training data for an AI model. |
| And most users of Grok 3 are actually using it through the X software app. |
| And this is just the beginning… |
| Most have forgotten that Musk always intended X to be the "everything app." AI is an accelerant to radically increase the utility of the application. It will enable seamless transactions – many of which will be enabled by agentic AI – that will simplify and benefit our lives. |
| And when I refer to transactions, I mean it in the broadest sense. X will eventually be able to schedule appointments and reservations. It will be able to purchase whatever we need. In time, it will have a memory of our conversations and also understand our individual preferences and lifestyles. Some of us will think of it as a powerful assistant, and others will think of their Grok as a friend. |
| Either way, we won't want to live without it. Google serves no purpose now. Grok is already so much more. |
| Despite all the fear, uncertainty, and doubt, Musk made all of his investors – and those who loaned X money – whole. All seven banks that loaned Musk $13 billion for the original transaction sold their debt off and were paid a pretty penny in interest payments over the two-plus years that Musk was turning around X. |
| And those that bought that debt are looking even better. X is worth a whole lot more now, given the firepower that xAI has – both in terms of capital, as well as the success of Grok 3. |
| xAI's acquisition of X is an all-stock transaction, which means that equity holders of X will now receive equity in xAI. Incredible. They have gone from holding equity in an amazing turnaround story, which would have generated great returns in a couple of years, to holding equity in the company that will be the first to develop artificial general intelligence. |
| You heard that right. I'm throwing down the gauntlet. |
| xAI will become the first company in the world to develop an artificial general intelligence (AGI), and it will happen within 12 months. |
| I'm predicting this for two primary reasons. |
| Calling the Winner |
| The team at xAI has taken a different architectural approach to Grok than others in the industry – a hallmark of Musk's modus operandi. |
| xAI takes an optimized approach with its neural network design using a mixture of experts, sparse attention mechanisms, and recurrent neural networks to improve both efficiency and memory retention. |
| In addition to that, xAI uses reinforcement learning to improve its performance based on user interactions. Grok is also capable of online learning. As it receives inquiries, it can access the latest information and update its parameters. It's "learning," in near real-time. |
| This architectural approach enables Grok to rapidly adapt and improve, almost daily. |
| I've experienced the improvements in Grok 3 since its launch on February 17 this year. It has only been about six weeks, and the improvements are material. |
| The second reason is that no other company in the world has been able to assemble and commission hundreds and thousands of GPUs as quickly as xAI. |
| xAI's goal is to get to 1 million GPUs by the end of the year. Whether it's 800K or 1 million, it doesn't matter. It will be multiples of the 200,000 GPUs that Grok 3 was developed on. |
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| Jeff outside the Colossus site | Source: Brownstone Research |
| Superior artificial intelligence software architecture, plus the world's largest AI supercluster, will result in xAI winning the race to artificial general intelligence. |
| From scrappy outsider to King of AGI… |
| Investors in xAI are going to make a fortune. |
| Jeff |
| P.S. We know xAI is a private company and is currently out of reach for a lot of everyday investors… but there is a way for you to "partner" with Elon Musk on Project Colossus. |
That's why I went out to the site to investigate. You can learn more about what I found there and how you can get in before xAI wins the race to artificial general intelligence. Just go here for details. |
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