Elon Musk's X Sale to xAI Sparks Lawsuit Controversy

Elon Musk, the billionaire investor, has completed the sale of his social media platform X to his AI startup, xAI, in an all-stock deal. This transaction, which took place on March 28, has sparked significant controversy, particularly as it coincides with a US judge's rejection of Musk's bid to dismiss a class-action lawsuit against him. The lawsuit alleges that Musk defrauded former Twitter shareholders by delaying the disclosure of his initial investment in the social media platform.

According to Adam Cochran, a partner at Cinneamhain Ventures, the transfer of ownership of X to xAI has made the lawsuit "a whole lot spicier." Cochran noted that the acquisition has opened up xAI to more exposure and has made the legal situation more complex. The deal values xAI at $80 billion and X at $33 billion, factoring in $12 billion in debt from the $45 billion valuation. Musk originally acquired X, formerly known as Twitter, for around $44 billion in April 2022.

Musk stated that the combination of xAI and X will unlock immense potential by blending xAI’s advanced AI capabilities with X’s massive reach. He emphasized that this integration will allow for the creation of a platform that not only reflects the world but also actively accelerates human progress. However, Cochran has criticized the deal, claiming that Musk used his inflated xAI stock to pay multiple times over the value for X, resulting in an $11 billion loss on the transaction. Cochran also suggested that Musk is "screwing over xAI investors and X investors" and that the deal was executed to sell user data to xAI.

xAI is known for its AI chatbot, Grok, which is integrated into the X platform. When Musk released Grok in November 2023, he claimed it could outperform OpenAI’s first iteration of ChatGPT in several academic tests. The motivation behind building Grok, according to Musk, is to create AI tools equipped to assist humanity by empowering research and innovation. While Cochran described the valuation of Grok at $80 billion as "insanely dumb," crypto developer "Keef" disagreed, stating that Grok is genuinely one of the top models for various tasks.

The acquisition has raised concerns about data privacy, as users' posts and interactions on X are now part of xAI's data trove. This has led to questions about opt-out options and the ethical implications of using personal data for AI training. The move has been met with mixed reactions, with some investors seeing it as a strategic play to leverage AI and social media synergies, while others view it as a desperate attempt to salvage a struggling platform. The legal battle is far from over, and the acquisition has only added fuel to the fire, making the fraud lawsuit a lot spicier.