Elon Musk is paying back debts for buying Twitter with shares of his AI startup xAI

Investors who backed Elon Musk’s $44 billion purchase of social network Twitter (now X) faced losses as the company lost significant value. Musk decided to compensate for the losses with the help of shares of his AI startup xAI, which is showing active growth. So, in the end, creditors had the opportunity to gain profit.

Image source: xAI

Founded by Musk in 2023, xAI has since its inception established itself as a serious competitor to AI leaders such as OpenAI and Anthropic. In May 2024, xAI raised $6 billion in investments, increasing its market value to $24 billion. And a recent new round of investments in xAI worth $5 billion will double the startup’s market value to $50 billion in just 6 months.

Also, as part of these funding rounds, Musk transferred 25% of xAI shares to partners who had previously invested in the priority social network X. Among the investors who received shares in xAI are such large players as Fidelity, Larry Ellison, Saudi Prince Alwaleed bin Talal (Alwaleed bin Talal), Jack Dorsey, as well as venture funds Sequoia Capital and Andreessen Horowitz. The transfer of a 25% stake in xAI in two rounds of funding allowed investors to offset unrealized losses caused by the decline in the value of X.

The interconnectedness of Musk’s projects, including Tesla, SpaceX and xAI, clearly demonstrates his ability to form integrated business ecosystems that reinforce each other. Many of the investors who backed the Twitter purchase saw the move as a strategic bet on Musk himself—a way to stay close to him and participate in ambitious initiatives. “In the world of technology, there are few sayings that truly stand the test of time. “Never bet against Elon” is one of them,” noted one of the investors in Musk’s companies. These calculations turned out to be especially prescient, given that Musk has become one of the confidants of US President-elect Donald Trump.

XAI’s first round of funding in May of this year brought the company $6 billion, and a new round of $5 billion is available exclusively to participants in the previous round of fundraising. X investors were given a quarter of xAI’s shares in both rounds, so their stake will not be diluted by issuing new shares, the sources said. After completion of the new round, xAI will attract a total of approximately $11 billion in investment. The company needs these funds to develop AI models and create one of the world’s largest supercomputer clusters.

Transferring stakes in xAI proved to be a financially beneficial solution, but it also made it more difficult to manage cross-investor interests. Participants with stakes in both X and xAI face the need to balance the interests of both companies. This requires a high degree of transparency and careful coordination. Nevertheless, investors continue to trust Musk, as evidenced by their participation in the new funding round.

The rapid growth of xAI’s value from $24 billion to $50 billion demonstrates the thoughtfulness of Musk’s business strategy. Indeed, shortly after the acquisition of Twitter, the investment company Fidelity, which publicly discloses the value of its stake in X, reduced the valuation of its investments by almost 80%, bringing their current value to $9.4 billion. To complete this transaction, Musk raised an additional $7.1 billion from third-party investors, and financed the rest with his own funds, including proceeds from the sale of Tesla shares. X currently has $13 billion in debt serviced by Morgan Stanley and Barclays.