Elon Musk's AI startup, xAI, has acquired his social media company, X (formerly known as Twitter), in an all-stock deal, a move that has raised eyebrows and sparked questions over the valuation and potential regulatory risks. The deal values X at $33 billion, more than triple its valuation just a few months ago, and xAI at $80 billion, despite the AI company reportedly having little revenue.

The acquisition has been seen as a strategic play by Musk to integrate xAI's chatbot, Grok, with X's real-time data trove and distribution platform, potentially unlocking new revenue streams and furthering his ambitions in artificial general intelligence (AGI). However, critics have questioned the valuation of the deal, with some calling it a "grift" and pointing to Musk's history of overpromising and underdelivering.

According to Yoni Rechtman, a principal at Slow Ventures, the deal is simply a recognition of the reality that Musk's companies are already deeply intertwined. "All of Elon's companies today are basically one company," Rechtman said. "It's all already Elon, Inc. There are people who work across multiple companies simultaneously. They share a web of capital connections. They do business with one another, and he treats them all effectively as one company."

Ron Baron, the founder of investment management firm Baron Capital, is a self-proclaimed Musk bull who believes that every single thing Musk does is helping everything else he does. Baron Capital has invested across Musk's ecosystem, which includes Tesla, SpaceX, The Boring Company, and Neuralink, among others. "It's the ecosystem. It's the Elon ecosystem, and I think it's really interesting when you look at it that way," Baron said.

The deal has also highlighted the growing trend of narrative-led investments, where investors are willing to overlook traditional metrics in favor of a compelling story and vision. Gene Munster, managing partner at Deepwater Asset Management, which has invested in X, xAI, and Tesla, believes that Musk's ability to keep investors engaged for the long term is one of his superpowers. "The reason why [Tesla's] stock trades at 80 times earnings and the comp group trades at 25 times earnings is that people are making a bet on the long term, and it's not about what happens to numbers this year," Munster said.

However, the deal is not without risks. Dan Wang, a professor at Columbia Business School, pointed to the ongoing lawsuit that X is facing from the Securities and Exchange Commission (SEC), which accuses Musk of misleading investors by delaying the disclosure of his previous investments in Twitter. Wang also highlighted anticompetition and user privacy concerns, particularly regarding how X quietly opted all users into data collection for AI model training.

Additionally, there is the risk that Musk might simply lose interest in a project, as some Tesla shareholders have reportedly felt in recent months. "I think that is what a lot of Tesla shareholders are feeling right now," Rechtman said, "where for the last several months, Elon's number one company has been the Trump campaign, and his other projects have languished."

Despite these risks, Munster appeared nonplussed, suggesting that they are inconsequential given the enormity of xAI's value proposition and potential to become a dominant player in AI. "We're betting the firm on the belief that AI is going to be more transformative than what people think," he said.

Rechtman believes that Musk bulls aren't blindly loyal, but simply trust in Musk's ability to "bend capital markets to his will" in a way that allows him to do things and build businesses that nobody else can. "The people who are in these businesses have just gone long Elon, and they will continue to go long Elon," Rechtman said.

The deal has also raised questions about the potential for further consolidation in the Muskverse, with Rechtman suggesting that buying into Musk's more speculative bets, like X, is one way to potentially unlock more investment opportunities in the future. "SpaceX is a real thing, and it will never go public," he said. "So the only way to invest in SpaceX is to get access to the tenders. And the only way to get access to the tenders is to be in Elon's good graces."