Elon Musk Raises $5 Billion—and Goes to War with OpenAI

Elon Musk's AI company XAI has confirmed raising $5 billion at a staggering $50 billion valuation, all while solving a big headache at X and escalating his war against Sam Altman and OpenAI.

I unpacked what’s going on with Marketing AI Institute founder and CEO Paul Roetzer on Episode 125 of The Artificial Intelligence Show.

What's Happening

First, xAI told investors it raised $5 billion at a $50 billion valuation, which is more than double its valuation earlier this year, according to The Wall Street Journal. This brings xAI’s total fundraising to $11 billion this year alone.

Second, The Financial Times is now reporting that investors who backed Musk’s $44 billion takeover of Twitter have been given a 25% stake in xAI. 

This stake could make them whole after major losses on their Twitter investment, which has seen its value decline by as much as 80% according to some estimates.

Third (as if that wasn’t enough for now), Musk also filed for a preliminary injunction against OpenAI, Microsoft, and several key figures including Sam Altman. 

The filing seeks to prevent OpenAI from transitioning to a for-profit structure and alleges various anticompetitive behaviors, including discouraging investors from backing rival companies like xAI. 

This Has Always Been About xAI—Not X

It’s easy to think that this move is, in part, about making Musk’s Twitter backers happy while he gets the company back on solid financial footing.

But that may not be the right way to think about it, says Roetzer.

X is now worth a fraction of what Musk paid for it. xAI, at a $50 billion valuation, is now worth four times as much. X was essential to helping xAI reach this valuation, says Roetzer. 

“X was essential to that valuation because what they had, he had shut off access through the API to Twitter's data when he bought it," says Roetzer. "Which meant he was hoarding the proprietary data that lived within Twitter.” 

So, by purchasing X, Musk acquired exclusive access to Twitter’s vast data, which is used to train xAI models. And, he got built-in distribution for xAI’s products to millions of X users.

This was never about making X an incredibly successful company, says Roetzer. It was about making xAI one.

“I assumed he was going to make people who invested in Twitter whole,” says Roetzer. 

“He was going to basically run the value of Twitter into the ground. It didn’t matter anymore because it was xAI that was the future of everything. And Twitter was just a feeder of data and distribution for it.”

How Sam Altman and OpenAI Fit In

The escalating lawsuit against Sam Altman and OpenAI are also a big part of the story.

The preliminary injunction he’s filed aims to prevent OpenAI from transitioning to a for-profit structure—a milestone the company must achieve as part of its last fundraising round. 

Whether it actually works or not may not be the point either, says Roetzer.

"He's going to spend as much money as he needs to. And he's going to force Sam, OpenAI, and Microsoft to spend a ton of money and time and just make things insanely complicated for them," says Roetzer. 

That, in turn, is going to give xAI more time to catch up to—and perhaps surpass—OpenAI. 

And, you can bet Musk will bring his newfound influence in the incoming US presidential administration to bear, too. After all, OpenAI needs the government’s support as they race towards AGI, says Roetzer. That could get a lot more difficult now that Musk has influence in the new administration.

“He intends to make life miserable for Sam Altman, and now Microsoft and other OpenAI leaders,” says Roetzer. “And he’s going to use his newfound influence with the incoming administration to do just that.”