Despite recent Tesla stock price volatility, investors' confidence in Elon Musk's broader ambitions remains surprising. Tesla continues to trade at valuation multiples, not only far higher than traditional automakers, but also far more than most of its technology peers.
This lasting premium reflects Musk's ability to transformatively innovate in emerging industries including robotics, driving software, and a growing number of artificial intelligence. Now, the same optimism extends to his latest career: Xai Holdings, X, a former combination for Twitter and his XAI company.
At first glance, the vision seems revolutionary. Musk hopes X becomes the "Everything App", a platform that seamlessly blends social media, AI and payments. His AI Adventure XAI aims to embed AI directly into the user experience. Musk is reportedly seeking $20 billion in new funding for the work, which will allow the company to treasure for more than $120 billion, an ambitious goal to tend to maintain the same investor belief in Tesla’s extraordinary multiples.
However, in China, a more sober reality is forming, which may force the basic reconsideration of Musk's model and the broader assumptions of today's AI valuation.
In recent months, Chinese tech giant Tencent has been quietly rewriting app AI scripts. Without splashing funding rounds or marketing, Tencent incorporates DeepSeek (China's answer to Chatgpt) directly into WeChat, its flagship superapp with over 1.3 billion active users per month. Long before AI entered the picture, WeChat has brought unified messaging, payments, healthcare, transportation, shopping and business services into a seamless platform. With some incremental updates, AI folds directly into this experience, becoming part of the infrastructure and naturally expands the services users already rely on.
For years, it has been believed that the advantages in AI require vertical integration: control everything from the basic model to the consumer platform-oriented. This logic reflects Musk's success in electric vehicles, where end-to-end control of design, manufacturing, and distribution is clearly advantageous. But this dynamic is being quickly revealed under the leadership of China's tech giants. In fast commodification industries like AI, cost efficiency and integration speed are becoming the main drivers of profit margins and competitiveness. Partnerships can offer as much value as ownership. Companies that continue to invest in a vertically expanded AI empire may increasingly discover their returns under pressure.
This transformation is in the unfortunate Musk moment. X is still burdened by huge annual interest expenses, and advertising revenue has been declining since Musk acquired Twitter in late 2022. Meanwhile, Xai's Grok models are still catching up with OpenAI's GPT-4 and Anthropic models. It has secured OpenAI's GPT-4 and Anthropic models through its company partners. In theory, new funds can help close some of the gap. However, in fact, the nature of competitive advantage in AI has surpassed Musk's vertical integration model.
This strategic mismatch will make it more difficult for AI companies to get used to. Before Musk's acquisition, Twitter's annual revenue was about $5 billion, with advertising accounting for nearly 90%. X's global advertising sales are expected to reach $2.26 billion this year, according to research firm Emarketer. Depending on the multiples of sectors, X's independent valuation could be close to $15 billion.
As for Xai's hope to compete with Openai and Anthropic, its financial situation is still emerging. Last year, it told investors that annual revenue exceeded $100 million. On this scale, even a generous benchmark suggests that the valuation is just over $2 billion, especially due to its lack of reliable corporate traction. To sum up, the valuation close to $20 billion seems more realistic, much lower than the $113 billion Musk allocated to XAI and X during the recent merger.
At the same time, in China, the valuation multiple is even lower. In addition to Musk, Tencent’s AI strategy redetermines the basic events of the entire AI field. The era of huge premiums with technological novelty is coming to an end. Musk's super app dream now faces a world of rich and cheap AI. In the next stage of AI, the real measure of success will not be how much money a company can raise. How much does it take to win?
June yoon@ft.com