After weeks of struggling, Tesla (TSLA) stock seems to have finally regained some of its previous momentum, gaining modestly.
This is likely due, at least in part, to the positive momentum that is sweeping over markets today. Most of Tesla’s Magnificent 7 peers, the tech companies responsible for driving most of the market’s growth in 2023 and 2024, are back in the green after weeks of trending downward.
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That said, TSLA stock is outperforming many peers, possibly due to anticipation of Elon Musk returning to the company. President Donald Trump has hinted that the Tesla CEO’s role within the so-called Department of Government Efficiency (DOGE) may be coming to an end, which some investors likely find reassuring.
Of course, Musk has other things to distract him from running his only public company, including other businesses, including his social media and artificial intelligence companies.
Elon Musk recently pulled off a deal that most companies couldn’t have accomplished so quickly.
Source: Apu Gomes/Getty Images
Musk moves put Wall Street on alert
Over the past few years, Musk has done many things that have left investors and consumers scratching their heads. Last week, he continued this trend by announcing a deal between two companies.
In a post on X, Musk announced that his artificial intelligence (AI) startup xAI would be merging with the social media platform in an all-stock deal. While they may operate in different industries, Musk sees the merger as necessary for both enterprises.
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It’s not hard to see why merging X and xAI might make sense, at least from an operational standpoint.
As a leading social media platform, X offers extensive real-time and proprietary data that could be instrumental to the AI startup’s growth.
What likely caught the eye of many people, though, is the extremely high valuation of this newly merged company. With X and xAI valued at $33 billion and $80 billion, respectively, at the time of the merger, the new company’s valuation is roughly $113 billion.
“Of course, in all-stock combinations it is the ratio between the two companies’ sizes — rather than their absolute values — that is most intriguing,” reports the Financial Times. “It determines how big a slice of the combined pie each set of shareholders is going to end up with. In this case, xAI’s are getting about 70 per cent, while those in X are getting the remaining 30 per cent.”
The outlet notes that just how equitable this deal is may be hard to determine, as xAI is still an early-stage startup with little revenue. The private market valued xAI at only $45 billion as recently as late October 2024, so the $80 billion valuation is, let’s say, interesting.
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As Axios recently noted, “Its exact revenue is a tiny fraction of that — maybe $100 million — meaning investors are paying 800 times revenue for their shares. (The equivalent figure for Tesla right now is about eight times revenue.)”
A deal most companies couldn’t have pulled off
This merger may benefit both companies, especially X, which has suffered from declining advertising revenue and user growth since Musk purchased it in 2022.
Such a deal wouldn’t have been possible if either or both companies were publicly traded. As the Wall Street Journal reports, “If this were a public-company merger, shareholders on each side would demand that independent directors and advisers determine the proper valuations.”
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Since both companies are privately held and controlled mainly by Musk, the deal seems to have faced few barriers.
Andrew Verstein, professor of law at the University of California, Los Angeles, Law School compared the deal to “using Monopoly money to buy Pokémon cards,” as no cash seemingly changed hands as part of the merger.
Adding to the nontraditional aspects of this deal is the fact that the same set of advisors served both sides. As the WSJ adds, “a deal of this size would normally take armies” to complete.
However, Musk’s resources and influence have enabled him to get away with a megadeal that few business leaders could have pulled off, even though it remains unknown how equitable the deal truly is.
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