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Just to parse these events for sake of clarity:

In 2022, Musk purchased Twitter (then a public company) and took it private. He subsequently fired most of the staff, lost a huge amount of revenue, and rebranded Twitter to X, the everything app, aka X (formerly Twitter). The company was bleeding money, and Musk was liable for a large amount of the debt.

In an effort to get himself off the hook, his AI startup, xAI, bought Twitter for an undisclosed amount, with the rationale that Twitter’s data and userbase would be additive to xAI’s business. xAI, being an AI company, is hemorrhaging money, but because it’s an AI company, there’s been plenty of cash to burn.

The AI party is coming to an end as the industry runs out of cash, so Musk needs to find the next buyer for his failing businesses, so he’s having SpaceX buy xAI. As SpaceX is still a private company, the details of this transaction are also not publicly disclosed. SpaceX is planning to go public later this year. The rationale for the xAI purchase is that SpaceX will launch AI data centers into space.

The SpaceX IPO is expected to be valued at $1.5 trillion, making the xAI purchase, along with the Twitter assets, a rounding error by comparison. Musk likely wants to roll Tesla into the company, as well, but this will be much more difficult, not just because one or both companies will be public, but also because Tesla’s current valuation is on the order of $1 trillion, and so unlike Twitter or xAI, the cost to acquire it would be material to the transaction and wouldn’t simply be a matter of bundling smaller assets into a larger company to obfuscate their value. However, as noted, Tesla shareholders are generally Musk believers, in that they are either stupid and believe Musk is real-life Tony Stark, or they’re slightly smarter and believe that Musk will make sure that there will always be demand for his companies’ shares from retail investors.

It’s worth mentioning that SpaceX is probably the most “real” company in Musk’s portfolio, insofar as it has the greatest potential to achieve commercial success on remotely realistic terms. xAI is an AI company, and we have no idea if AI will ever be worth the current level of investment it’s getting, and Tesla is a company that will only justify its valuation if it can essentially replace all manual labor with humanoid robots and fully-automated cars. I find it unlikely that either will achieve success, as they’re not even market leaders in their respective fields, and their success depends on achieving what is essentially magic compared to our current level of technology.

SpaceX is a company that’s trying to reduce the cost of getting things into orbit, which, by comparison, is a fairly sane and valuable endeavor, and thy are currently the leader in that field. Whether they can justify a $1.5 trillion valuation in a reasonable timeframe remains to be seen, and if past performance is any indicator, Musk will soon need an even bigger and more absurd venture to justify buying SpaceX so that he can keep kicking the can down the road, or maybe space is a big enough category that he can continue to raise exponentially more money for ever-larger projects.

The question with Musk, as it’s always been, is how long he can maintain his trajectory before there simply isn’t enough money available to keep him going. What he’s doing isn’t technically fraud, insofar as he is doing what he says he’ll do with investor money and likely believes his own narrative, but it’s effectively the same as what Elizabeth Holmes did. The only wrinkle is that Musk’s companies technically make products and even achieve a degree of profitability, but their valuation is based on products and service that don’t yet exist and business models that may not be viable even if they did.

What Musk is doing is like if I were to buy a hardware store, then I went to investors and said “I want you to give me $50 billion to create the world’s first self-building house company, but I need to start by growing this hardware store.” Then I take my hardware store public on the basis that we’re going to have self-building houses in five years, but I just go and operated a normal hardware store business. Tesla and xAI and SpaceX are all just as real as my self-building house company. Nominally-real businesses with no basis for 400x P/E ratios, but because the potential for growth is technically there, and people are willing to buy in because they think some idiot will pay more for my shares tomorrow, the train keeps rolling.

This was longer than I thought it would be, but man, this guy is really something.