AI eats social media as xAI swallows X

• High expectations for xAI and every other AI darling are buoying the rest of the tech industry for now — but all that ends the moment the AI bubble bursts.

Why it matters: The entire social media world — including X, Meta-owned Facebook and Instagram, Google-owned YouTube, even the younger TikTok — has become a legacy platform.

• While this inherited business is still huge and in many cases profitable, it's not going to grow or innovate at the pace Silicon Valley and Wall Street demand.
• Right now, X may be the most financially challenged of the large social-media platforms. But Meta's and Google's properties are also benefiting from investors' bets on the parent companies' AI growth.

Catch up quick: 2 1/2 years after he bought Twitter, Musk has done little to grow its business or actually transform the company into the "everything app" he once planned.

• A month after he acquired the company, OpenAI released ChatGPT, and soon after it became clear that any new "everything app" was likely to be an AI tool, not a social media network.
• xAI gives Musk a convenient vehicle to scoot X out of the tarnished social media category and into the AI world.

Yes, but: X is a mature business with thousands of employees, hundreds of millions of customers and about $2 billion in estimated global ad revenue.

• Musk's drastic spending and staff cuts brought its overhead down, but it doesn't seem to have found a way to return to the revenue levels it last saw as the public company known as Twitter (a little over $5 billion) — let alone spark significant growth.

xAI, on the other hand, is a growing two-year-old startup that won headlines for getting a giant new data center in Memphis, Tennessee, built fast.

• The company's AI models have become contenders in the bigger AI race, earning comparisons with better-known rivals like OpenAI and Google.
• But for most of xAI's existence the bulk of its usage has come from the X network.

By the numbers: Musk says xAI's paper valuation based on its most recent private investment round is now $80 billion.

• 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.)

• xAI's modest revenue stream in turn comes chiefly from X itself.
• For the moment, these dollars are all just circling the Musk-o-sphere in a slightly different configuration.

The big picture: Everyone in tech is benefiting from AI's magic multiplication powers right now.

• That definitely includes Meta and Google. Both giants have massive social media (and search) revenue streams, but both also rely on AI sparkle to tell a story about future growth — and mask stagnation in their core businesses.

The intrigue: Dollars aren't all that's flowing between X and xAI.

• xAI's models are already using the entire corpus of X user posts as training data.
• For users who object to that, the new ownership structure makes the arrangement that much more difficult to ignore.

Meta does exactly the same thing with its users' posts, of course.

• Google and YouTube appear to be somewhat less aggressive, but also apply user data to build a variety of AI-powered features.
• Then again, all of Google's services, starting with search, are essentially one giant algorithmic supercomputer powered by user data. Generative AI is just the newest and outermost layer.

The bottom line: As AI's conquest of tech-industry mindshare advances, social media is decreasingly important as a business — and increasingly treated as an exploitable data resource to build AI.