(Preview) xAI Buys X, The Bitter Lesson for Everyone, Everywhere, Google’s Only Hope in AI

Thoughts on both X and xAI in the wake of Friday’s announcement from Elon Musk, Chat GPT’s image capabilities and whether AI-adjacent SaaS companies will ever have a moat, and emailers offer counterpoints on Sam Altman’s ads answer and the notion that Google can’t make great products anymore. At the end: Should Substack serve ads?, answers on Israeli cybersecurity, and more on Steve Jobs and Studio Ghibli.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Andrew Sharp?

  Hello and welcome to a free preview of Sharp Tech.

• 0:08Andrew Sharp?

  Elon Musk tweeted, XAI has acquired X in an all-stock transaction. The combination values XAI at $80 billion and X at $33 billion, $45 billion less $12 billion debt. Since its founding two years ago, XAI has rapidly become one of the leading AI labs in the world, building models and data centers at unprecedented speed and scale. X is the digital town square where more than 600 million active users go to find the real-time source of ground truth and in the last two years has been transformed into one of the most efficient companies in the world, positioning it to deliver scalable future growth.

• 0:53Andrew Sharp?

  So Ben, this caused a bit of a hubbub on Friday afternoon. I'm now trying to get a sense for whether that news actually matters because it was my understanding that XAI had been working with X data all along. So does this news actually change anything for XAI? Or is the new arrangement effectively a distinction without any real difference?

• 1:15Ben Thompson?

  Yeah, I mean, some people were trying to like raise like, oh, this is, you know, so wrong and, you know, what are these numbers? It's like, they're all private transactions. I was messaging a friend like, in case you missed it, X went private a couple of years ago. So does Elon Musk have fiduciary duty to the investors in this deal? Yes, he does. Does he have their permission to do that? I would assume so. Do we know or have any insight? Is this a, no, it's not a public market company. So just putting that out there, number one. Number two, this is why I didn't write about or mention the reports about like X being profitable or not, or what the valuation was, because a huge amount of their revenue

• 1:59Ben Thompson?

  was being paid from XAI for access to their data. So, which again is the right hand paying the left, which is fine. The X data is very valuable, but. That does speak to, there is value in acquiring X in that they're not now paying for X data. You know, sort of, again, leaving aside the numbers, is this a deal that makes sense? Yes, it is. And I would go one step further, which is to say, the structure of this deal probably does speak to the long-term potential value of X, which has always been the real-time data. Right, like, and, and, you know, for ages, you know, I, I, it's hard to keep track of what

• 2:43Ben Thompson?

  the various things that I prescribed for Twitter over the years.

• 2:47Andrew Sharp?

  Twelve years of recommendations that were not heated, yes.

• 2:51Ben Thompson?

  And just bailing on it multiple times and, and not writing about it. At first, because it was like, look, this is a failed business. There's no point writing about the business. Then once Elon takes over, it's like so radioactive. And also now it's private, so you don't even have numbers to look at. I mean, people forget, Twitter, I think, had one profitable quarter i- i- i- in terms like ever, like in its entire run. Maybe it was two or three, I can't, it might have been like three, but the cash flow was-

• 3:14Andrew Sharp?

  Because we got that email on the last episode asking for our group chat segment, and I had to go back and look at some of our discussions in like November 2022. And there was a lot of Twitter discussion back then, and I remember being astounded looking back at how unprofitable they had been in the 10 years prior to Elon. So whether it was one quarter, two quarters, three quarters, it wasn't good. It's the clear takeaway.

• 3:39Ben Thompson?

  It was not good. So, yeah, this is, it is an important thing to keep in mind. The biggest flaw in the entire Musk app management acquisition whole thing was how much he paid. Because it was, you know, but the reality, you could argue he's already gotten his money's worth, as we mentioned, you know, a few months ago, because the influence of Twitter has always far exceeded its monetization potential. And, and this bit about real-time access being valuable to me has always been interesting. And why, I remember, I think they acquired Mopub back in the day. It's interesting because they said spun Mopub off, Mopub off to Apple, and then Apple, Apple has done a- Amazing things with it from a business perspective.

• 4:22Ben Thompson?

  But my view was, look, this is a data play. Like this whole company should be a data play. They should be selling access at much higher rates to the data that they have. And there's way more monetization potential in this regard. And this is maybe like a backwards way to that. Where what is going to differentiate models in the long run? Well, one thing that is valuable and to me, one of the biggest Grok use cases is it's access to, at least the sense of access to much more real time data. And can it surface that consistently and usefully from X? You know, we'll see how that plays out in the long run.

• 5:06Ben Thompson?

  But from a very high level, again, setting aside all the particulars, obviously setting aside all the politics. Does this make sense that a would be AI company acquires Twitter? Again, leaving aside, it's the same person on both sides of the equation. Does this make sense? Yes, I think it does make sense. I think it makes a great deal of sense. And it makes sense in this order that it's the, the AI company acquiring Twitter as a really valuable input to being a potential winning product in the market.

• 5:39Andrew Sharp?

  Well, and in terms of real time data for X, how much more valuable is it now that these AI companies are reliant on real time data or get much better with real time data than it was in, say, 2016, 2017? It seems like they've waited around long enough so that there's now more of a market for what they can provide.

• 6:00Ben Thompson?

  Yeah, this is just another way to do what I proposed ages ago. Like I thought they should have been selling like API feeds and have a much more developed API and access to data for traders, for Wall Street. Maybe this is going to end up being an even larger opportunity. So it will work out in the long run. But again, we're talking at a very high level. If you just zoom out, is there valuable data on Twitter slash X? Yes. Does that make it, is this one way to manifest it? Certainly. So we'll, we'll see, we'll see how it plays out. But at least from a big picture perspective, again, setting aside the numbers, does this make sense? Yes, I think it does.

• 6:38Andrew Sharp?

  Indeed. Well, and the initial Twitter investors look like they're going to be taken care of here. Another funny thing.

• 6:44Ben Thompson?

  Well, they're taking care of to the extent they're now, they're now all in on XAI.

• 6:48Andrew Sharp?

  Like, so. Which I would feel better about than being all in on X, frankly, as much as X is apparently doing better than ever these days. I don't know how much I buy that.

• 6:57Ben Thompson?

  Yeah, we'll see. I mean, I don't know. The quality of ads I get are certainly not very high. Don't speak to this being a very thriving platform. So, and I like to say I have a fairly, you know, I shouldn't be getting the level of trash ads that I do. But, you know, we'll see.

• 7:12Andrew Sharp?

  Well, there was about a year there where I was constantly served Cheech and Chong marijuana gummy ads on X.

• 7:19Ben Thompson?

  Oh, I just get these atrocious crypto ads.

• 7:22Andrew Sharp?

  Like, oh, yeah.

• 7:23Ben Thompson?

  Yeah, like the last week, there's been all these like Apple token things that are just, it's, it's ridiculous. It's disgusting. I do, I do, I did on my burner account, apply. I do have like the highest level one now, just to get rid of ads. I've realized like, it's pretty expensive, but I use this a lot. So it's worth it for me not to see it. And then every time I go to one of my other, I'm really being punished for having the multiple, the multiple X accounts. It's rough. It's pretty.

• 7:49Andrew Sharp?

  The algorithm, your algorithms are so confused by your Twitter usage. I will say, going back to fall of 2022, one story that I had completely forgotten about before I had to search through our archives last week, was there was that weekend where X like had fired everybody and then it looked like it went dark for a little while and there were all these Twitter eulogies about how the service was just not going to survive.

• 8:15Ben Thompson?

  No, it never went dark. This was a completely spun up fanciful, it's going to go dark news cycle that, you know, like again.

• 8:24Andrew Sharp?

  It's pretty funny to relive a couple of years later.

• 8:27Ben Thompson?

  Yeah, I mean, it should give everyone pause about, you know, this is just. Yeah, it never it never happened. And and it's funny because it's hard like I think Twitter's actually been quite on it. It goes through periods of quite a bit of instability. I think it's been quite unstable over the last week or so. And, you know, is the infrastructure as stable and as reliable as it was back then? I still don't think it is. But it's also the case, they did cut costs by like 80%. So I mean, and it's mostly still functioning. So I think everyone kind of looks kind of dumb about the whole thing, for sure.

• 9:01Andrew Sharp?

  Well, on the XAI side, are you still using Grok more than any LLM? And if so, why?

• 9:07Ben Thompson?

  I have to say, I've kind of gone back to OpenAI a fair bit. And it's honestly because like, so now I feel validated where my initial takes. The apps are better. They're they're just better, particularly on macOS. Like, the macOS ChatGPT app is great. It's always there. It's reliable. The Grok, it's still only a web app. There is no actual app. And that web app seems to suck. Number one, it's just harder to use a web app in general, even if you have like a dedicated site browser. It logs me out constantly. I always have to re-verify. And I don't know I'm logged out until I type a question and it doesn't answer and I have to refresh the page and that.

• 9:42Andrew Sharp?

  That's a deal breaker right there.

• 9:44Ben Thompson?

  Yeah, it might be worse because I am abroad. And, you know, this is Taiwan used to be the home of a lot of, you know, scammers and stuff, as far as like, like, especially back in the 90s and 2000s.

• 9:59Andrew Sharp?

  Like Bot Farm type stuff?

• 10:00Ben Thompson?

  Yeah, Bot Farm sort of stuff. And so I've all it's it's kind of painful, actually, using the internet here. I I deal with more CAPTCHAs than you can believe with everything all the time. And it's still the case that a lot of things like, you know, like, I go to Home Depot, or I go to my my local furniture store, and I'm always blocked. I have to go into VPN to get through it. Like, like, there's just large swaths, particularly of like, older stuff, because no one ever updated with better security practices. Like, look, just block, just block this whole list of IPs. So that might be part of the reason.

• 10:34Ben Thompson?

  It doesn't matter to me. I'm just trying to get work done and 4.0 has been updated. I think it is probably better, but honestly, for a lot of stuff, it gets the job done and it's just easier to use. So I do still use Grok, but less than I was where I was all in for a few weeks anyway.

• 10:52Andrew Sharp?

  Fair enough. Well, we're going to continue to monitor your LLM favorites as we go here. One big picture question.

• 10:59Ben Thompson?

  I am not, by the way, everyone says Gemini 2.5 is incredible. They did just put it in the Gemini app. I've just, in case it comes up on this podcast, I have not dived into it yet. I do plan to do that, but um, I did appreciate, I, I, I scolded Google on Wednesday where ChatGPT is going viral, even though Google kinda had some aspect of this capability already. And meanwhile, they had 2.5 that came out the day before. That was only in the API and only in, in AI Studio. It wasn't in their apps. I'm like, what, guys, you, you gotta ship a product. Like you, your infrastructure, it was so classic Google in many respects. I don't, you know, they, they got it into the product already. Apparently it was, it was put in over the weekend. So I do look forward to, to checking that out,

• 11:42Ben Thompson?

  but um, I just want to give that, give that caveat. I, I see you Gemini. I see you 2.5. No feedback yet.

• 11:50Andrew Sharp?

  There we go. Well, perhaps we'll revisit it after vacation. I had one other question on XAI. What is the lesson from XAI? Because Elon's tweet mentioned spinning this up in two years, which is frankly, pretty unbelievable. Is it that anyone who has enough money can just buy GPUs and hire the best engineering talent and eventually release competitive models within a couple of years? Or was this blueprint something that Elon was uniquely situated to execute?

• 12:23Andrew Sharp?

  All right. And that is the end of the free preview. If you'd like to hear more from Ben and I, there are links to subscribe in the show notes, or you can also go to sharp tech.fm. Either option will get you access to a personalized feed that has all the shows we do every week, plus lots more great content from Stratechery and the Stratechery Plus bundle. Check it out. And if you've got feedback, please email us at email at sharp tech.fm.