The $20 billion Elon Musk reality-distortion effect

• Elon Musk's AI firm, xAI, is seeking to raise $1 billion.
• One bullish analyst loosely valued xAI at $20 billion higher than normal, solely due to Musk.

We already know that Elon Musk has a weird, unique influence on markets.

Take Dogecoin, the joke-not-a-joke cryptocurrency symbolized by a Shiba Inu wearing a cunning expression. Musk's regular mentions of the currency, peaking around the time he acquired Twitter in 2022, temporarily fuelled a price surge and probably made a lot of random crypto believers richer.

And in 2021, the Financial Times described what it calls the Tesla-financial-complex, noting that not only is the EV-maker worth a gargantuan sum of money in itself, it has an outsize influence on the broader stock market.

It's happening again in artificial intelligence.

Musk is seeking to raise $1 billion in equity for xAI, his mysterious AI venture that aims to compete with OpenAI, per a filing with the Securities and Exchange Commission.

This is a heady sum of cash for a startup of any size, but Musk only publicly unveiled xAI in July. Business Insider's Kali Hays first reported that Musk was working on a generative AI venture in April.

xAI hasn't produced much and it isn't clear how or whether it's making money. It has a team of 15 staff, according to its website and so far has produced the sum total of one product: a chatbot named Grok.

Grok is not, as such a unique product, and appears to have been built as a kind of petulant response to ChatGPT. Musk has criticized ChatGPT as "woke". Grok, with its self-described "rebellious streak" is intended as an antidote.

Whether there is much cash to be made by charging developers for access to Grok's API, or building custom Groks for enterprise, is perhaps a question for xAI's investors.

The startup has already raised $135 million of the $1 billion sum it's chasing, the filing said. Would-be investors in the company are being asked to put in a minimum of $2 million.

Meanwhile, Deepwater Asset Management managing partner Gene Munster said he estimated xAI's valuation at $25 billion to $30 billion, comparing the firm to OpenAI competitor Anthropic.

This is an astounding set of numbers!

Anthropic, reportedly targeting a valuation up to $30 billion, might justify this price with: Its talent, since its founders are OpenAI alumni; and its product, AI model Claude whose expansion has been boosted by investment from Amazon.

Elsewhere, Mistral AI, a Paris-based company trying to be Europe's answer to ChatGPT, is already raising eyebrows by aiming for a much more modest valuation of $2 billion. Like xAI, Mistral is only a few months old. Unlike xAI, it has already produced an open-source LLM.

And OpenAI is reported to be worth $86 billion amid a looming employee share sale.

By comparison, xAI's targeting a $1 billion fundraise at a theoretical maximum of $30 billion looks deeply irrational even for a market that is going gaga for AI startups.

As Munster said: Musk's involvement throws the "'normal valuation framework out the window."

Under normal circumstances, he added, xAI would be worth around $10 billion post-money in this round.

An up-to $20 billion uplift? That can only be the Musk distortion field.