More Challenges for X as xAI Faces Mounting Costs
Honestly, I have no idea whether X has now established stability, or is still on a fast-track to financial ruin at this point.
Before the U.S. election last year, things were not looking great for the app, with declining revenue and usage taking it below the threshold of profitability, and putting it pretty clearly on a path to bankruptcy.
And thatâs not hyperbole, X owner Elon Musk has repeatedly noted the companyâs finances are not up to scratch, which could lead to a full closure at some stage.
But then, after Trump won the election, X got a new lease on life, with the electoral victory showing that many Americans may well side with Trump and Musk, prompting many big brands to seemingly re-assess their hesitations about the app.
That saw more of them returning to the platform, and spending on X ads once more, which put new wind in Xâs sails.
But not quite enough. Earlier this year, it once again seemed like X would be struggling to pay its expenses. But then in March, xAI, Elonâs well-funded AI project, announced that it was acquiring X the app, bringing the platform under xAIâs broader business umbrella, and enabling it to share funding with the advanced AI project, which has already raised more than $12 billion.
And given that X is seemingly on track to generate around $3 in revenue for 2025, that presents a significant opportunity, and amid the broader hype around AI, it did seem like this could finally give X some stability, while also reducing the pressure on the app to generate more income from ads.
But that might not actually be the case.
According to reports this week, xAI is burning through cash at a rapid rate, to the tune, reportedly, of around $1 billion per month.
The companyâs push to keep pace in the fast-evolving AI space has seen it invest big-time in major data center and processing projects, and itâs likely going to run out of money faster than expected.
xAI is reportedly going to seek a new funding round to offset this, and keep the project running, but xAI also isnât making any real money from its projects as yet.
According to Bloomberg, xAI is on track to generate around $500 million in revenue in 2025, rising to $2 billion in 2026, through expanded AI access and partnerships.
Which will be nowhere close to offsetting xAIâs costs. xAI has already spent close to $5 billion on its âColossusâ datacenter in Memphis, and itâs planning to spend billions more, while itâs also looking to build another datacenter, with billions more in hardware.
Some of the cost here could be shared across Muskâs other businesses, with Tesla also making use of the same hardware. But it does seem like xAI may already be well over its spending thresholds, and on track for eventual bankruptcy itself.
Unless it finds new ways to bring in money.
It has seemed like Musk had found a viable pathway on that front as well, with his DOGE government efficiency team looking to implement AI elements within U.S. government systems, making AI a key component of critical infrastructure. And you can bet that xAI would be a leading candidate to supply such, yet Muskâs recent public spat with Trump could put a dampener on that.
(Note: Musk himself has disputed Bloombergâs reporting on xAIâs projected troubles, but has not offered any further insight into its potential.)
So where does that leave X?
Well, on its own, it still seems like X cannot make enough to pay its costs in 2025, even with some big brands coming back.
Reports earlier this year suggested that X made no money in 2024, due to declining ad revenue intake, and higher debt servicing costs. Its X Premium push has failed to generate significant interest, while X is also now upping its API costs in a bid to bring in more cash.
Usage is also declining, which doesnât bode well for future opportunities.Â
As a private company, X no longer provides auditable usage numbers, but its EU transparency data shows that X usage has declined 15% in Europe since Elon Musk took over at the app.
If that trend is the same across other regions, thatâs a significant problem, which will do nothing to draw more ad dollars to the platform.
Add to this the fact that X hasnât really added much in terms of ad products.
Case in point, at this weekâs Cannes Lions event, all of the major social platforms have announced big new, AI-powered ad options and tools to help brands maximize their spend.
X has introduced nothing.
The X team is in attendance at the event, and theyâve posted many updates about how X is âreshaping real-time connectionâ and âbuilding a new operating system for humanity.â But the only product announcements have related to X Payments, which no one cares about, and an option to conduct stock trading in the app, as part of its expanded financial services push.
Which wonât make X money. I mean, maybe, if a lot of people decide that they want to put their trust in X as their bank, and conduct all of their financial transactions in-stream, then there will be potential for X to generate incremental revenue from transactions. But whoâs going to do that? The platform is highly unstable, is run based on the whims of a billionaire, and is on track to go out of business.
Doesnât seem like thatâs going to be an enticing driver for people to put more reliance on the app.
But X is determined to push ahead with its payments and finance push, despite its ad business flailing, and its now key competitor, Threads, rising fast.
And now, it seems that its key financial lifeline, in xAI, is also not going to provide the additional assurance that X needs.
Add to this ongoing EU investigations, and a $225 million copyright lawsuit filed by a collation of major music publishers, as well as reports that the app is being flooded with misleading, bot-generated, offensive content, including a new rise in CSAM material (because X hasnât paid its detection software partner), and the problems continue to mount for the project.
Will it all be too much, and not worth the effort?
Elon had seemingly proved that X was worth the $44 billion investment heâs made, when it helped him gain significant political power as a result of the U.S. election. But will he be as bullish on the platform moving forward?
You could tell me that X will find a new path to solidify its intake, or that itâll be gone by this time next year, and I couldnât confidently say which is more likely.
