"This combination will unlock immense potential by blending xAI's advanced AI capability and expertise with X's massive reach," Musk said in a post on his social network.
X has more than 600 million users, and its future is "intertwined" with that of xAI, launched two years ago, according to Musk.
"Today, we officially take the step to combine the data, models, compute, distribution and talent," Musk said of combining the two companies.
"This will allow us to build a platform that doesn't just reflect the world but actively accelerates human progress."
The companies are being combined in an all-stock deal that values xAI at $80 billion and X at $33 billion, factoring in the social network's $12 billion debt.
Musk bought Twitter for $44 billion in late 2022 in a transaction that included debt and launched xAI the following year, spending billions of dollars on high-end Nvidia chips for the venture.
xAI in February released the latest version of its chatbot, Grok 3, which the billionaire hopes will find traction in a highly competitive sector contested by the likes of ChatGPT and China's DeepSeek.
Musk has promoted Grok 3 as "scary smart," with 10 times the computational resources of its predecessor that was released in August last year.
Grok 3 is also going up against OpenAI's chatbot, ChatGPT - pitting Musk against collaborator-turned-arch rival Sam Altman.
Musk and Altman were among the 11-person team that founded OpenAI in 2015.
Created as a counterweight to Google's dominance in artificial intelligence, the project got initial funding from Musk.
Musk left three years later, and then in 2022 OpenAI's release of ChatGPT created a global technology sensation -- which made Altman a tech world star.
Their relationship has become increasingly toxic and litigious ever since.
X's billionaire owner, the world's richest person, is a major financial backer of US President Donald Trump and heads a Department of Government Efficiency that has been slashing the ranks of government employees.
Industry analysts at Emarketer this week forecast that ad revenue at X will grow this year as brands fear retaliation by politically connected Musk if they don't spend on the platform.
"Many advertisers may view spending on X as a cost of doing business in order to mitigate potential legal or financial repercussions," said Emarketer principal analyst Jasmine Enberg.
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