Elon Musk merges SpaceX with xAI in $1.25 trillion deal, eyes AI data centers in space

Why has Elon Musk merged his rocket company with his AI startup?

SpaceX's acquisition of xAI creates business worth $1.25tn but whether premise behind deal will work is questioned The acquisition of xAI by SpaceX is a typical Elon Musk deal: big numbers backed by big ambition. As well as extending "the light of consciousness to the stars", as Musk described it, the transaction creates a business worth $1.25tn (£920bn) by combining Musk's rocket company with his artificial intelligence startup. It values SpaceX at $1tn and xAI at $250bn, with a stock market flotation expected in June to time with Musk's birthday and a planetary alignment. However, there are questions over the deal, such as whether it is good for SpaceX's non-Musk shareholders and whether the technological premise behind it can succeed.

Markets will soon test a Musk merger that promises 'space-based internet'

Elon Musk's move last week to combine SpaceX and xAI has created one of the world's biggest and most valuable private companies, which analysts say offers a mix of potential growth and financial risk as it heads toward public markets. The two companies are very different. SpaceX was founded in 2002 and has established itself as the premier nongovernmental space exploration operation. Musk's xAI venture was started less than three years ago to focus on AI and more recently social media. In another Musk company combo, xAI acquired the social media platform X last March. Analysts told NBC News that both entities have something to gain from coming together: SpaceX gets an edge ahead of its IPO, and xAI can expand its AI infrastructure while getting a much needed "injection of cash," as one expert put it. In his Monday announcement, Musk said the merger will create a company with "AI, rockets, space-based internet, direct-to-mobile device communications and the world's foremost real-time information and free speech platform." Musk added that he wants to create AI data centers in space by "launching a constellation of a million satellites that operate as orbital data centers." And Musk is pushing forward on this concept. Days prior to the merger announcement, SpaceX described the satellite plan to regulators, according to a filing submitted to the Federal Communications Commission and reviewed by NBC News. "There's industrial logic behind combining SpaceX, which would launch and design the satellites that would host the compute with xAI, which has experience operating these compute clusters and has the Grok model that would presumably run on it," said Nick Del Deo, a senior research analyst with a focus on digital infrastructure at MoffettNathanson. The concept of data centers in space is "conceivable," Del Deo said in a phone interview, but he predicted it would take "many years before anything substantive happens." "A lot of things need to go right for it to work, let alone for it to work at a scale that is relevant compared to terrestrial alternatives," he said. Not surprisingly, Musk envisions a shorter timeline. In the announcement, he estimated that in just two to three years, the "lowest cost way to generate AI compute will be in space." (Musk has been known to set -- and miss -- ambitions timelines.) Andrew Rocco, a stock strategist at Zacks Investment Research, told NBC News that he thinks the acquisition makes sense. "There's going to be a ton of synergies that it's going to be a lot smoother for both of these companies," he said in a phone interview. "SpaceX, with its massive payload capacity and basically a near monopoly in space -- I think it's going to help Musk's other companies kind of catch up in the AI data center race and AI training race," said Rocco. Beyond the futuristic visions of space-based data centers, there are near-term financial considerations at play, too. As SpaceX prepares to go public later this year, the merger could be Musk's way of positioning SpaceX "strategically" to compete with the expected IPOs of two of his biggest competitors, OpenAI and Anthropic, in the AI race, said Ali Javaheri, a senior research analyst at PitchBook. Del Deo said one "cynical view" of the merger is that SpaceX needs a "sexy narrative" ahead of its IPO "to get investors more excited in the stock and drive the sort of valuation that they're hoping for." Bloomberg reported that the merger would value the combined companies at $1.25 trillion, with the bulk of the valuation -- $1 trillion -- coming from SpaceX. However, xAI's value still pumps up SpaceX's total valuation ahead of it going public. A Tuesday note co-authored by Dan Ives, global head of technology research at Wedbush Securities, said this would mark the "largest tie-up across Musk's enterprises yet." Forrester analysts wrote in a Tuesday report that "aligning" the merger as well as the FCC filing ahead of its potential IPO is a "classic Musk valuation inflation." "SpaceX is packaging a narrative of hyperscalable, lowest‑cost AI compute from space -- the kind of storyline that expands TAM, lifts growth multiples, and reframes Starship as a structural cost moat," the analysts wrote. "These are classic ingredients for pre‑IPO narrative lift -- and a familiar pattern in Musk‑era market signaling. It positions ambition as inevitability, inviting investors to price in a future that engineering has yet to substantiate." Rocco, on the other hand, said he thinks it will likely be "one of the most hyped IPOs in history." "I can't think of another one that would be more hyped than this -- everyone is trying to get a piece of SpaceX," he said. "I think it's going to price higher than most people expect, and most people already expect it to be the largest IPO in history." SpaceX and xAI joining forces has driven speculation over what this means for Musk's electric vehicle company Tesla. Tesla announced in its latest earnings release that it's investing about $2 billion to acquire shares of xAI's preferred stock. The two companies entered into a "framework agreement" to evaluate "potential AI collaborations," Tesla added. Wedbush said there is a "growing chance that Tesla will eventually be merged in some form into SpaceX/xAI over time." "Musk wants to own and control more of the AI ecosystem and step by step the holy grail could be combining SpaceX and Tesla over the next 12 to 18 months in some form to give the connected tissue between both disruptive tech stalwarts looking to lead the AI Revolution," Wedbush continued. Javaheri echoed this sentiment, saying he thinks this move will eventually lead to "Tesla also getting folded." In the long run, Rocco said he thinks it would be a "good synergy," but that it would be a "very hard sell." He said if he were a private investor in SpaceX, he would "just want it to come public on its own -- they basically have a monopoly." Gene Munster, managing partner, co-founder and head of portfolio research at Deepwater Asset Management, said in an interview that he thinks Tesla shareholders would "welcome a combination." "Bringing these two visions closer together, specifically around robotics and space and having AI sit in the middle of it, it's not only a good story, but there's real substance to it," Munster said.

Elon Musk is betting another tech conglomerate to win over Wall Street

Elon Musk's SpaceX and xAI are merging. The plan involves building AI data centers in space for unlimited solar power. This move aims to boost SpaceX before a potential public offering this year. Investors are watching closely as Musk pushes technological boundaries. The merger could offer SpaceX a share in the booming AI market. SpaceX, Elon Musk's rocket and satellite company and the crown jewel of his business empire, and xAI, his cash-burning artificial intelligence and social media business, have little in common. That's why many were puzzled when Musk said this past week that he was merging the companies. The reason he gave sounded like it had less to do with the business synergies that investors love and more to do with the science fiction he loves. SpaceX, Musk explained, will move AI data centres into outer space, where they can expand and enjoy limitless solar power while avoiding the human bureaucracies that slow progress. At least, that's the plan. But behind Musk's fantastical vision, there are earthbound reasons to believe that a combination rocket, satellite, AI and social media conglomerate with dreams of taking the tech industry into space is not as unwieldy as it sounds. While industrial conglomerates have fallen out of favor in recent decades, tech conglomerates have shown that different businesses can be bundled effectively. The real question is whether Musk's ideas are a few too many steps ahead of reality. "If you take Elon Musk out of the picture, it's an odd move to make," said Eric Talley, a Columbia Law professor who specializes in corporate law, governance and finance. "But he seems to be the master of the odd move and has an enviable ability to defy gravity when it comes to these things." There is also a more grounded business purpose for the merger: Adding xAI bulks up SpaceX before potential plans to go public this year. The deal valued SpaceX at $1 trillion, up from $800 billion in December, and xAI at $250 million. And Musk hopes to raise as much as $50 billion through the initial public offering. In addition to extending a financial hand to xAI, SpaceX will go for a slice of the AI boom. Investors have eagerly poured money into AI startups they believe will revolutionize the tech industry, and by incorporating xAI, SpaceX can offer a taste of that new wealth to potential investors. While experts warn that there are currently technical and physical limitations, Musk -- who often makes bold and inaccurate predictions about when new technologies will emerge -- predicted in a memo to employees and investors that building data centers in space would become the lowest-cost way to power AI within two to three years. This article originally appeared in The New York Times.