As well as extending “the light of consciousness to the stars”, as Musk described it, the deal creates a business worth $1.25 trillion (£920 billion) by combining Musk’s rocket company with his artificial intelligence startup. It values SpaceX at $1 trillion and xAI at $250 billion, with an IPO. expected in June at the time of Musk’s birthday and a planetary alignment.
However, questions remain about the deal, including whether it is good for SpaceX’s non-Musk shareholders and whether the technological principle behind it can succeed.
Why is Musk combining rockets and AI?
For Musk, a key part of the deal’s logic is moving data centers — the central nervous system of AI tools — into space.
AI companies are too dependent on land-based data centers that generate immense energy demands, Musk argued this week. The solution, he says, is to orbit up to a million satellites to form vast solar-powered data centers.
Professors Julie McCann and Matthew Santer, co-directors of the School of Convergence of Science in Space, Security and Telecommunications at Imperial College London, say solar-powered data centers could be a future option for AI companies. However, there are limits to the computing power that current satellites can muster, they say, and so it would require a “planet-wide distributed computer, made up of many satellites” – as Musk envisioned.
But even the execution of the concept could be affected by the quality of the connection between the orbiting devices, which will need to work in tandem in order to replicate terrestrial data centers as they transmit their outputs back to Earth.
There are other issues to address, they add, including solar radiation and maintenance. “Data centers on Earth are constantly maintained – component failures are normal. Shipping components to space is complex and expensive, and there would need to be innovation in how components are installed.”
Musk talks about these data centers adding 100 gigawatts of AI capacity per year – current global data center capacity is approximately 59 GW – his vision is therefore ambitious. The world’s richest person believes a merger of rocket hardware and AI software is a winning combination and, in a message to employees, said it would create the “most ambitious, vertically integrated innovation engine on (and off) Earth.”
“This merger aims to create a new path to drive low cost AI compute generation over the next two to three years by bringing together the largest Internet/space exploration company with leading data center builders,” said Dan Ives, an analyst at US financial services firm Wedbush Securities.
Does xAi need financial help from SpaceX?
Elon Musk’s artificial intelligence company, xAi, competes with rivals that spend and mobilize huge sums on the infrastructure – data centers, computer chips – needed for their products. The company, which developed the Grok AI tool and also owns the X social media network, reportedly spent $13 billion last year and, unlike Meta, Amazon, Microsoft and Google, does not have a cash-generating business to fund its efforts.
Combining with SpaceX will give xAI better access to liquidity and investors, according to Ross Gerber, an investor in Tesla and SpaceX.
“Musk already lacks capital for xAI and is competing with companies that are investing hundreds of billions of dollars in their AI investments. If you merge SpaceX and xAI, you can support xAi because SpaceX is an extremely attractive prospect for many investors,” he says.
What do SpaceX shareholders think?
SpaceX’s technology is complex but it’s a simple business. It generates revenue through the deployment of reusable rockets for missions such as launching satellites and resupplying the International Space Station. It also operates the Starlink satellite broadband Internet service. SpaceX made about $8 billion in profit on $15 billion to $16 billion in revenue last year, according to Reuters.
The addition of xAI adds narrative complexity to the SpaceX story, says Michael Sobel, president and co-founder of Scenic Management, which buys secondary stakes in private companies and has invested in AI company Anthropic.
Sobel, who regularly speaks to SpaceX investors, says: “By integrating xAI, which carries a significant monthly cash burn, you change the financial profile of the company overnight. In the secondary market, ‘simple’ is usually rewarded. This merger requires investors to do a lot more research into the impact of xAI’s cash burn on SpaceX’s overall valuation and the timing of its IPO.”
There’s also the added burden of X, a social media platform that regularly faces criticism. regulatory control And political anger.
Still, Sobel adds, the argument for the deal is compelling.
“For a long-term investor, this guarantees the most advanced AI ‘brain’ for the most advanced hardware ‘body’ in existence. The benefit is a $1.25 billion entity that controls the entire stack, from launchpad to neural network.”
Gerber, who invested in Musk initial buyout of X in 2022 when the platform was better known as Twitter, says he is happy with the deal but is less sure about SpaceX investors.
“As a Twitter shareholder, I couldn’t be happier. I thought I lost my money, but it’s now been turned into SpaceX stock. That’s great for me, but if I was a SpaceX shareholder, I’d be pissed.”
And then? A Tesla-SpaceX merger?
Musk owns about 44% of the recently expanded SpaceX and 17% of Tesla, where he is chief executive. Is the next step a combination of both?
Ives believes there is a “growing chance” that a one-stop shop for investing in Musk’s companies will be created. “Musk wants to own and control more of the AI ecosystem and, step by step, the holy grail could be combining SpaceX and Tesla,” he says.
Gerber believes the time is right, with both companies currently worth $1.25 trillion. “It’s time to create a multi-billion dollar company. I know Elon. It’s going to happen,” he says.