Teao In Elon Musk’s fanclub, there is nothing to see except more proof of the great man’s visionary genius. SpaceX, the rocket firm, is buying artificial intelligence developer xAI, and the combination of these two Musk-controlled entities is being valued at $1.25tn (£910bn). Feel the positive emotions ahead of the stock market rally in June! The most valuable private company in history! Biggest transaction ever!
Or, As Musk described itHe is building the most ambitious, vertically integrated innovation engine on (and off) Earth with AI, rockets, space-based Internet, direct-to-mobile device communications, and the world’s leading real-time information and free-speech platform.
SpaceX’s minority shareholders may have a less-stellar outlook. From their perspective, this all-share transaction should look less like an effort to “accelerate the future of humanity” and more like a quick bailout of loss-making XAI, done with minimal scrutiny of the valuation or meaningful effort to gauge their views.
Remember that, while SpaceX is regularly described as Musk’s ownership for shorthand purposes, he is not the only person in the capsule. His stake is estimated to be 42%. There have been outside shareholders over the years – in the UK, two popular investment trusts, Scottish Mortgage and Edinburgh Worldwide, have SpaceX as their largest stake. Do the ultimate investors in those funds really want to be associated with XAI, a cash-burning operation that comes with There is doubt on this.
The beauty of SpaceX as an investment, so far, was the purity of its focus on sending satellites into orbit via reusable rockets and operating the Starlink communications system. This is one area in which competitors have been left on the launch pad. SpaceX’s customers include NASA and the US Department of Defense.
Musk’s strategic justification for combining SpaceX and XAI is that the AI battlefield is about to shift to space. They argue, “Global electricity demand for AI cannot be met by terrestrial solutions, even in the near term, without causing hardship on communities and the environment.”
He may be right in that analysis, but it is still a leap to say that both corporate entities should be housed under the same roof. If xAI needs to use SpaceX’s rockets to set up an orbital datacenter, trade can be done on commercial terms. Or, if you think the energy angle changes everything, explain the matter in more detail than a brief statement and, above all, ensure that the assessment is transparently fair.
Musk didn’t even mention terms, although SpaceX is reportedly valued at $1tn and xAI at $250bn. Those round numbers may be roughly related to the valuation at which each firm has raised capital in recent days, but most assessments would certainly conclude that SpaceX is seriously overpaying in this deal.
Rocket Firm, after all, is a profitable market leader with annual revenues of $16 billion; It seemed as if it was on its own to achieve a $1 trillion valuation (no matter how high it may seem) in an IPO. In contrast, xAI is a startup Annual revenue of less than $1 billionIt is facing a huge investment bill to build datacenters, and is engaged in a tough battle for AI dominance with companies like Google and Anthropic.
It’s an all-share transaction, so if, like Musk, you’re on both sides, there’s room to fluctuate in relative valuations: What you lose on the rocket, you gain on the AI. Both camps also have many outside supporters. But the situation is very different if, like two UK investment trusts, your investment is heavily in SpaceX (Baillie Gifford, manager of both trusts, declined to comment).
Maybe, in the end, such details will get lost in the excitement of the now-expanded SpaceX public listing. Musk-mania should never be underestimated. But this warmup transaction still looks like a rescue of XAI, with troubled assets handed over to SpaceX’s long-term outside investors, who get no say in the matter. Yes, those backers still made great returns from the rocket adventure – that remains the case. But he has been taken for a ride in this latest Musk maneuver.
