On Monday, Elon Musk announced that he is merging his two companies, SpaceX and XAI, in a deal reported to be worth $1.25 trillion. The Reason, Musk said in an announcementFor AI to evolve, it needed to go into space.
AI depends on “large terrestrial data centers” that run on “excessive amounts of power and cooling”, which comes at a huge cost to the environment and community opposition, he said. The solution: data centers in space. “In the long term, space-based AI is clearly the only way to scale,” Musk said.
Musk isn’t the only one who wants to launch data centers into orbit. Google has Project Suncatcher to build a solar-powered AI data center in space. Like Europe, China is also considering space-based data centers. As we reported last year, space-based data centers – in the form of satellites with solar panels – are Big Tech’s latest craze and Silicon Valley’s latest investable venture.
On the surface, this seems like a logical solution to the unique problem presented by power-hungry data centers. Local communities are rising up against data center projects over concerns about power demand, water usage, and rising utility rates. Launching those data centers into space means they’re taking up no space on Earth, and there’s availability of solar power in a sun-synchronous orbit.
AI depends on “large terrestrial data centers” that run on “excessive amounts of power and cooling,” Musk said, which is a huge expense to the environment.
But there’s a more simple way to look at Musk’s merger: SpaceX is profitable, and xAI is not. Not only is xAI not profitable, it is in the midst of a severe cash crunch as it races to compete with well-funded rivals like Google and OpenAI. As bloomberg recently reportedThe AI company is spending around $1 billion per month as it spends heavily on building data centers, recruiting talent and running social media platform X.
SpaceX, meanwhile, made a profit of nearly $8 billion on an estimated $16 billion in revenue last year, reuters informed. The main revenue driver is Starlink, which contributes up to 80 percent of the company’s revenue. Since 2019, SpaceX has launched more than 9,500 satellites and claims 9 million broadband internet users. The company is also a major government contractor, securing more than $20 billion in NASA and Defense Department deals since 2008. SpaceX hopes to raise up to $50 billion in investment when it goes public later this year.
Meanwhile, XAI has its own government tie-ups. The Defense Department is using Grok, in addition to other chatbots, to analyze information flowing through its military intelligence network.
It’s unclear how investors will feel about cash-burning XAI merging with profitable SpaceX. But it’s important to note that Musk has done this before, when he merged debt-laden SolarCity with Tesla in 2016. Since Musk was the largest shareholder and chairman of both Tesla and SolarCity, shareholders sued to block the merger, alleging it was a $2.6 billion “bailout” for the cash-strapped, struggling company. Musk ultimately won the suit, with a judge ruling that he did not force Tesla to overpay for SolarCity.
Musk now faces a new lawsuit from Tesla shareholders over the creation of his xAI. The lawsuit alleges that Musk breached his fiduciary duty to Tesla by forming xAI, which competes with the automaker for AI talent, resources, and Musk’s attention. The news that SpaceX is acquiring XAI certainly won’t address those concerns; If anything, it makes it more chaotic and complicated.
So where does all this leave Tesla? In the most recent earnings report, Tesla said it was investing $2 billion in XAI “to enhance Tesla’s ability to develop and deploy AI products and services in the physical world at scale.” Grok, XAI’s chatbot that is currently under investigation in several countries for creating non-consensual sexualized images of people, including children, was recently integrated into some Tesla vehicles as a voice assistant. Grok also lags behind OpenAI’s ChatGPT, Google’s Gemini, Anthropic’s Cloud, and other large language models in several key metrics.
Data centers in space are pure Musk futurism with no guarantee of success. It’s not as simple as strapping a GPU to a rocket and “launching”. First of all, GPUs are total power hogs. Unless you have a nuclear reactor floating up there, you’ll need a huge solar array to power it. Then there is the state of communication; Even if you’re traveling on Starlink, you still have to figure out the budget to send information back and forth to Earth. Eventually, the numbers start looking pretty scary.
Musk says the merger of SpaceX and XAI is the way to make this possible. And perhaps one day he’ll consider bullish investors’ suggestion to combine all his companies, including Tesla, Neuralink and the Boring Company, into one giant, Musk-run mega-corporation: Musk Inc., if you will. How will Tesla shareholders react?
“Tesla is Musk’s liquid piggy bank because it’s publicly traded; his other companies are not,” Tesla investor James McCritchie said during a prevote presentation ahead of the company’s 2024 shareholder meeting. according to wall street journal. “Either he stays with us long enough to use our shareholder capital to finance his other ventures, or he shifts his focus sooner if we reject his pay package and turn off the money tap.”
