As well as delivering “the light of consciousness to the stars”, as Musk has described it, the transaction combines Musk’s rocket company with his artificial intelligence startup to create a $1.25tn (£920bn) business. This includes SpaceX valued at $1tn and xAI valued at $250bn, with Musk’s birthday in June and planetary alignment expecting stock market fluctuations.
However, there are questions over the deal, such as whether it is good for SpaceX’s non-Musk shareholders and whether the technical foundation behind it can succeed.
Why is Musk combining rockets and AI?
For Musk, a key part of the deal’s justification is to move the datacenter — the central nervous system of AI tools — into space.
Musk argued this week that AI companies are too dependent on Earth-bound datacenters that meet enormous energy demands. He says the solution is to put a million satellites in orbit to create massive, solar-powered datacenters.
Professor Julie McCann and Professor Matthew Santer, co-directors of the School of Convergence Science in Space, Security and Telecommunications at Imperial College London, say solar-powered datacenters could be a future option for AI companies. However, there are limits to how much compute power can be mustered by current satellites, so it would require “a planet-wide distributed computer composed of many satellites” – as Musk envisioned it.
But putting the concept into action could also be affected by the quality of connections between orbiting instruments, which would need to work together to replicate terrestrial datacenters as they send their output to Earth.
He says other problems also have to be addressed, including solar radiation and maintenance. “Datacenters on Earth are constantly maintained – failure of components is common. Sending components to space is complex and expensive, and you have to be innovative about how the components are fitted.”
Musk talks about adding 100 gigawatts of AI capacity annually to these datacenters – current global datacenter capacity is about 59GW – so his vision is ambitious. The world’s richest man believes the 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.”
“The purpose of this merger is to create a new way to generate lower costs of generating AI computation within the next two to three years by bringing together a top Internet/space exploration company with a top datacenter builder,” says Dan Ives, analyst at US financial services company Wedbush Securities.
Does xAi need financial support from SpaceX?
Musk’s artificial intelligence company, xAi, is competing with rivals who are raising and spending huge sums of money on the infrastructure needed for their products – datacenters, computer chips. The company that developed the Grok AI tool and social media network
According to Ross Gerber, an investor in Tesla and SpaceX, combining with SpaceX would give XAI better access to cash and investors.
“Musk already lacks the capital for xAI and is competing with companies putting hundreds of billions of dollars into 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 is a straightforward business. It generates revenue from deploying reusable rockets for missions such as launching satellites and refueling the International Space Station. It also operates Starlink satellite high-speed internet service. SpaceX made about $8bn profit on $15bn to $16bn revenue last year, According to Reuters.
The addition of XAI adds narrative complexity to SpaceX’s story, says Michael Sobel, president and co-founder of Scenic Management, which buys secondary stakes in privately held companies and has invested in AI company Anthropic.
Sobel, who regularly speaks to SpaceX investors, says: “By folding in xAI, which has 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 more homework on how xAI’s cash burn affects SpaceX’s overall valuation and IPO timeline.”
There’s also the added burden of X, a social media platform that is a regular subject of regulatory scrutiny and political ire.
Still, Sobel says, the arguments in favor of the deal are compelling.
“For a long-term investor, this secures the most advanced AI ‘brain’ to the most advanced hardware ‘body’ in existence. The upside is a $1.25tn entity that controls the entire stack from launchpad to neural network.”
Gerber, who invested in Musk’s original buyout of X in 2022 when the platform was known as Twitter, says he welcomes the deal but is less convinced about SpaceX investors.
“For me as a Twitter shareholder, I couldn’t be happier. I largely thought I lost my money, but now it has been converted into owning SpaceX shares. This is awesome for me, but if I were a SpaceX shareholder I would be outraged.”
What next? Tesla-SpaceX merger?
Musk owns about 44% of the newly enlarged SpaceX business and 17% of Tesla, where he is chief executive. Is the next step a combination of both?
Ives believes there is an “increasing likelihood” that Musk will create a one-stop shop for investments in businesses. “Musk wants to have greater ownership and control of the AI ecosystem and could step into the holy grail of combining SpaceX and Tesla,” he says.
Gerber believes the timing is right, with both companies currently valued at $1.25 trillion. “It’s time to build a multitrillion-dollar company. I know Elon. It’s going to happen,” he says.
