As well as spreading the “light of consciousness to the stars” as Mr Musk has said, the deal will create a business worth $1.25tn (£920bn) by combining Mr Musk’s rocket company with his artificial intelligence startup. The company values SpaceX at $1 trillion and xAI at $250 billion, with a stock market expected to rise in June to coincide with Musk’s birthday and the alignment of the planets.
But there are questions about the deal, including whether it’s good for SpaceX’s non-Musk shareholders and whether the technical premise behind it will be successful.
Why does Mr. Musk link rockets and AI?
For Musk, a key part of the rationale for the deal is to move data centers, the central nervous system of AI tools, into space.
Musk argued this week that AI companies are too reliant on data centers around the planet that carry vast energy needs. The solution, he says, is to put as many as 1 million satellites into orbit, forming vast solar-powered data centers.
Professor Julie McCann and Professor Matthew Santer, co-directors of the Convergence Science School of Space, Security and Communications at Imperial College London, say solar-powered data centers could be the future option for AI companies. But because of the limited computing power that current satellites can muster, they say the kind of “global distributed computer made up of many satellites” that Musk envisions will be needed.
But even implementing this concept can be affected by the quality of connectivity between devices in orbit. These devices must work together to recreate a terrestrial data center that sends output to Earth.
They added that there are other issues to resolve, such as solar radiation and maintenance. “Data centers on Earth are constantly maintained, and component failure is normal. Transporting components to space is complex and expensive, and we have to be innovative in how we attach components.”
Musk has said these data centers are adding 100 gigawatts of AI capacity per year, and his vision is ambitious, as the current global data center capacity is around 59 GW. The world’s richest man believes the integration of rocket hardware and AI software is a winning combination, saying in a message to employees that it will create “the most ambitious vertically integrated innovation engine on Earth (and beyond).”
“This merger aims to forge a new path to generating low-cost AI computing within the next two to three years by combining a top internet/space exploration company and a top data center construction company,” said Dan Ives, an analyst at Wedbush Securities, a US financial services firm.
Does xAi need SpaceX funding?
Mr. Musk’s artificial intelligence company, xAi, competes with rival companies that spend billions on the infrastructure (data centers and computer chips) needed for their products. The company, which develops the Grok AI tool and also owns the social media network
Tesla and SpaceX investor Ross Garber said the integration with SpaceX will give xAI better access to cash and investors.
“Musk is already short on capital for xAI and competing with companies that are pumping hundreds of billions of dollars into AI investments. Merging SpaceX and xAI could help xAi because SpaceX is a very attractive prospect for many investors,” he said.
What do SpaceX shareholders think?
SpaceX’s technology is complex, but its business is simple. It makes money by deploying reusable rockets for missions such as launching satellites and resupplying the International Space Station. It also operates the satellite high-speed internet service Starlink. According to Reuters, SpaceX made a profit of about $8 billion last year on revenue of $15 billion to $16 billion.
The addition of xAI adds narrative complexity to SpaceX’s story, said Michael Sobel, president and co-founder of Scenic Management. Scenic Management buys secondary stakes in privately held companies and has also invested in AI company Anthropic.
Sobel, who speaks regularly with SpaceX investors, said, “Incorporating xAI, which generates significant monthly cash burn, can change a company’s financial picture overnight. The secondary market typically rewards ‘simple.’ This merger forces investors to do more homework on how xAI’s cash burn will impact SpaceX’s overall valuation and IPO schedule.”
There is also an added burden, as social media platform X is constantly subject to regulatory scrutiny and political outrage.
Nevertheless, Sobel added that the arguments in favor of the deal are compelling.
“For long-term investors, this will ensure a state-of-the-art AI ‘brain’ to go along with the most advanced hardware ‘body’ in existence. The advantage is that it is a $1.25 trillion entity that controls the entire stack from the launch pad to the neural network.”
Gerber, who invested in Musk’s initial acquisition of X in 2022 when the platform was better known as Twitter, welcomed the deal, but said he was less certain about SpaceX’s investors.
“As a Twitter shareholder, I couldn’t be happier. I thought I lost money, and now it’s going toward owning SpaceX stock. That’s great for me, but if I were a SpaceX shareholder, I’d be pissed.”
What’s next? A merger between Tesla and SpaceX?
Musk owns about 44% of the newly expanded SpaceX business and 17% of Tesla, of which he is chief executive. Is your next step a combination of the two?
Ives believes it is “increasingly likely” that a one-stop shop for investing in the mask business will be created. “Musk wants to own and control more of the AI ecosystem, and over time the holy grail could be merging SpaceX and Tesla,” he says.
Gerber believes the timing is right, with both companies now valued at $1.25 trillion. “Now is the time to build multi-trillion dollar companies. I know Elon, it’s going to happen,” he says.
