The Numbers, and Questions, Behind Musk’s Mega-Merger
The combination of SpaceX and xAI will create a rocket-and-A.I. giant. But investors and experts have concerns about the consequences of the deal.
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Andrew here. The biggest merger in history, with an asterisk, just happened: SpaceX has acquired xAI to create a $1.25 trillion giant. It’s an all-stock deal — and the stock is private (and privately valued, hence the asterisk), though SpaceX plans to go public later this year.
All this was orchestrated by one person, Elon Musk, who controls both firms. It would make SpaceX a vertically integrated company for putting data centers in space and then using them for artificial intelligence services. There are questions about whether SpaceX needs xAI and about whether it complicates the SpaceX I.P.O. story, but it certainly helps Musk’s investors in xAI (some of whom previously invested in the social media site X, which xAI acquired).
There’s also a long-term antitrust question: If data centers in space become a reality — if and Musk has a near-monopoly on them — would other A.I. model makers be able to use them? More below.
The big questions about Musk’s big deal
Elon Musk had a busy Monday, combining his SpaceX rocket company and his xAI artificial intelligence start-up to create the world’s most valuable private enterprise,.
Musk described the merged company as “the most ambitious, vertically integrated innovation engine on (and off) Earth.” The deal transpired before a long-planned I.P.O. for SpaceX that could happen this summer.
But investors and others are raising questions about what the merger actually accomplishes, especially for SpaceX, which was already riding high and now has a more complicated story to sell to investors.
The details: The deal valued SpaceX at about $1 trillion, up from the roughly $800 billion cited in December; xAI was valued at $250 billion, slightly up from its last fund-raising round. (The move required SpaceX to issue about $250 billion of new stock, drastically diluting the stakes of existing investors.)
Musk argues that the combined company will be better able to set up space-based A.I. data centers, which in theory can transcend the limitations on power use and physical land needs of Earth-based ones. “In the long term, space-based A.I. is obviously the only way to scale,” Musk wrote in a memo to employees that SpaceX also issued publicly.
The optimist case: The combined company makes SpaceX “a lot more attractive” to investors because it eliminates distractions for Musk, Andrew Rocco, a strategist at Zacks Investment Research, told DealBook.
SpaceX, which reportedly earned about $8 billion on more than $15 billion in revenue last year, could funnel cash to the money-losing xAI, which has already raised $42 billion from investors since its founding in 2023, according to Pitchbook. (Bloomberg previously reported that xAI was burning through about $1 billion a month.)
There are concerns, too:
SpaceX, which has been seeking to raise a record $50 billion from its I.P.O., had a relatively clean story to tell: It’s the world’s biggest rocket company and satellite internet operator, and it’s very profitable. But SpaceX must now explain to prospective investors why it also has a deeply unprofitable A.I. arm (one that includes X, a social network that has frequently run afoul of government regulators.)
Making celestial data centers a reality requires solving complex problems including how to cool them (radiators to do so might need to be bigger than tennis courts) and how to shield them from cosmic radiation. A big issue is cost, with experts reckoning that the price of shipping components to space would need to fall about tenfold. Google projected that this might happen in the 2030s; Musk estimated on Monday that it might happen in two to three years.
Michael Sobel, an investor whose firm buys secondary stakes in privately held companies, told The Information that he has heard from SpaceX shareholders who have some questions about the deal. Many are open to its logic and trust Musk, he said, “but they’re like, ‘Hmmm.’”