Elon Musk’s SpaceX and xAI Merger Could Reshape Space and AI Industries

TLDR

• SpaceX is discussing a merger with xAI ahead of a planned IPO later this year, with xAI shares being exchanged for SpaceX stock
• Both companies registered entities in Nevada on January 21 to facilitate the potential transaction
• SpaceX is valued at $800 billion and xAI at $230 billion as of November 2024
• Bloomberg reports SpaceX is also considering a merger with Tesla, though Reuters could not confirm timing or primary rationale
• The merger would support Musk’s plans for space-based AI data centers, which he says will be cost-effective within two to three years

SpaceX is in discussions to merge with xAI before the rocket company’s planned public offering this year, according to a Reuters report. The deal would bring together Musk’s space exploration company with his artificial intelligence venture.

The proposed merger would exchange xAI shares for SpaceX stock. Two entities were registered in Nevada on January 21 to help with the transaction, according to regulatory filings reviewed by Reuters.

One entity lists SpaceX and its chief financial officer Bret Johnsen as managing members. The other filing shows Johnsen as the sole officer. The documents do not detail the entities’ specific purpose or role in any potential deal.

Sources told Reuters that some xAI executives could receive cash instead of SpaceX stock. No final agreement has been signed and the deal’s timing and structure remain undecided. Neither Musk, SpaceX, nor xAI have commented on the report.

Valuations and Market Impact

SpaceX is currently valued at $800 billion from a recent private share sale. This makes it the world’s most valuable privately held company.

xAI reached a valuation of $230 billion in November, according to the Wall Street Journal. The AI company raised $20 billion this month in a Series E funding round that exceeded its $15 billion target.

SpaceX plans to go public sometime this year. The company’s valuation could exceed $1 trillion at IPO, according to multiple media reports.

Tesla shares rose 3% in after-hours trading following the merger news. The electric vehicle maker has a market capitalization of $1.4 trillion.

Bloomberg separately reported that SpaceX is also considering a merger with Tesla. Predictions hub Polymarket put the chance of a SpaceX-xAI merger by mid-year at 48% and a Tesla-xAI merger at 16%.

Space-Based Data Centers

The merger would support Musk’s vision for building data centers in space. He has discussed this concept multiple times over recent months.

Space-based AI processing uses solar energy to cut costs for generating computing power. This power runs and trains AI models like xAI’s Grok chatbot.

Jeff Bezos’ Blue Origin has announced plans for a satellite network backbone. Google is researching space-based data centers under Project Suncatcher.

Pentagon Contracts and Military Applications

A SpaceX-xAI merger could boost prospects for Pentagon contracts. The Department of Defense has been working to increase AI adoption in military networks.

Defense Secretary Pete Hegseth visited SpaceX’s Starbase facility in Texas this month. He said Grok will be integrated into military networks as part of an “AI acceleration strategy.”

xAI has a contract worth up to $200 million to provide Grok products to the Pentagon. The company is building a supercomputer for AI training in Memphis, Tennessee, called Colossus.

SpaceX’s Starlink and military variant Starshield already use AI extensively. The technology helps with automated satellite maneuvers in orbit.

Starshield is building a classified satellite network under contract with a U.S. intelligence agency. The satellites are equipped with sensors expected to use AI for tracking moving targets on Earth.

Previous Musk Company Mergers

This would not be the first time Musk has combined his companies. In 2016, he used Tesla stock to purchase solar energy company SolarCity.

Last year, X became part of xAI through a share swap. The deal gave xAI access to the social media platform’s data and distribution network.

xAI received a $2 billion investment commitment from SpaceX as part of a $5 billion equity fundraising, the Wall Street Journal reported last year. Tesla committed about $2 billion to xAI this week.

Gene Munster, managing partner at Deepwater Asset Management, said combining xAI with Tesla could improve the automaker’s robot and self-driving car plans. Dennis Dick, chief market strategist at Stock Trader Network, said consolidation addresses concerns that Musk is spread too thin across multiple companies.

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