For much of the past three years, Elon Musk's xAI has been striving to compete with leading artificial intelligence (AI) laboratories, including OpenAI, which he co-founded and later clashed with. The results, however, have been mixed: xAI's flagship product, the chatbot Grok, has frequently made headlines for antisemitic responses and sexually suggestive imagery, controversies that have largely overshadowed its technical progress. Now, Musk is attempting to use one of his most successful enterprises to "rapidly recharge" the development of more powerful AI systems. On Monday, he announced that xAI will merge with SpaceX to form a combined entity valued at a staggering $1.25 trillion. This union is expected to grant xAI greater access to computing power, talent, and data—the essential trinity for AI advancement.
Like other AI startups, xAI has been aggressively burning cash to build its AI models, with monthly expenditures nearing $1 billion for data centers, chips, and other investments. In the process, xAI has accumulated approximately $5 billion in corporate debt, a substantial amount for a young startup. Yet, its AI infrastructure build-out remains significantly smaller than that of OpenAI, which has committed to investing over $1.4 trillion in data centers and chips. Musk has stated that SpaceX plans to deploy data centers into space, a science-fiction-esque concept that could dramatically enhance the computational power available to xAI. "In the long term, space-based AI is clearly the only scaling path," Musk asserted.
Regardless of if and when these ambitious projects materialize, SpaceX could also support xAI's terrestrial computing needs. The rocket manufacturer's balance sheet is far healthier, enabling it to underwrite such investments and potentially making xAI's financials appear more attractive to Wall Street. More critically, the aerospace company is planning an initial public offering (IPO) this year, which would provide xAI with additional capital and potentially allow it to surpass rivals like OpenAI and Anthropic, who are also considering public listings, in the capital markets. "This will bring them a significant amount of capital, likely far more than they could raise on their own while private," said Joseph Aranya, founding partner of Buttonwood Funds, which holds stakes in both SpaceX and xAI.
Mark Hackett, Chief Market Strategist at Nationwide Funds Group, noted that the newly merged company would, "at least initially, be viewed more as an aerospace opportunity than a pure-play AI company." He added, "They can appeal not just to AI investors, but to a much broader investment community." The combined SpaceX and xAI IPO could also somewhat diminish the appeal of an OpenAI listing by siphoning off a portion of the intense public market demand for investments in cutting-edge generative AI. Simultaneously, going public could enhance xAI's ability to recruit and retain talent in the fiercely competitive market, where AI researchers command nine-figure compensation packages.
In a style characteristic of Musk's ventures, xAI has also gained notoriety for long working hours and employee burnout. Employees have frequently posted online about working over 30-hour stretches and even sleeping directly in the office. A former xAI employee, Benjamin De Kraker, previously wrote on X, "When you foster a culture where employees compete over who is the most tired and sleep-deprived, there is inevitably a price to pay. This is what many xAI employees are experiencing, with some even posting that they are too exhausted to stay awake driving home."
However, compared to many of Musk's earlier companies, xAI operates in a far more crowded market. Of its 11 founding members (excluding Musk), three have already departed, alongside other key executives including the Chief Financial Officer and General Counsel. Former xAI CFO Mike Liberatore joined OpenAI last year after just a few months in the role. While burnout issues are likely to persist, xAI can now attract both new and existing employees with high-value stock options from a soon-to-be-public company. More importantly, xAI now basks in the "halo effect" of a widely respected company that consistently launches rockets and satellites into space.
Finally, SpaceX could provide xAI with a valuable source of data. SpaceX's satellite internet service, Starlink, recently updated its privacy policy, indicating it can collect users' personal information—including financial data, location information, and any files and social media content uploaded via email—for model training. SpaceX can also share this information with its merged entities, such as xAI. Any additional data would be a boon for xAI. To date, Musk's social network X has been the primary source of training data for Grok. In contrast, rivals like OpenAI and Google have secured content through licensing agreements with publishers and platforms.
Whether or not the merger with SpaceX proceeds, Musk's AI startup still faces numerous challenges, including its controversial brand image and increasing regulatory scrutiny over Grok's involvement in disseminating sexually suggestive imagery. Ongoing concerns about a potential AI bubble could also pressure the merged entity post-listing. Furthermore, competition among model developers remains exceptionally intense. Top startups, including OpenAI and Anthropic, have forged tight partnerships with large tech corporations to maintain their lead in the global AI race. Musk's gamble appears to be that he can orchestrate a similar setup for xAI within his own business empire. "You can never underestimate Elon," Aranya said. "I do think he has an ace up his sleeve."
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