The merger between Space Exploration Technologies Corp. (SpaceX) and the artificial intelligence startup xAI will create a behemoth spanning the rocket and AI sectors. However, the subsequent impact of this transaction has raised numerous concerns among investors and experts.
Today's SpaceX is already a giant in rocket launches, a dominant force in the satellite internet industry, while also venturing into the capital-intensive AI business and owning the widely-used yet controversial social media platform X.
The core unresolved questions surrounding Musk's major acquisition deal include a re-examination of the costs in the AI race, the assertion that "silver has always been an investment trap," and the follow-up impact of the latest Epstein documents.
Hello, I'm Andrew. A historically largest merger deal, marked with an asterisk, has been settled: SpaceX's acquisition of xAI, valuing the combined new entity at $1.25 trillion. This is an all-stock transaction, with the shares being privately held (the valuation is also a non-public calculation, which is why it's marked with an asterisk), although SpaceX plans to initiate an IPO later this year.
The entire deal was orchestrated by Elon Musk, who controls both companies. The merged SpaceX will become a vertically integrated enterprise capable of deploying data centers into space and leveraging these space-based facilities to provide artificial intelligence services. Questions arise as to whether SpaceX truly needed to acquire xAI and if this deal will complicate SpaceX's upcoming Initial Public Offering (IPO); but undoubtedly, it is a significant positive for xAI's investors (some of whom had previously invested in the social media platform X, which has been acquired by xAI).
Furthermore, this deal sows the seeds for long-term antitrust concerns: if space-based data centers become a reality and Musk achieves a near-monopoly in this domain, will other AI model developers be permitted to use these facilities?
Elon Musk had a busy Monday: he merged his rocket company SpaceX with the artificial intelligence startup xAI, creating the world's highest-valued private company.
Musk described the merged entity as "the most ambitious vertically integrated innovation engine on, and above, Earth." This deal was finalized just as SpaceX's long-planned IPO, scheduled for this summer, is imminent.
However, investors and various stakeholders are raising questions about the practical value this merger brings, especially for SpaceX, which was already on a strong growth trajectory and now must present a more complex business narrative to investors.
Core details of the transaction reveal a valuation of approximately $1 trillion for SpaceX, up from around $800 billion in December; xAI is valued at $250 billion, slightly higher than its valuation in its previous funding round. (To complete this transaction, SpaceX needs to issue approximately $250 billion in new stock, which will significantly dilute the holdings of existing investors.)
Musk stated that the combined company will be better positioned to build space-based AI data centers. Theoretically, such centers could overcome many limitations faced by terrestrial data centers regarding power usage and physical land constraints. SpaceX publicly released a memo from Musk to employees, in which he wrote: "In the long term, space-based AI is clearly the only path to achieving scale."
Andrew Rocco, a strategist at Zacks Investment Research, told the DealBook that the merged entity would make SpaceX "significantly more attractive" to investors, as it could allow Musk to avoid the distractions of managing multiple separate operations.
According to data from PitchBook, SpaceX reported revenues exceeding $15 billion last year, with profits around $8 billion. This profitable entity could provide cash flow to the persistently loss-making xAI. Since its inception in 2023, xAI has raised $42 billion from investors (Bloomberg previously reported that xAI's monthly burn rate is approximately $1 billion).
Previously, SpaceX planned to raise a record $50 billion through its IPO, presenting a concise and compelling business story: the world's largest rocket company, a satellite internet operator, with strong profitability. But now, SpaceX must explain to potential investors why it also includes a massively loss-making AI business unit – a unit that also encompasses the social media platform X, which is frequently investigated and penalized by government regulators.
Making space-based data centers a reality requires solving a series of complex challenges: for instance, cooling technology for these centers (some estimates suggest the radiator area needed for cooling might be larger than a tennis court), and how to build protective shielding against cosmic radiation for the data centers. Cost is a central issue; experts believe the cost of transporting components to space needs to decrease by about 90% to become feasible. Google predicts this goal might be achieved in the 2030s; whereas Musk stated on Monday that he expects it to take only 2 to 3 years.
Michael Sobel, whose investment firm specializes in secondary market transactions for private company shares, told The Information that several SpaceX shareholders have expressed questions to him about this deal. Sobel mentioned that most shareholders acknowledge the business logic behind the deal and trust Musk's decision-making, but their attitude is one of "hmm... (adopting a wait-and-see stance)."
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