Elon Musk has executed a move with the potential to reshape the global capital markets: merging xAI into SpaceX. This consolidation not only creates a super-giant with a valuation reaching $1.25 trillion but also elevates Musk's personal net worth directly to $850 billion.
For investors, however, this is more than just a numbers game. In a recent report dated February 4th, UBS insightfully pointed out that this marks the beginning of the "Orbital AI" era, which involves relocating data centers to space. Yet, this transaction also fundamentally alters SpaceX's previously clear investment thesis. Investors will no longer be considering a pure-play champion of space infrastructure generating robust cash flows. Instead, they must accept a hybrid "Space + AI" entity—requiring evaluation of both SpaceX's operational strength and the significant capital expenditures of xAI. With a potential IPO of up to $50 billion on the horizon, this shift in narrative represents a core risk and opportunity that institutional investors must reassess.
The restructuring of a trillion-dollar empire represents Musk's ultimate bet. According to UBS analysis, as early as September 2024, markets predicted Musk would become the world's first trillionaire by 2027 through his "space race bet." This prediction now appears to be accelerating towards reality. Earlier this week, Musk acted swiftly, merging xAI into SpaceX via an all-stock transaction.
UBS trader Jephine Wong detailed the valuation logic of the deal in a client report. The combined entity is valued at approximately $1.25 trillion, with SpaceX valued at around $1 trillion and xAI valued at about $250 billion. In contrast, former WeWork CEO Adam Neumann's 2019 boast about becoming the first trillionaire now pales as Musk's empire surges ahead. Using an indicated SpaceX share price of $526.59 per share from internal documents for the swap, Musk has not only consolidated his business empire but also constructed a financial behemoth. This is not simple addition; it is a clear strategic signal that SpaceX is planting the flag for AI in space.
UBS emphasized in its report that the core selling point of this deal is "Orbital AI." Musk is not content with competing in terrestrial computing power; he is betting that within the next 2 to 3 years, a substantial share of computational capacity—essentially space-based data centers—will be operational in low Earth orbit.
To support this grand narrative, the company has filed a staggering application with the Federal Communications Commission (FCC), seeking approval to launch up to 1 million satellites dedicated to computational functions. UBS notes that this strategy of folding xAI into SpaceX is designed to leverage dominance in low Earth orbit to control the next generation of AI computing. For the potential IPO slated for this summer or fall, this is an audacious storyline, attempting to convince investors that the lowest-cost AI computing will be achieved in space.
However, stripping away the grand vision, UBS advises investors to focus on the cold reality behind the financial statements. This merger introduces significant financial complexity, bundling a "cash cow" with a "cash-burning machine."
According to data provided by UBS, SpaceX's current financial health is exceptionally strong, primarily supported by Starlink's approximately 9 million subscribers and its absolute dominance in the global launch market. SpaceX's revenue for 2025 is projected to reach $15-16 billion, generating about $8 billion in EBITDA. This originally painted a picture of a perfect, highly profitable IPO candidate.
In contrast, xAI's financial situation is starkly different. UBS data indicates that xAI generated only about $210 million in revenue in the first nine months of 2025, while its cash burn reached $8-9.5 billion. Even after raising over $20 billion (including $2 billion from Tesla), xAI's current burn rate is close to $1 billion per month. A UBS analyst succinctly noted that this merger essentially uses SpaceX's operational muscle to support xAI's enormous capital expenditure appetite.
Currently, management states the deal will not disrupt the 2026 listing timeline, with plans still advancing for a public offering this year. The company has begun engaging with cornerstone investors, targeting a potential fundraising amount of up to $50 billion. However, the narrative for the roadshow has fundamentally changed.
UBS analyst John Hodulik pointed out that market reactions already show investor nervousness. The share price of EchoStar, which holds SpaceX-related assets (approximately a 3% stake), declined following the merger news, indicating not everyone is convinced by the "Orbital AI" story. Investors now face a new dilemma: a previously clear investment in space infrastructure has transformed into a complex hybrid requiring a balance between strong operational cash flow and the capital intensity of scaling AI.
This is not just about expanding opportunity but also about complicating the story. As UBS poses the question: With a historic IPO approaching, does xAI truly possess an advantage the market has yet to recognize? Or is this merely a tactic to package a high-risk asset into a quality asset before going public? In this new "Space × AI" narrative, investors must make their own judgment in this trillion-dollar wager.
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