Elon Musk merges money-losing xAI into SpaceX before mega IPO

Elon Musk is combining his space and AI companies into a giant valued at $1.25 trillion. The official pitch is that AI can only scale properly in space. But economics likely matter just as much.

SpaceX has announced its acquisition of xAI. According to Bloomberg and the Wall Street Journal, the deal values the combined company at $1.25 trillion, with $1 trillion for SpaceX and $250 billion for xAI.

The transaction is structured as a share swap, with xAI shares converting into 0.1433 SpaceX shares. Employees can sell their xAI shares back to the company if they prefer, according to an email obtained by the Wall Street Journal. SpaceX shares are valued at just under $527, up from the $421 per share the company targeted in a secondary sale back in December.

Bloomberg reports SpaceX still plans to go public later this year. The IPO could raise up to $50 billion, which would make it the largest ever.

Musk pitches orbital data centers as the fix for AI's energy problem

The official rationale for the merger centers on power consumption. Musk argues that global energy demands for AI can't be met by terrestrial data centers without "imposing hardship on communities and the environment."

Musk claims space-based AI computing will become the most cost-effective approach within two to three years. The idea of orbital data centers has also caught the attention of Jeff Bezos and Sam Altman, but it remains unproven and likely faces major technical and financial hurdles.

SpaceX plans to launch a constellation of up to one million satellites that would function as orbital data centers. The company has reportedly already filed for approval with the FCC.

SpaceX had previously invested $2 billion in xAI, and Tesla committed to investing the same amount. xAI closed a $20 billion funding round in January at a valuation of $230 billion.

xAI's $1 billion monthly burn rate likely tells the real story

Behind the cosmic vision lies a more practical reality. Bloomberg reports xAI burns through roughly $1 billion every month, and unlike OpenAI and Anthropic, the company generates almost no direct revenue. xAI trains language and image models and runs the Grok chatbot, which is only available through X.

A recent survey of 100 CIOs at large companies by Andreessen Horowitz found that OpenAI dominates the enterprise AI market with 78 percent usage, followed by Anthropic at 44 percent, then Microsoft and, by a wide margin, Google. xAI doesn't even register. That leaves Grok subscriptions on X as the only real revenue stream. No numbers are available, but if they could compete with ChatGPT or even Google Gemini, Musk likely would have shared them by now.

Musk's corporate empire continues to consolidate: last year, he merged xAI with social media platform X in a $33 billion deal. The recent merger gives xAI an alternative path to funding and access to capital markets through the planned IPO.