SpaceX and xAI Merge in $1.25 Trillion Deal, Eyes on IPO
Elon Musk's aerospace company, Space Exploration Technologies Corp. (SpaceX), has officially merged with his artificial intelligence startup, xAI. Public records indicate the transaction was completed on February 2, valuing the combined entity at an estimated $1.25 trillion. This integration is viewed as a significant move in anticipation of a potential initial public offering (IPO) for SpaceX, marking the largest consolidation within Musk's business portfolio to date.
Merger Confirmed and Details
The merger was announced earlier this week, with Elon Musk confirming the deal. Public records from the state of Nevada now list Space Exploration Technologies Corp. as the "managing member" of X.AI Holdings. This strategic move brings together SpaceX's established capabilities in rocket manufacturing and orbital services with xAI's cutting-edge artificial intelligence research and development.
Musk has described the combined entity as "the most ambitious, vertically-integrated innovation engine on (and off) Earth, with AI, rockets, space-based internet," and its X social media platform.
Strategic Rationale: AI in Orbit
A key driver for the merger, according to Musk, is the long-term vision for deploying data centers in space. He projects that space will offer the most cost-effective environment for AI computations within two to three years, directly addressing the substantial power and cooling demands of terrestrial AI infrastructure.
SpaceX has already sought authorization from the Federal Communications Commission (FCC) to launch up to 1 million satellites specifically for an "orbital data center." The deal aims to forge a unified ecosystem, integrating AI, rocket technology, space-based internet, direct-to-mobile communications, and a real-time information platform.
Valuations and Financial Landscape
Prior to the merger, SpaceX was valued at approximately $800 billion in a secondary share sale last year, with discussions suggesting its value has since climbed to $1 trillion and could reach $1.5 trillion post-IPO. xAI, which previously merged with Musk's social network X in an all-stock transaction in early 2025, was valued at around $230 billion in a funding round earlier this year, reaching $250 billion at the time of the merger. The reported combined valuation for the merged group stands at $1.25 trillion.
SpaceX is reportedly preparing for a potential public offering this year, aiming to raise $50 billion. A portion of these funds is expected to be allocated to xAI. Financially, SpaceX generated over $2 billion in positive cash flow last year, with Reuters projecting $8 billion in profit on revenues between $15 billion and $16 billion in 2025. In contrast, xAI consumed approximately $9.5 billion in the first nine months of the previous year, with an annualized rate exceeding $12.5 billion, underscoring the significant infrastructure investment required to compete in the AI sector.
The artificial intelligence industry is characterized by intense capital requirements, with estimates indicating leading AI players may spend around $500 billion over the next three years, potentially straining equity markets and leading to industry consolidation.
Associated Entities and Operations
- SpaceX: Founded in 2002, SpaceX is a prominent provider of orbital launch services, holding contracts with NASA and the Department of Defense. It also operates the Starlink satellite internet service, which includes over 9,000 satellites in orbit and serves approximately 9 million customers.
- xAI: Launched in 2023 by Musk, xAI aims to compete with companies like OpenAI. The company's Grok AI tools are currently under regulatory review in various regions, including Europe, India, Australia, and California, regarding their association with generating sensitive images.
- Tesla: Musk's electric vehicle company, Tesla, has committed to investing about $2 billion into xAI.
Potential Future: A Tesla Integration?
Analysts are speculating about the potential for Tesla to join this new conglomeration. Dan Ives of Wedbush has suggested a "growing chance" of Tesla merging with the SpaceX/xAI entity within the next 12 to 18 months.
A potential triple merger could create a unified entity blending Tesla's physical AI applications (Robotaxi, Optimus, Full Self-Driving), SpaceX's orbital infrastructure (Starlink, potential space-based computing), and xAI's advanced AI models (Grok). Such an integration could accelerate real-world AI applications, potentially leveraging satellite networks for global autonomy and powering AI training through solar-optimized orbital data centers.
Musk's ownership in Tesla is approximately 13%, while he owns about 43% of private SpaceX. A triple merger could potentially increase his ownership in the combined entity to around 26%. This structure might also facilitate an indirect public listing for SpaceX via a reverse merger with Tesla, potentially avoiding traditional IPO scrutiny while accessing public market liquidity.
Prediction markets indicate a 12-24% probability of an official Tesla-SpaceX merger announcement before June 30, 2026.
Risks associated with such a large-scale integration include potential valuation mismatches and the reliance on unproven synergies and ambitious projects like orbital data centers.