Elon Musk reportedly considering merger between SpaceX and xAI, or maybe even Tesla – News

Consolidation is on the mind of the world’s richest man, Elon Musk, who is reportedly mulling the idea of merging his artificial intelligence startup xAI Corp., the social media platform X and his space rocket company SpaceX Corp. into a single entity.

The report today comes from Reuters, which cited a person familiar with Musk’s plans today as saying that xAI and SpaceX are currently exploring the possibility of a merger, which would happen before the space company goes ahead with a proposed initial public offering. SpaceX is already considered the world’s most valuable private company, with recent reports putting its valuation at more than $800 billion. XAI is probably in the top 10 or so, with a current valuation estimated at $230 billion to $250 billion.

However, Musk may yet opt for an alternative plan. Earlier today, Bloomberg reported that Musk is also considering a merger between SpaceX and his publicly listed electric vehicle maker Tesla Inc.

XAI, which owns X, the former Twitter, closed on a $20 billion Series E funding round earlier this month. Meanwhile, SpaceX is reportedly planning for an IPO and eyeing an $800 billion valuation, which could happen as soon as the summer. It’s not clear how any merger with xAI, which develops the Grok large language model, would affect those plans.

Musk later posted a link to the Reuters report on X, saying that SpaceX would soon become “the Dyson Swarm company,” in reference to the concept of a megastructure of solar-orbiting satellites.

Space-based AI

The big question is why Musk would want to do this, and one answer seems to be related to his previously discussed plans to put data centers into space. Last week, the entrepreneur spoke at the World Economic Forum in Davos, Switzerland, where he said that space would be “the lowest-cost place to put AI.” He added that this could happen in “two years, maybe three at the latest.”

Musk’s idea is that space-based data centers would be powered entirely by solar energy, which he believes would dramatically cut the cost of the computing power required to train and run AI models such as Grok. He’s not the only one considering the prospect. Google LLC has a project called Suncatcher that’s also researching the feasibility of space-based data centers.

Still, constructing data centers in space would be an extremely challenging and risky endeavor, especially with the AI industry evolving so rapidly and often quite unpredictably. There are also questions about whether the reduced energy costs would be enough to offset the cost of optimizing data center servers and infrastructure to operate in space, and getting them into orbit in the first place.

There could be another potential advantage for space-based AI, however. Quilty Analytics analyst Caleb Henry told Reuters that the combination of xAI and SpaceX could position the combined companies to win more defense contracts from the Pentagon, which wants to leverage AI in its military networks.

XAI has signed a contract worth $200 million to provide Grok AI services to the Pentagon, which also used Starlink’s national security variant Starshield for global connectivity. Starshield is building a separate constellation of classified satellites equipped with special sensors that use AI to track ground-based targets.

Consolidation inevitable?

Any merger would be complex, but it does seem as if the reports have some legs. Reuters said it would likely involve exchanging shares of xAI for stock in SpaceX, but some shareholders might also be given the option of receiving cash instead of the rocket maker’s shares. Though no official plans have been announced, recent filings reveal that two new corporate entities, called K2 Merger Sub Inc. and K2 Merger Sub 2 LLC, were established in Nevada on Jan. 21. Both of those new companies list SpaceX Chief Financial Officer Bret Johnsen as an executive, but little else was disclosed.

Meanwhile, Musk is also said to be considering a second option that would see SpaceX instead merge with Tesla. According to a very brief report by Bloomberg, several investors in SpaceX are pushing this idea, which gives rise to the tantalizing possibility that Musk might ultimately combine all of his companies into one.

Musk has already taken several steps to consolidate his companies. SpaceX invested $2 billion in xAI last year, and then this week Tesla made its own $2 billion investment in the Grok maker. Prior to that, xAI acquired X in a deal that was designed to enhance the capabilities of Grok by plugging it into X’s real-time data.

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