SpaceX invests 250 billion to acquire xAI! Musk's space AI empire aims for a 1 trillion valuation

Elon Musk announces SpaceX acquisition of xAI, with a deal valuing SpaceX at $1 trillion and xAI at $25 billion, setting a record for the largest merger and acquisition in the world. The merged company plans to go public this year, with a valuation potentially exceeding $1.5 trillion. Musk stated that they will leverage space data centers to overcome Earth’s AI computing power costs, competing in space AI with Google, Meta, and OpenAI.

The Largest M&A in History Reshapes the Tech Industry Landscape

Reuters first reported on this deal last week, calling it one of the most ambitious collaborations in the tech sector to date, uniting an aerospace defense contractor with a rapidly growing AI developer. According to data compiled by the London Stock Exchange Group (LSEG), this SpaceX acquisition of xAI set a new record for the largest M&A transaction globally, a record that had stood for 25 years. In 2000, Vodafone acquired Germany’s Mannesmann for $203 billion in a hostile takeover.

Sources familiar with the matter revealed that the deal values SpaceX at $1 trillion and xAI at $25 billion. SpaceX was previously the highest-valued private company globally, with a valuation of $800 billion after a recent insider stock sale. According to The Wall Street Journal, xAI was valued at $23 billion last November, and this acquisition has increased its valuation by approximately 9% in just a few months.

Another insider disclosed that the combined company of SpaceX and xAI is expected to have a per-share price of about $527. Two sources also revealed that the merger coincides with SpaceX’s plans for a spectacular IPO this year, with a valuation possibly exceeding $1.5 trillion. This would make the merged entity one of the most valuable tech companies in the world, potentially surpassing some valuation phases of Apple and Microsoft.

Musk poetically announced the deal, saying: “This marks not only the next chapter in the missions of SpaceX and xAI but also the next book: scaling up, creating a sentient sun to understand the universe, and extending the light of consciousness to the stars!” This statement reveals his ultimate vision of relocating AI computation from Earth to space.

Space Data Centers Become a Strategic Core

As Musk competes in AI against rivals like Google under Alphabet, Meta, Amazon’s Anthropic, and OpenAI, this deal could also help SpaceX realize its ambitions for data center construction. Musk has repeatedly spoken about accelerating the development of space-based data center technology, believing it will help overcome the high costs of power and other resources required to build and operate AI systems on Earth.

“Long-term, space artificial intelligence is clearly the only way to achieve scalable development,” Musk wrote on SpaceX’s website on Monday, adding with a nod to solar energy, “There’s always sunshine in space!” He estimates that “within 2 to 3 years, the lowest-cost way to perform AI computations in space will be through this approach.”

Three Core Advantages of Space Data Centers

Unlimited Solar Power: Continuous 24/7 solar energy supply in space, completely solving the energy bottleneck of Earth-based data centers.

Cooling Advantage: Natural heat dissipation in the vacuum environment of space significantly reduces cooling costs.

No Land or Environmental Restrictions: Not limited by terrestrial land resources or community opposition.

This vision has not gained full industry consensus. Many other companies building data centers, including Microsoft, do not agree with these predictions. Microsoft President Brad Smith told the Associated Press last month, “I would be surprised if people moved from land to low Earth orbit.” When asked about alternatives to building data centers in the U.S. amid rising community opposition, he expressed skepticism.

However, SpaceX has advantages other companies cannot match: it is the only private company capable of launching heavy payloads into space at large scale and low cost. The reusable technology of the Starship rocket could theoretically reduce launch costs to below $100 per kilogram, making large-scale deployment of space data centers economically feasible. Coupled with the communication infrastructure provided by the Starlink satellite network, the merger of SpaceX and xAI creates a unique synergy.

Elon Musk’s Ecosystem Further Integrates

This deal further consolidates Musk’s vast business empire and wealth, forming a tighter, mutually reinforcing ecosystem often informally called the “Musk Economy.” This ecosystem already includes Tesla, neural chip maker Neuralink, and tunnel company Boring Company. Forbes estimates Musk’s net worth at $768 billion, keeping him at the top of the world’s wealthiest.

Musk has long been enthusiastic about merging his companies. Last year, he merged social media platform X into xAI through a stock swap, allowing the AI startup to leverage X’s data and distribution channels. In 2016, he used Tesla stock to acquire his solar company SolarCity. Recently, rumors have circulated on Wall Street that Musk might continue merging his numerous companies into a giant Musk conglomerate, with some investors speculating that Tesla could also merge with SpaceX.

The acquisition of xAI by SpaceX will integrate his multiple businesses, including AI chatbot Grok, satellite communications company Starlink, and social media platform X. Grok will be able to utilize Starlink’s global coverage for data collection and service delivery, while X will continue providing training data and user feedback for Grok. The value created by this vertical integration far exceeds the sum of its parts.

Tesla recently announced a $2 billion investment in xAI, demonstrating that even before the official merger, Musk’s entities are already sharing resources deeply. Musk has similar ambitious plans for Tesla, aiming to transform the struggling automaker into a company focused on AI-driven autonomous taxis and humanoid robots like Optimus.

Regulatory Challenges and Competitive Pressures Coexist

Given Musk’s overlapping leadership roles across multiple companies, and the potential movement of engineers, proprietary technology, and contracts between entities, the deal may attract scrutiny from regulators and investors regarding corporate governance, valuation, and conflicts of interest. SpaceX also holds billions of dollars in federal contracts with NASA, the Department of Defense, and intelligence agencies, which have the right to review national security risks and other concerns related to the merger.

The specific terms of SpaceX’s acquisition of xAI have not been fully disclosed. Among the external investors in these companies is a fund, with Donald Trump’s son, Donald Trump Jr., as one of its partners. According to data provider PitchBook, this fund, called 1789 Capital, invested over $1 billion in Musk’s companies over the past year, including SpaceX, xAI, and X, though it has exited some investments.

While actively expanding space-based data centers, xAI is also rapidly expanding on Earth. Last month, Mississippi officials announced plans for the company to invest $20 billion in building a data center near the border of Mississippi and Tennessee, called MACROHARDRR, likely a pun on Microsoft’s name.

SpaceX faces fierce competition from other companies. Google announced last year a new research project called “Project Suncatcher,” aimed at equipping solar satellites with AI chips. In the AI field, Musk is striving to compete with rivals like OpenAI, which also plans an IPO this year. At the World Economic Forum in Davos last week, Musk lamented that humanity is “like a tiny candle in the darkness, a faint consciousness that can be easily extinguished,” perhaps revealing his deeper motivation for building space-based AI systems.