SpaceX and xAI's $1.25 trillion alliance: Five "elephants in the room" Wall Street didn't tell you about, including the potential risks, hidden motives, and the future implications for the tech industry and global markets.

Imagine you’re about to spend $1.25 trillion to buy a house, and the seller tells you that 20% of the rooms are locked under national security laws, and you have no right to see them. Would you sign this real estate contract? This is precisely the core question posed to global investors by the “Century Deal” that Elon Musk’s SpaceX and xAI are about to launch into the public market after their merger.

Rocket launches, Starlink internet, cutting-edge artificial intelligence—behind these sexy stories lie far more complex risk landscapes than Wall Street investment reports. When nearly one-fifth of a company’s revenue comes from “black box” government contracts, when a $25 billion ground AI facility might be phased out by its own space program, and when a sudden defense contract sparks congressional scrutiny, how should ordinary investors evaluate what could be the most attention-grabbing IPO of the century?

1. The $4 billion hidden in the “black box”: Unauditable confidential income

According to public data, SpaceX generated about $13 billion in revenue in 2024, with roughly $9 billion from the familiar Starlink internet service. This part of the business is transparent: users pay monthly, cash flow is stable, and analysts can easily model and forecast.

But the remaining roughly $4 billion is shrouded behind the Pentagon’s confidentiality curtain. SpaceX’s books show at least $22 billion in government contracts, a significant portion of which involves highly classified projects: launching spy satellites for intelligence agencies, providing encrypted communications for the Department of Defense, executing space missions that cannot be publicly discussed. The amounts, details, and even the existence of these contracts are covered in “black ink.”

The question is: when a company goes public, investors rely on transparent, auditable financial statements to make judgments. But if 15-20% of a company’s core revenue is legally prohibited from disclosure, how do you assess its true profitability and business health? It’s like evaluating a restaurant—you know it makes $10 million a year, but $2 million comes from a basement you’re not allowed into—you can’t tell if it’s a high-end private chef or an illegal casino.

More intriguingly, just before the merger, xAI suddenly secured a $200 million Pentagon contract in July 2025 to provide AI services to millions of military personnel. Just months earlier, Pentagon AI chief publicly stated that xAI “was never part of the discussion.” The origin of this contract and the potential pipeline of subsequent confidential projects remain a huge unknown for public investors.

2. The $25 billion “dinosaur”: Ground AI center vs. space AI dream

xAI recently invested $25 billion to build a super data center called “Colossus” in Memphis, equipped with 555,000 dedicated AI chips. Undoubtedly one of the largest AI infrastructures on Earth.

However, one of the core selling points of the merger story is SpaceX’s plan to build solar-powered AI data centers in space—using near-infinite space solar energy for power, relying on the universe’s extreme cold to cool the systems for free. If this “space server farm” becomes a reality, then ground data centers like “Colossus,” which cost billions and depend on power grids and cooling water, could become technological dinosaurs overnight.

Investors are asked to buy into two conflicting visions of the future simultaneously. If space AI succeeds, the $25 billion Memphis assets could face massive impairment; if space AI fails, the entire synergy story of the merger would be significantly undermined. This “two boats” strategy itself entails enormous capital allocation risks.

3. Falling from the sky: Mysterious contracts and “security loopholes”

Let’s return to that mysterious $200 million defense contract. The timeline itself raises doubts:

• Feb-April 2025: Musk led a special project called “Department of Government Efficiency” (DOGE), enabling its team to access sensitive government databases.
• March 2025: Pentagon AI chief resigned, explicitly stating xAI was not part of the contract considerations.
• July 2025: xAI, along with giants like OpenAI and Google, won the bid.

Senator Elizabeth Warren has already sent a letter demanding an investigation, questioning whether Musk used his government access to benefit his own company. It’s like a city planning board member resigning and immediately starting a construction firm that wins a municipal contract—whether coincidental or not, it’s enough to raise red flags for cautious investors.

Even more concerning are security issues. Just five days before securing the contract, xAI’s chatbot Grok experienced a serious malfunction, praising Adolf Hitler. Six U.S. senators jointly condemned xAI for releasing a product “without any security documentation.” In contrast, traditional defense contractors like Boeing would immediately suspend products or cancel contracts if security issues arose.

This raises a sharp question: when a company’s technology becomes “indispensable” to national defense strategy, does it gain a “privilege” of immunity from accountability? For investors, a lack of checks and balances in government reliance could harbor greater long-term regulatory and reputational risks.

4. From civilian infrastructure to military target: escalating geopolitical risks of Starlink

A rarely discussed but critical shift brought by the merger: by integrating with xAI (a Pentagon contractor), SpaceX’s Starlink business fundamentally changes its nature.

Previously, Starlink, used by Ukraine’s military, was essentially a global civilian internet service. Now, it has become part of a company providing classified AI services to the U.S. Department of Defense. In military terms, this shifts it from “civilian infrastructure” to “dual-use military asset.”

The risk is that Chinese military researchers have published over 60 papers detailing strategies to destroy or disable Starlink constellations, including anti-satellite weapons, drone swarms interference, cyberattacks on ground stations, and even disrupting its chip supply chain. When Starlink was just an internet service provider, these were mostly theoretical; but once it becomes part of U.S. military communications, these plans could move from paper to battlefield.

Imagine a tense Taiwan Strait scenario: Starlink would shift from a commercial platform to a high-value military target. What does this mean for SpaceX’s $12 billion annual Starlink revenue? The current market valuation seems not to fully account for the systemic risks posed by this geopolitical “upgrade.”

5. The “gray area” of data monitoring and the countdown of legal risks

According to contract details, the Pentagon’s AI system will access real-time data streams from X (formerly Twitter) to train models. X has over 600 million users, generating vast amounts of public statements, private interactions, and live updates.

This opens a potential “gray zone” of surveillance. In theory, the data is used for AI training, but once the pipeline is established, who can guarantee it won’t be used for unauthorized domestic protests, journalist tracking, or social network analysis? Organizations like the ACLU could file lawsuits. Once litigation begins, that seemingly stable $200 million government contract could instantly become embroiled in political and judicial storms, with revenues uncertain.

Additionally, the timing of the IPO is also suspicious. Securities law states that lawsuits for IPO fraud must be filed within two years of discovering the fraud or within five years of the fraud occurrence. If key information (like the true nature of confidential income) is hidden at IPO in 2026 and only revealed in 2028-2029, the statute of limitations might start from 2026. When investors discover the issues, the window for legal recourse could be closed. This isn’t illegal but a savvy legal strategy, implying the legal team has prepared for potential “problem disclosures” after IPO.

Conclusion: Are you buying “the future” or “dependence”?

Beneath the glamorous veneer of rockets and AI, the essence of the SpaceX-xAI merger is betting on the U.S. government’s permanent, comprehensive dependence on a company in launch, satellite, communication, and AI fields. This dependence is so deep that even if security issues arise, regulators might hesitate to impose sanctions.

“Too big to fail” doesn’t mean “good investment.” Governments won’t let critical infrastructure collapse, but that doesn’t prevent stocks from plunging 50% due to $25 billion asset impairments, congressional investigations canceling contracts, or satellites being shot down amid geopolitical conflicts.

This IPO is likely to succeed because Starlink has real revenue, the Pentagon needs SpaceX, and institutional investors are accustomed to defense contractor confidentiality. But “going public” doesn’t necessarily mean “worthy of investment.” Boeing is vital to national defense, yet its stock has not fully recovered from the 737 MAX crisis.

Ultimately, this $1.25 trillion deal demands investors pay for unverified space tech, potentially obsolete ground assets, questionable government contracts, unverifiable secret income, and unpriced geopolitical risks. Musk may once again create a miracle, but before signing this “mortgage,” every investor should realize: the rooms locked by law may contain not only treasures but also unforeseen challenges. Seeing clearly the path beneath your feet is just as important as chasing the future.