SpaceX acquires xAI to build space-based data centers

SpaceX announced on Monday that it has acquired the artificial intelligence startup xAI. The transaction unites two entities within Elon Musk’s portfolio, even as SpaceX is reportedly preparing an IPO for as early as June.

The financial details of the transaction and the participating entities include:

• Combined Valuation: The merged company is valued at $1.25 trillion, according to Bloomberg News.
• Monthly Burn Rate: xAI is burning around $1 billion per month, Bloomberg News reported.
• Revenue Concentration: SpaceX generates as much as 80% of its revenue from Starlink, according to Reuters.
• Prior Acquisitions: Last year, xAI acquired X, with Musk claiming a combined valuation of $113 billion for those companies.
• Internal Investment: Tesla and SpaceX previously invested $2 billion each in xAI.

The strategic rationale for the merger centers on a pivot toward orbital infrastructure. Musk, who serves as CEO of SpaceX, stated in a memo that the merger is intended to create space-based data centers. He argued that terrestrial facilities face physical limits, writing: “Current advances in AI are dependent on large terrestrial data centers, which require immense amounts of power and cooling. Global electricity demand for AI simply cannot be met with terrestrial solutions, even in the near term, without imposing hardship on communities and the environment.”

To support these space-based data centers, SpaceX will require a stream of satellites. This loop is reinforced by regulatory requirements; the Federal Communications Commission (the US telecommunications regulator) requires satellites to be de-orbited every five years.

However, the expansion of Musk’s AI infrastructure has already drawn local opposition. On Earth, xAI has been accused of imposing some of that hardship on the communities near its data centers in Memphis, Tennessee. Meanwhile, the startup faces pressure as it competes with Google and OpenAI. According to a report by the Washington Post on Monday, Musk loosened restrictions on xAI’s chatbot, Grok, which contributed to it becoming a tool for making AI-generated nonconsensual sexual imagery of adults and children.

The merger consolidates Musk’s broader corporate empire, which also includes Tesla, The Boring Company, and Neuralink. Despite the consolidation, SpaceX and xAI have different near-term objectives. SpaceX is currently focused on proving that its Starship rocket can transport astronauts to the moon and Mars, while xAI competes with Google and OpenAI.

Why it matters

The merger creates a $1.25 trillion entity and signals a strategic pivot toward space-based data centers to address the power and cooling limitations of terrestrial AI infrastructure.