Elon Musk confirms SpaceX has acquired xAI to accelerate his space-based data center plans

Elon Musk’s rocket company SpaceX Corp. has acquired his artificial intelligence startup xAI Corp. ahead of what will likely be one of the largest initial public offerings in history later this year.

The technology entrepreneur announced the deal in a blog post on SpaceX’s website, where he explained that he’s trying to build the “most ambitious, vertically-integrated innovation engine on (and off) Earth, with AI, rockets, space-based internet.”

Bloomberg said in a report that the combined company is expected to price its shares soon in an IPO that could value it at around $1.25 trillion. According to public records filed with the state of Nevada that were seen by CNBC, the deal was reportedly finalized on Feb. 2, with SpaceX listed as the “managing member” of xAI.

The deal is by far and away the largest pulled off by Musk. It merges two companies whose value on the private markets has soared over the last year. Late last year, SpaceX opened a secondary share sale that valued it at $800 billion, while xAI claimed a $230 billion valuation after closing on a $20 billion funding round in January. It comes less than a week after Tesla Inc., the electric car maker that is also the source of most of Musk’s liquid wealth, announced it was investing around $2 billion in xAI.

Musk had already expanded xAI dramatically about a year earlier when he decided to merge it with X, the social media network formerly known as Twitter.

xAI is currently facing multiple regulatory probes in places such as Australia, California, Europe and India regarding its controversial chatbot Grok AI, which has made it all too easy for users to create highly sexualized images of non-consenting persons based on photos of them posted online.

SpaceX was founded in 2002 and has since become the world’s leading private rocket company and the main provider of orbital flight services to the National Aeronautics and Space Administration and the U.S. Department of Defense. In addition, SpaceX also owns and operates the satellite constellation Starlink, which provides global internet services to more than nine million customers around the world. According to a report by Reuters last week, which cited two people familiar with the company’s finances, it generated revenue of between $15 billion and $16 billion last year, with profits of an estimated $8 billion.

Musk launched xAI in 2023 as a rival to OpenAI Group PBC, which he previously helped to co-found. The entrepreneur washed his hands of the ChatGPT maker a couple of years before it kicked off the generative AI boom in late 2022, and is now embroiled in a heated legal battle with its Chief Executive Sam Altman. Unlike SpaceX, xAI’s financial situation is more tenuous. Like most AI developers, including OpenAI, it’s believed to be burning through cash at an alarming rate as it races to build out the costly data center infrastructure needed to power its large language models.

However, xAI could well gain an advantage over OpenAI and other rivals such as Anthropic PBC and Google LLC, for Musk is framing the deal as part of a strategic plan to build data centers in space. His envisioned orbital data centers would be able to operate at much lower costs in orbit by running exclusively on solar power. Such plans are likely still a few years off, but SpaceX recently asked the U.S. Federal Communications Commission for permission to launch up to one million satellites as part of an “orbital data center”.

According to Musk, by launching a millions tons of satellites per year that generate 100 kilowatts of compute power per ton, he would be able to add 100 gigawatts of AI compute capacity annually, with minimal operational and maintenance overheads.

“Ultimately, there is a path to launching 1 TW/year from Earth,” Musk wrote. “My estimate is that within 2 to 3 years, the lowest cost way to generate AI compute will be in space. This cost-efficiency alone will enable innovative companies to forge ahead in training their AI models and processing data at unprecedented speeds and scales, accelerating breakthroughs in our understanding of physics and invention of technologies to benefit humanity.”

While space-based data centers are the public goal, SpaceX and xAI also have some very different near-term objectives. The rocket company is currently trying to show that its Starship rocket will be able to bring astronauts to the Moon and later, possibly even Mars. Meanwhile, xAI is simply trying to fend off competition from OpenAI and Google to become the world’s leading AI company.

Last week, when reports discussing the merger between SpaceX and xAI first emerged, Bloomberg reported that Musk may also have ambitions to combine the companies with Tesla. Such a deal would be vastly more complicated though, due to Tesla’s status as a publicly-traded company. Must also owns The Boring Company, which aims to build underground transportation systems to alleviate traffic congestion, and Neuralink Inc., which develops brain-computer interfaces.

Photo: SpaceX