SpaceX Acquires xAI as Musk Pushes AI Computing Beyond Earth Power Limits

SpaceX has acquired xAI, bringing together two of Elon Musk’s most ambitious private companies. The deal links rocket launch services with artificial intelligence development at a time when computing demands are rising rapidly. Musk framed the move as a response to the limits of Earth-based infrastructure. Questions now follow about cost, strategy, and the long-term value for both businesses.

AI’s $1B-a-Month Burn Rate Sparks SpaceX–xAI Tie-Up

SpaceX, founded by Elon Musk, confirmed that it has acquired xAI, the artificial intelligence firm Musk launched to compete in the fast-growing AI sector. Musk announced the merger by arguing that current AI growth depends too heavily on large data centers on Earth, which require vast amounts of electricity and cooling. According to him, meeting future AI power needs through land-based systems would strain communities and damage the environment.

Musk said that scaling AI over the long term would require space-based solutions. He pointed to the enormous energy output of the Sun, arguing that even a tiny fraction could dwarf all the power used by human civilization today. SpaceX, he suggested, could play a role by placing computing infrastructure in orbit rather than expanding energy-hungry facilities on the ground.

Deal terms were not disclosed, but the scale of the merger is notable. xAI raised funding at a $200 billion valuation in September, while SpaceX was preparing a share sale in December that valued the company at about $800 billion. 

Both firms rank among the world’s largest closely held companies. Capital needs appear to be the main driver behind the move, as xAI has been spending roughly $1 billion per month to build and train its models.

Starlink Revenue Emerges as Key Support for xAI After Merger

Unlike several of Musk’s newer ventures, SpaceX has a long record of steady performance. It remains the only U.S. company that routinely transports astronauts to and from the International Space Station. 

SpaceX also serves as a major launch provider for NASA and the U.S. Department of Defense. Revenue from the Starlink satellite network—now numbering more than 9,000 satellites—has become a larger source of income than launch services and may help support xAI’s heavy spending.

Several factors help explain why the merger matters:

• Rising AI power demand is pushing companies to seek alternatives beyond Earth-based data centers.
• xAI’s cash burn rate has made standalone growth difficult without access to deeper funding.
• Starlink revenue could serve as an internal funding source for AI development.
• SpaceX gains a direct role in shaping future space-based computing infrastructure.

Still, the benefits for SpaceX remain uncertain. Musk has spoken publicly about building data centers in space, but concrete timelines and technical details remain unclear. On Friday, SpaceX asked the Federal Communications Commission for permission to launch up to one million satellites connected to the project. Whether xAI’s software and models would directly improve SpaceX’s core launch and communications businesses remains an open question.

Musk Keeps Consolidating as SpaceX Weighs Mega IPO

Bloomberg Intelligence analysts warned that xAI’s financial profile could weigh on any combined valuation. They noted, however, that a recent $200 million contract with the U.S. Department of Defense could help xAI gain wider adoption among government and enterprise clients. That contract may ease concerns about long-term demand for its products.

Leadership continuity may help manage the transition. Gwynne Shotwell, SpaceX’s longtime president and chief operating officer, is expected to play a key role in overseeing the combined operations. Musk has also leaned on Anthony Armstrong, a former Morgan Stanley executive and the current chief financial officer of xAI, who holds the same role at X, the social media platform Musk bought in 2022.

Asset reshuffling is not new for Musk. He merged xAI with X less than a year ago and has frequently moved engineers and resources across Tesla, SpaceX, and X during periods of pressure. 

According to reports, SpaceX has previously held merger talks with xAI. The company has also discussed a potential tie-up with Tesla as it considers a future public offering that could value the rocket company at nearly $1.5 trillion.