SpaceX to Merge With xAI, Reshaping AI in Space

SpaceX announced that it will merge with xAI, consolidating two of Elon Musk’s largest private ventures into what he described as “the most ambitious, vertically-integrated innovation engine on (and off) Earth.” In a statement posted on SpaceX’s website, Musk said the deal brings together rockets, space-based internet, direct-to-mobile communications, and what he called “the world’s foremost real-time information and free speech platform” under one umbrella.

The acquisition formalizes an already close relationship between the companies. Engineers from Tesla and SpaceX have been working across projects, including on xAI initiatives, according to Musk. Last week, Tesla confirmed a $2 billion investment in xAI preferred stock, further linking the electric-vehicle manufacturer to Musk’s AI ambitions.

Financial terms of the SpaceX–xAI transaction were not disclosed in the announcement. However, Bloomberg has reported that SpaceX is planning an initial public offering that could raise as much as $50 billion and value the company at about $1.5 trillion. It is not yet clear how the inclusion of xAI will affect those figures.

Musk framed the merger around a long-term push into space-based artificial intelligence. He argued that current advances in AI depend on large terrestrial data centers that require immense power and cooling, creating constraints on how far such systems can scale using only Earth-based infrastructure.

“Global electricity demand for AI simply cannot be met with terrestrial solutions, even in the near term,” Musk said, calling space-based AI “obviously the only way to scale.” He cited plans for data centers in space as a core rationale for combining SpaceX’s launch and satellite capabilities with xAI’s model development.

Musk also described the merger as the start of “the next book” in SpaceX and xAI’s mission, which he characterized as “scaling to make a sentient sun to understand the Universe and extend the light of consciousness to the stars.” The statement did not provide a timeline or specific project-level milestones for the space-based AI infrastructure.

The consolidation of Musk’s AI efforts comes as other analysts and investors reassess how artificial intelligence value will develop across sectors. Wedbush analyst Dan Ives has argued that the “real money” from AI will come from machines that can act in the physical world, naming Tesla and Nvidia as central to what he calls a physical AI boom.

Tesla has been repositioning itself around autonomy and software, reporting 1.1 million active full self-driving (supervised) subscriptions and pricing the service at $99 per month. Ives has described 2026 as a potential “golden year” for Tesla, citing FSD, potential robotaxis and Optimus robots as key elements. Tesla’s recent $2 billion preferred investment in xAI suggests it could also benefit from model development housed within the newly combined SpaceX–xAI structure.

At the same time, broader market volatility around AI- and software-related names has increased. Some former AI leaders, including Palantir, have seen sharp share-price swings, and the S&P 500 has traded in a narrow range near the 7,000 level as investors rotate out of some technology stocks into sectors like energy and healthcare.

The confirmation of the SpaceX–xAI merger followed earlier media reports that a deal was in progress. Market coverage has linked the transaction to expectations that SpaceX will eventually access public markets, though the company has not released a formal IPO schedule.

Other market participants have highlighted the emergence of alternative AI and infrastructure plays. A recent analysis of the iShares Semiconductor ETF (SOXX) noted a projected global semiconductor market growth rate above 25% for 2026, with companies such as Nvidia, AMD and Micron among its largest holdings. At the same time, software and private credit exposures have come under scrutiny as investors rethink valuations in light of AI-related disruptions.

Against that backdrop, SpaceX’s move to fully integrate AI capabilities internally, and to link them to its satellite and launch infrastructure, marks a distinct approach compared with many publicly traded firms that rely on external cloud and chip providers. Investors will be watching how SpaceX details its capital needs, revenue model, and governance for the combined entity as it moves toward a potential IPO.