SpaceX Swallows xAI in $1.25 Trillion Merger, Files Plans for a Million Orbital Data Centers

TL;DR

SpaceX acquired xAI in an all-stock deal valuing the combined entity at $1.25 trillion - the largest merger in history
xAI shares converted at 0.1433 SpaceX shares each, valuing xAI at $250 billion and SpaceX at $1 trillion
SpaceX filed with the FCC to launch up to one million satellites for orbital AI data centers
A blockbuster IPO targeting mid-June 2026 could raise $50 billion at a $1.5 trillion valuation
Tesla invested $2 billion in xAI last year and sold $430 million in battery storage to it, raising conflict-of-interest questions

Elon Musk's two most ambitious private ventures are now one company. On February 2, SpaceX formally acquired xAI in an all-stock transaction that created a combined entity valued at $1.25 trillion, making it the largest merger in corporate history and setting the stage for what could become the biggest initial public offering ever.

The deal structure is straightforward: each xAI share converts into 0.1433 shares of SpaceX stock, pricing xAI at $526.59 per share. SpaceX accounts for roughly $1 trillion of the combined valuation, xAI for $250 billion. Space Exploration Technologies Corp. is now listed as xAI Holdings' "managing member."

The Orbital Data Center Gambit

The merger's stated strategic rationale is audacious: Musk wants to put AI compute infrastructure in space.

"Global electricity demand for AI simply cannot be met with terrestrial solutions, even in the near term," Musk wrote in a blog post announcing the deal. He projected that "within two to three years, the lowest cost way to generate AI compute will be in space."

Days before the merger closed, SpaceX filed an application with the Federal Communications Commission to launch up to one million satellites into low Earth orbit, forming what the company calls an "orbital data center constellation." The satellites would operate at altitudes between 500 and 2,000 kilometers, using intersatellite optical links to communicate with each other and with Starlink spacecraft, which would relay data to ground stations.

How It Would Work

The proposed system relies on near-constant solar power with minimal operating and maintenance costs. SpaceX claims this approach would "achieve transformative cost and energy efficiency while significantly reducing the environmental impact associated with terrestrial data centers."

Feature	Orbital Data Centers	Terrestrial Data Centers
Power source	Solar (near-constant)	Grid electricity
Cooling	Passive (space vacuum)	Active cooling systems
Energy cost	Claimed near-zero marginal	Rising, constrained
Environmental impact	Minimal (per SpaceX)	Significant (water, land, carbon)
Latency	Higher (LEO orbit)	Lower
Time to deploy	Years (unproven)	Months (proven)

The FCC is soliciting public comments on the application with a deadline of March 6. SpaceX has requested a waiver of standard milestone requirements that typically require half of a constellation to be deployed within six years of authorization.

Who Benefits

The merger creates a vertically integrated machine that combines AI development (xAI and Grok), satellite internet (Starlink), a social media platform (X), and rocket launch infrastructure under a single corporate umbrella.

xAI Investors

For xAI's backers - including those who participated in the $20 billion Series E round in January - the merger is a lifeline. xAI was burning cash at an alarming rate trying to compete with OpenAI, Google, and Anthropic, and its share of the AI market remains modest despite Grok's recent growth to 17.8% U.S. market share. By folding into SpaceX, xAI investors get exposure to one of the most valuable private companies on Earth and a clear path to liquidity through the planned IPO.

Musk Himself

Musk owns significantly higher percentages of both SpaceX and xAI than he does of Tesla. The combined entity's valuation now approaches Tesla's market cap, and a successful IPO would crystallize enormous personal wealth. Betting platform Kalshi gives SpaceX a 76% chance of going public before September 1, 2026.

Who Pays

Tesla Shareholders

Tesla invested $2 billion in xAI's Series E funding round and sold $430 million in battery storage to the company in 2025. An ongoing shareholder lawsuit alleges Musk breached fiduciary duty by using Tesla's balance sheet to support his private ventures. The merger doesn't resolve those concerns - it makes the web of cross-company transactions more complex.

This deal lands as Tesla reports its second consecutive year of declining vehicle sales, raising questions about whether Musk's attention is where public shareholders need it to be.

Skeptics of the Valuation

Trading xAI at roughly 1,000 times revenue while SpaceX trades at approximately 60 times revenue has drawn sharp criticism. AI researcher Gary Marcus characterized the merger as fundamentally a rescue operation, comparing it to Tesla's controversial 2016 SolarCity acquisition.

"xAI faces severe problems: rapid cash burn, no viable business model, reputational damage, weak user adoption compared to ChatGPT, and no competitive advantages," Marcus wrote.

The safety concerns at xAI have only deepened since the merger was announced. At least 11 engineers and two co-founders have left the company, and multiple sources have told reporters that "safety is a dead org at xAI."

The IPO Question

The Financial Times reported that Musk is targeting a mid-June 2026 debut - timed to his birthday and a planetary alignment - that could raise up to $50 billion at a valuation as high as $1.5 trillion. If it happens, it would dwarf every previous IPO in history.

Company	IPO Raise	Valuation at IPO
SpaceX-xAI (planned)	$50B	Up to $1.5T
Saudi Aramco (2019)	$29.4B	$1.7T
Alibaba (2014)	$25B	$231B
SoftBank (2018)	$23.5B	$42B

The question for prospective investors is whether they are buying a vertically integrated innovation engine or a bundle of capital-intensive bets held together by one man's conviction. SpaceX generated between $2 billion and $5 billion in profits in 2025. xAI is still deep in the red.

The merger is already reshaping the competitive landscape. While OpenAI assembles its own record-breaking $100 billion round and Anthropic digests $30 billion in Series G funding, Musk has taken the most unconventional path of all: merging a rocket company with a chatbot maker and betting that the future of AI runs on sunlight, 500 kilometers above the Earth. Whether that is visionary or reckless, public markets will soon get to decide.

Sources: