Two of Elon Musk’s best-known companies look likely to be headed for a mega merger ahead of a mooted IPO. SpaceX, the South African entrepreneur’s space exploration firm, and xAI, the AI company he established in 2023 to challenge OpenAI, are reportedly in discussions ahead of a merger and initial public offerings.
Two business entities were established in Nevada on January 21, Reuters says, that are potentially designed to facilitate the deal. Combined, the two businesses are worth more than $1 trillion. Tesla, Bloomberg reports, could be involved as well.
The IPO could happen in mid-June. Why mid-June? Because that’s a point when Jupiter and Venus will be in conjunction with one another, passing close to each other in their respective orbits, the Financial Times separately reported. June also happens to be Musk’s birth month; he’ll be 55 years old on June 28. It’s suggested that the merged entity would be looking to raise up to $50 billion, nearly twice the amount of the largest IPO in history to date—when Saudi Aramco’s 2019 raise of $29 billion—and would be doing so at a valuation of $1.5 trillion. None of the companies in question immediately responded to requests for comment.
Such a merger is big news, in part because of Musk’s name and infamy, but also because it represents the pooling of two firms that appear at first not to be connected. But there are business synergies that make sense, says Caleb Henry, director of research at Quilty Space. “I view the merger as Musk’s way to vertically integrate AI services by providing xAI with satellite infrastructure for on-orbit compute,” he says.
Musk has previously said—like a number of others in the tech world—that building data centers in space will be an important part of ensuring that we’re able to meet the compute demands of the current and ongoing AI revolution, in which Musk’s xAI is playing a large role through its Grok chatbot. Getting those data centers into space, if it ever happens, would need the rockets that SpaceX has become specialized in: Research company Payload Space estimates that SpaceX made $15 billion in revenue last year, around one-third of which was from launches. (The remainder was from its Starlink satellite internet service.)
“The viability of orbital data centers remains a subject of debate, but Musk is a firm believer that they are the future,” acknowledges Henry. “With that conviction in mind, it makes sense for him to merge SpaceX and xAI.” Doing so would help Musk avoid the headache of having to arrange, pay for, and plan out capacity on Earth—something xAI is already in trouble about, after the Environmental Protection Agency recently ruled that the AI company’s Colossus data center generated more electricity than was legally permitted. “Rather than having xAI pay for data centers on the ground, SpaceX can host them in orbit on the Starlink satellite constellation. xAI could get cost savings by vertically integrating with orbital data centers, similar to how Starlink saves on launch costs by being part of SpaceX,” says Henry.
Not everyone is as convinced of the business case, however. “It shows Elon Musk is good at raising money on whatever the theme is at the moment,” acknowledges E.W. Niedermeyer, author of Ludicrous: The Unvarnished Story of Tesla Motors, and an auto industry analyst. Niedermeyer believes that the mooted move is more about puffing up both Musk’s companies in the eyes of the public. “It’s a classic Elon Musk move in the sense that I was both totally shocked by it, and then almost immediately, not at all shocked,” he says.
Niedermeyer believes the merger helps both companies support one another, and potentially access more cash from a public offering, that will keep them both going. “We know very little about their actual economics, because they’re privately held companies,” he says. “But what we do know is not wildly encouraging,” pointing to the fact that both repeatedly raise cash from investors, suggesting they’re not able to fund their own growth. “It looks like Elon Musk has one window to do a big IPO, and he wants to make the most of that,” says Niedermeyer.
Part of the problem is that xAI’s cash burn is likely to be significant because of the demand for AI products like Grok—an issue that Musk’s AI company isn’t alone in feeling, Niedermeyer admits. On the space exploration side, Niedermeyer says that the Falcon 9 and Starship initiatives are literal moonshot projects that take a lot of cash. That’s what makes it so surprising that SpaceX could go public: Musk has previously said in 2013 that SpaceX had to remain private in order to maintain its overall mission. “I see this as a way to keep things rolling along,” says Niedermeyer.
But it also runs the risk of alienating some of Musk’s most ardent fans, he warns. “I’ve already seen evidence in forums that the IPO plan has been really toxic to some of the most committed parts of his fanbase,” Niedermeyer says. “I just see this as being sort of the last big cash-in and I genuinely don’t know where he goes from here.”