Elon Musk’s SpaceX and his artificial intelligence venture xAI are engaged in advanced merger discussions, a move that could unify rockets, satellites, social media and cutting-edge AI under one corporate banner ahead of SpaceX’s anticipated blockbuster initial public offering later this year. The talks, confirmed by a person briefed on the matter to Reuters, come as SpaceX prepares banks for an IPO potentially valuing the company above $1 trillion.
Under the proposed structure, xAI shares would be exchanged for SpaceX stock, with two Nevada entities—K2 Merger Sub Inc. and K2 Merger Sub 2 LLC—formed on January 21 listing SpaceX Chief Financial Officer Bret Johnsen as an officer, filings show. Some xAI executives might opt for cash instead of stock. SpaceX, valued at $800 billion in a recent insider sale, would absorb xAI, recently pegged at $230 billion after raising $20 billion in its Series E round.
Merger Machinery in Motion
Musk, CEO of both firms, envisions synergies like orbital data centers powered by unlimited solar energy in space, a concept he touted at Davos: ‘the lowest cost place to put AI will be in space. And that will be true within two years, maybe three at the latest,’ as reported by Reuters. This aligns with SpaceX’s Starship capabilities and xAI’s Colossus supercomputer in Memphis, fueled partly by Tesla Megapacks.
Tesla disclosed selling $430 million in Megapack batteries to xAI in 2025, representing 3.4% of its $12.8 billion energy revenue, per CNBC. Tesla also committed $2 billion to xAI’s funding, mirroring SpaceX’s prior $2 billion investment, signaling deepening ties across Musk’s empire that includes X, acquired by xAI in 2025 at a $33 billion valuation.
The merger would bundle SpaceX’s Falcon rockets and Starlink constellation—now thousands of satellites strong—with xAI’s Grok chatbot and X platform, positioning the entity against AI leaders like Google, Meta and OpenAI. Starlink and Starshield already leverage AI for operations, while xAI holds a $200 million Pentagon contract for Grok integration.
Synergies in Orbit
Industry observers see strategic fit in space-based AI infrastructure. ‘Future versions of Colossus belong in space,’ tweeted Gene Munster of Deepwater Asset Management on X, pegging 35% odds of SpaceX acquiring xAI over three years, 45% for Tesla. SpaceX’s launch cadence could deploy solar-powered data centers, bypassing Earth-bound power constraints, as Musk competes with Blue Origin’s satellite plans and Google’s Project Suncatcher.
Scientific American highlighted technical merits, noting Starship could address data center bottlenecks like construction costs and energy demands. Yet skeptics question viability; bandwidth limits and hardware durability in orbit pose hurdles, though Musk’s track record—from reusable rockets to Starlink—fuels optimism. Scientific American detailed how space offers ‘unlimited solar energy access for AI infrastructure.’
Bloomberg reported SpaceX also exploring a Tesla tie-up, pushed by investors, potentially aligning energy storage with orbital compute. No final terms exist; discussions remain fluid amid Musk’s history of cross-company resource sharing, like Tesla engineers aiding X.
Investor Rewards and Risks
The deal rewards Musk loyalists, including Fidelity and Valor Equity Partners holding stakes in both, by granting public liquidity via SpaceX shares pre-IPO. The Information noted it incentivizes talent retention amid AI poaching wars. SpaceX CFO Johnsen’s involvement underscores internal momentum toward a June IPO, possibly timed to Musk’s birthday and planetary alignment, per Financial Times.
Critics decry self-dealing risks. Electrek’s Fred Lambert warned on X: ‘this would be another Elon self-dealing. Elon owns way higher percentages of xAI and SpaceX than he does Tesla.’ A Delaware lawsuit alleges Musk diverted Tesla resources to xAI, echoing SolarCity controversies. Business Insider’s Peter Kafka called the rationale ‘a little obscure,’ questioning private-to-private consolidation motives beyond public market access for xAI.
TechCrunch outlined implications: merging enables xAI data centers in orbit, leveraging Starlink for low-latency AI. TechCrunch and Futurism emphasized defense angles, with Starshield’s classified networks and Grok in military use boosting Pentagon bids.
Market Ripples and X Chatter
Tesla shares surged after-hours on broader merger rumors, despite Lambert’s cautions. Aaron Burnett of Mach33 tweeted: ‘capex expenditure aligns. SpaceXai narrative aligns.’ Reuters’ Joey Roulette broke the story on X, sparking debates on revenue blending from launches, Starlink, X and Grok.
Forbes pegged SpaceX’s IPO ambitions above $1 trillion by July, post-Musk’s 2013 reluctance until Mars progress. Data Center Dynamics linked Tesla’s $2 billion xAI stake to Megapack sales powering Colossus. As talks evolve, the combined entity could redefine AI-space convergence, funding Musk’s Mars vision amid trillion-dollar valuations.
Musk, SpaceX and xAI declined comment, but filings and investments signal acceleration toward history’s largest IPO.