The Numbers and Unresolved Issues Behind Musk's Mega Acquisition

　　The merger of Space Exploration Technologies Corp. (SpaceX) and artificial intelligence startup xAI will create a powerhouse in the fields of rocket technology and AI. However, the subsequent impact of this deal has raised numerous concerns among investors and experts.

　　Authors: Andrew Ross Sorkin, Bernhard Warner, Sarah Kessler, Michael J. de la Merced, Nico Galloagli, Bryan O'Keefe, Ian Mount

　　Image: SpaceX Starship rocket on the launch pad, connected to a crane.

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　　Hello, this is Andrew. One of the largest mergers in history, marked with an asterisk, has concluded: SpaceX has acquired xAI, with the merged company valued at $1.25 trillion. This is an all-stock deal with privately held shares (and a non-publicly assessed valuation, hence the asterisk), but SpaceX plans to go public later this year.

　　The entire deal was orchestrated by Elon Musk, who controls both companies. The merged SpaceX will become a vertically integrated company, able to deploy data centers in space and use these space facilities to provide AI services. There are questions about whether SpaceX really needed to acquire xAI and whether this deal will complicate SpaceX's initial public offering (IPO); however, this is undoubtedly a major boon for xAI's investors (some of whom also previously invested in social media platform X, which has now been acquired by xAI).

　　Additionally, the deal raises long-term antitrust concerns: if space data centers become a reality and Musk nearly monopolizes the field, will other AI model developers be allowed access to these facilities?

　　Key Unresolved Issues in Musk’s Ambitious Acquisition

　　Elon Musk had a busy Monday: he merged his rocket company SpaceX with AI startup xAI, creating the world’s most valuable privately held company.

　　Musk described the merged company as “the most ambitious vertically integrated innovation engine on and beyond Earth.” The deal was finalized just as SpaceX’s long-anticipated IPO, planned for this summer, draws near.

　　But investors and the public are questioning what real value this merger will bring, especially for SpaceX, which was already thriving. Now, it needs to present investors with a more complex business narrative.

　　Key Details of the Deal

　　The deal values SpaceX at around $1 trillion, up from about $800 billion in December last year; xAI is valued at $250 billion, slightly higher than its last funding round. (To complete this deal, SpaceX will need to issue about $250 billion in new shares, which will significantly dilute the holdings of existing investors.)

　　Musk says the merged company will be better equipped to build space-based AI data centers. In theory, such data centers could overcome many of the constraints of terrestrial data centers, such as power usage and physical space. SpaceX released a memo from Musk to employees stating, “In the long run, space-based AI is clearly the only way to scale.”

　　The Optimistic View

　　Andrew Rocco, strategist at Zacks Investment Research, told DealBook that the merged company will make SpaceX “much more attractive to investors,” as it allows Musk to avoid the distractions of running multiple ventures.

　　According to Pitchbook, SpaceX had more than $15 billion in revenue and about $8 billion in profit last year. This profitable company could provide cash flow to the loss-making xAI. Since its founding in 2023, xAI has raised $42 billion from investors (Bloomberg previously reported that xAI burns about $1 billion a month).

　　Significant Concerns

　　Previously, SpaceX planned to raise $50 billion through an IPO, setting a fundraising record, with a clear and appealing business story: the world’s largest rocket company, satellite internet operator, and strong profitability. Now, SpaceX must explain to potential investors why it owns a heavily loss-making AI division—which also includes social media platform X, a company frequently under investigation and fined by government regulators.

　　Bringing space data centers to reality will require overcoming a series of complex challenges: such as cooling technology for space data centers (some estimates say the radiators for cooling may have to be larger than a tennis court) and how to build radiation shielding against cosmic rays. Cost is a core issue; experts believe the cost of sending equipment components into space must decrease by about 90% to be viable. It is predicted this goal could be achieved in the 2030s, but Musk said on Monday that he expects it can be done in just 2 to 3 years.

　　Michael Sobel's investment firm specializes in secondary equity transactions of private companies. He told The Information that several SpaceX shareholders have expressed concerns about the deal. Sobel said most shareholders accept the business rationale behind the deal and trust Musk’s decision-making, but their attitude is “Hmm... (wait-and-see).”

Editor: Guo Mingyu