Elon Musk was standing on a stage in Davos last month when he casually laid out what sounded like science fiction: artificial intelligence data centers orbiting Earth, powered by the sun and operating more cheaply than anything on the ground. Taking a sip of water, he told the World Economic Forum audience that space would soon be the lowest-cost location for AI infrastructure, predicting the shift could happen within two or three years. What few in the room knew was that Musk was already preparing to back that claim with the largest corporate merger ever attempted in the United States.
Within days of his Davos appearance, bankers from Morgan Stanley were finalizing valuations that would enable the combination of SpaceX, Musk’s rocket and satellite empire, and xAI, his artificial-intelligence startup. According to people familiar with the matter and investor disclosures, SpaceX’s board determined the company was worth $1 trillion as of January 30, while xAI’s board set its value at $250 billion. On January 31, the two companies signed a merger agreement creating a $1.25 trillion behemoth. The deal closed just two days later, instantly eclipsing every previous merger by value in American corporate history.
The tie-up capped an intense year of dealmaking for Musk, who has increasingly fused the corners of his business empire. He previously combined xAI with his social-media company X and oversaw Tesla’s $2 billion investment in the AI firm. For xAI investors, the SpaceX merger represents a dramatic windfall and a powerful new platform. For SpaceX’s long-standing backers, it marks a bold shift that forces them to share ownership with AI shareholders and shoulder risks far removed from rockets and satellites.
Musk’s ambition for xAI is sweeping. He wants its Grok chatbot to become the most widely used artificial intelligence in the world, a goal that requires enormous computing power and capital. Being linked to SpaceX ahead of an initial public offering gives xAI access to deep financial resources and a launch infrastructure unmatched by any competitor. It also positions the combined company to challenge established AI leaders such as OpenAI and Anthropic on a scale few startups could contemplate.
Yet the merger is also a leap into uncertainty. Some investors worry that Musk is binding SpaceX to an AI sector that critics believe may be inflated by bubble-like valuations reminiscent of the dot-com era. The $1.25 trillion valuation rests on a convergence of space and artificial intelligence that has yet to be proven commercially, relying on untested technologies deployed at unprecedented scale.
In a memo to employees this week, Musk underscored the urgency of the new direction, saying the company’s immediate focus would be launching AI satellites. SpaceX, xAI, and Musk declined to comment publicly, but the internal message made clear that orbital data centers are no longer a distant concept but a near-term objective.
The push toward a merger gained momentum after Musk secured a major personal victory in November, when Tesla shareholders approved his $1 trillion pay package, the largest ever awarded to the head of a public company. Buoyed by that endorsement, Musk’s inner circle turned to what many viewed as an even more audacious idea: fully merging SpaceX and xAI. With xAI burning cash and SpaceX preparing for an eventual public offering, combining the two became a priority.
Some xAI investors had already argued that Musk’s companies were more powerful together, given the deep operational ties between them. SpaceX was among xAI’s earliest enterprise customers and has expanded internal use of Spok, a customized version of Grok trained on the company’s proprietary data. Last summer, SpaceX invested directly in xAI while continuing its aggressive launch schedule and rapid expansion of the Starlink satellite internet network.
At the same time, xAI was racing to build physical infrastructure on Earth, including a second data center project near Memphis, Tennessee. But the startup also faced internal turbulence, with several executives departing over concerns about management and financial stability. Leaders from Valor Equity Partners, a firm that also invests in SpaceX, stepped in to take a more active role in overseeing xAI’s operations.
Behind closed doors, SpaceX engineers were studying the feasibility of orbital data centers and achieved a technical breakthrough related to the concept last fall. Musk began publicly emphasizing the idea of harnessing solar energy in space to power AI computing, a theme he amplified across social media and at public events. In January, SpaceX quietly filed paperwork in Nevada to create a set of entities overseen by its finance chief, Bret Johnsen. These entities, later used to structure the merger, were named K2, a nod to the Kardashev scale, a theory that measures a civilization’s advancement by its ability to harness energy, including from stars.
While Musk was selling the vision in Davos, the financial machinery of the deal was already in motion. Morgan Stanley, long Musk’s preferred bank, advised both SpaceX and xAI, an unusual arrangement in mergers but one made possible by Musk’s control of both companies. The bank suggested SpaceX could be valued as high as $1.26 trillion and xAI at up to $294 billion, well above previous expectations. Ultimately, both boards settled on clean, headline-grabbing figures: $1 trillion for SpaceX and $250 billion for xAI. Morgan Stanley did not issue a formal fairness opinion, a step often used to validate valuations, though such opinions are less common in private-company transactions.
To some observers, the deal echoes the exuberance of past corporate eras. Steve Kaplan, a finance professor at the University of Chicago, compared it to landmark mergers of the dot-com boom, noting the difficulty of assessing valuations when neither company is publicly traded. The share exchange grants xAI investors roughly a 20 percent stake in the combined company, a level some SpaceX investors believe is higher than they would have preferred.
Still, many within SpaceX support the new trajectory. They expect the company to leverage its developing Starship rocket to frequently launch orbital data centers, mirroring how it used earlier vehicles to deploy the largest satellite constellation in history with Starlink. On an investor call this week, SpaceX executives confirmed plans to take the company public this summer, setting the stage for markets to render their own verdict on Musk’s trillion-dollar bet.
Whether the merger ultimately proves visionary or reckless, it cements Musk’s reputation as a corporate risk-taker willing to fuse industries and rewrite the boundaries of technology. By tying the future of artificial intelligence to the vacuum of space, he has placed one of the biggest wagers ever seen in modern business, one that could redefine both computing and the space economy—or become a cautionary tale for the ages.
