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Elon Musk’s SpaceX has officially acquired his artificial intelligence startup, xAI. Announced on Monday, February 2, this massive deal creates the world’s most valuable private company. Reportedly, the combined entity holds a staggering valuation of $1.25 trillion.
Musk, who remains CEO of both companies, outlined a bold vision in a memo. He plans to build data centres in space. According to Musk, terrestrial data centres currently face severe limitations. They require immense power and cooling that Earth cannot sustainably provide. Consequently, global electricity demand for AI risks imposing hardship on local communities and the environment.
The Case for Space-Based AI
Musk believes space is the only logical solution for scaling AI. He argues that space offers vast, near-constant solar power with minimal operating costs. In his update, Musk noted:
It’s always sunny in space!
Therefore, the merged company aims to launch a constellation of one million satellites acting as orbital data centres. This ambitious plan intends to create a “sentient sun” to help humanity understand the Universe. Ultimately, Musk wants to propel civilisation to a Kardashev II level, where we harness the full power of our Sun. He estimates that within two to three years, space will become the lowest-cost method to generate AI compute.
SpaceX Starship’s Role & Future Capabilities
SpaceX’s Starship rocket is central to this strategy. The company plans to increase flight rates to hourly launches, carrying 200 tons per flight. These missions will deploy powerful V3 Starlink satellites, which offer 20 times the capacity of current models. Furthermore, new direct-to-mobile satellites will deliver global cellular coverage.
Looking further ahead, SpaceX plans to establish factories on the Moon. These facilities will use lunar resources to manufacture satellites. Subsequently, an electromagnetic mass driver on the Moon could launch up to 1,000 terawatts of AI satellites into deep space annually.
Financials, Risks & Controversies
This merger unites two distinct financial realities. Reportedly, xAI currently burns around $1 billion per month. In contrast, SpaceX generates 80% of its revenue from Starlink launches. This creates a revenue loop. SpaceX launches satellites, which generate revenue to fund more launches. Notably, xAI previously acquired the social media company X, adding to the combined portfolio.
However, challenges remain. SpaceX is reportedly preparing for an IPO as early as June 2026, though the merger’s impact on this timeline is unclear. Additionally, xAI faces scrutiny. Reportedly, on Monday, Musk loosened restrictions on the chatbot Grok due to competitive pressure. This decision contributed to the tool generating nonconsensual sexual imagery. Furthermore, xAI has faced accusations of causing hardship for communities near its terrestrial data centres in Memphis, Tennessee.
Despite these hurdles, Musk insists this merger accelerates humanity’s multi-planetary future. The revenue from space data centres will fund bases on the Moon and cities on Mars.
