Elon Musk’s SpaceX and xAI are in discussions to merge ahead of a blockbuster public offering slated for later this year, Reuters reported exclusively on Thursday.
The move could reshape SpaceX’s IPO narrative and underscore Musk’s strategy to fuse satellite infrastructure with artificial intelligence computing.
Yet the talks remain fluid, with no final agreement reached and key terms like valuation, timing, and structure still undecided.
Why the merger would matter: Space-based AI data centers
The strategic rationale behind the combination centers on SpaceX’s push to launch orbital data centers.
This is a costly but potentially transformative infrastructure play that Musk believes will eventually become cost-competitive with ground-based AI compute.
In remarks at Davos last week, Musk stated:
The most cost-effective location for AI will be in space. This will likely be accurate within two years, or perhaps three at the latest.
Integrating xAI’s Grok chatbot and computational resources with SpaceX’s Starlink satellite network and launch capability would theoretically enable low-latency, space-based AI processing powered by solar energy.
The merger is not Musk’s first corporate consolidation.
In 2025, he folded X into xAI through a share swap, giving the AI startup access to the platform’s data and user distribution.
Before that, in 2016, he used Tesla stock to acquire SolarCity, his solar energy company.
This latest move would be substantially larger in scope, potentially reshaping how investors view SpaceX’s revenue potential ahead of its public debut.
The timing also carries defensive logic.
Defense Secretary Pete Hegseth visited SpaceX’s Starbase facility in Texas earlier this month and disclosed that Grok would be integrated into Pentagon networks as part of the military’s “AI acceleration strategy.”
xAI already holds a contract valued at up to $200 million to provide Grok products to the Defense Department.
Deal mechanics and market implications
Under the proposed structure, xAI shares would be exchanged for SpaceX shares, with some xAI executives potentially offered cash as an alternative, according to Reuters, which quoted a source.
Two Nevada entities were established on January 21 to facilitate the transaction, with SpaceX’s chief financial officer Bret Johnsen listed as a managing member.
Valuation and timing remain opaque.
SpaceX was valued at roughly $800 billion in a recent insider share sale, while xAI commanded a $230 billion valuation as of November.
The merger, should it proceed, would consolidate SpaceX’s IPO story before a June timeline many outlets have reported.
Neither Musk, SpaceX, nor xAI responded to requests for comment.
Regulatory approval and defense contracting reviews may delay or reshape the deal.
Investors and competitors will be watching closely to see whether the combination genuinely reduces launch and compute costs, or whether it’s primarily a financial engineering play.
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