SpaceX Acquires xAI, Merging with $1.25 Trillion Valuation

Original Author: Kuri, Deep Tide TechFlow

On February 2nd, SpaceX announced the acquisition of xAI.

After the merger, the combined valuation reached $125 billion. With this, Musk's rocket company, Starlink, the X platform, and Grok are all now under one roof.

Musk stated in an official announcement that the new company would be "the most ambitious vertically integrated innovation engine on Earth and beyond."

However, public data shows that xAI generated $107 million in revenue last quarter, but incurred a net loss of $1.46 billion. In the first nine months, it burned nearly $10 billion in cash, averaging almost $1 billion per month. In contrast, SpaceX is expected to generate about $8 billion in profit in 2025.

A company burning through 1 billion dollars a month is absorbed by a company earning 8 billion dollars a year, and then plans to go public, aiming to raise 50 billion dollars.

For xAI's shareholders, this deal has a more practical name: a lifeline.

This is not the first time Musk has moved things between his companies.

In March 2025, xAI acquired 𝕏. Elon Musk valued the merger at $113 billion, but this was widely seen as overinflated, as 𝕏's advertising revenue had never recovered to the levels it achieved during the Twitter era. However, the key point of this deal was not about how much 𝕏 was worth. The real-time data generated by its 600 million active users is being fed entirely into Grok's training pipeline, making it xAI's most exclusive resource and its biggest advantage over OpenAI and Anthropic.

In January 2026, Tesla participated in the Series E funding round of xAI with a $2 billion investment. The rationale was to deeply integrate Grok's capabilities, as both the in-car system and Optimus robot training required it. Tesla shareholders voted last year on whether the company should invest in xAI, with more votes in favor than against. However, the board ultimately did not approve the investment. This time, the $2 billion investment was directly finalized.

On February 2nd, SpaceX acquired xAI. Tesla, which previously held shares in xAI, now indirectly holds a minority stake in SpaceX following the merger.

On the xAI side, over the past year, they have spent hundreds of millions of dollars purchasing Tesla Megapack battery systems to power the Colossus supercomputing center. Meanwhile, Tesla procures Starlink services from SpaceX to provide internet connectivity for its vehicles.

X has become a "dowry" in Musk's business empire, first being "married" to xAI in exchange for algorithmic legitimacy, and now, along with xAI, "eloping" into SpaceX, all to complete the final narrative piece for that $1.25 trillion check at the IPO feast in June.

Money and people circulate between Musk's companies. There is a specific term used in investment circles to describe this system: "Muskonomy" (Musk economics).

Ross Gerber, an investor in Tesla and xAI, said something very candid: "It's like a bunch of overvalued companies merging into an even bigger overvalued mess, run by Elon. But looking at it from another angle, it's now a pure Musk concept stock. Want to invest in Elon? Here you go, it's all here."

Within the publicly traded company system, a single controlling individual transferring assets and contracts among affiliated companies often attracts regulatory scrutiny. However, most of Musk's companies are private. They are not subject to public financial disclosures, lack independent boards for checks and balances, and have shareholders consisting of a small group of venture capital firms and sovereign wealth funds, who are not as demanding as public shareholders.

As long as the company hasn't gone public, this game of moving money from one hand to the other can continue.

But the story is different after the IPO.

Why does SpaceX want to acquire xAI?

Peel away those grand space narratives, and there's only one core:Emergency help!.

$1 billion per month, this is xAI's current rate of spending.

$30 million a day, $1.4 million an hour, $23,000 a minute. By the time you finish reading this sentence, xAI will have spent another $60,000.

Where did the money go? The vast majority was poured into Colossus, the supercomputing cluster being built by xAI in Memphis, Tennessee. It has already installed over 200,000 equivalent Nvidia H100 GPU computing units, with a target power consumption of 2 gigawatts. Simply purchasing the chips and batteries has already consumed billions of dollars. Additionally, stock-based compensation expenses in the first nine months approached $160 million, reflecting the high cost of the ongoing battle for top AI talent.

But on the revenue side, there's hardly any growth visible that can match this rate of spending.

xAI's projected full-year revenue for 2025 is approximately $500 million, primarily from API calls for Grok and revenue sharing from 𝕏 Premium subscriptions. Management has provided guidance to investors that revenue will grow to $2 billion in 2026 and the company will become profitable in 2027.

2 billion in revenue sounds significant, but OpenAI's annualized revenue for 2025 has already exceeded 20 billion. Even if xAI achieves its goals, its scale would only be one-tenth of OpenAI's.

xAI was established less than three years ago, and its valuation has soared from 0 to $250 billion, having gone through at least six rounds of financing.

The most recent round was in January of this year, an E-round totaling $20 billion, with investors including Nvidia, Valor Equity Partners, and the Qatar Investment Authority. Adding the $5 billion in debt financing previously arranged by Morgan Stanley, xAI has raised over $40 billion in total.

A company with annual losses in the billions and revenue of 500 million is valued at 250 billion, which equals a 500 times price-to-sales ratio.

If it goes public separately, the secondary market would find it difficult to accept this valuation.

A pattern of U.S. stock IPOs in 2025 is that:The trading prices of almost all companies after their initial public offerings (IPOs) are lower than the valuations from their last private funding rounds.

Compared to xAI, SpaceX is in the exact opposite situation.

It may be one of the most profitable private companies in the world. In the United States, it is the only commercial rocket company capable of routinely sending astronauts to the International Space Station. Starlink's revenue has already surpassed its rocket launch business, and it generates recurring revenue. It has 9 million paying users who pay monthly fees. This is a business model highly favored by secondary markets.

However, there are also issues with SpaceX going public on its own.

Wall Street's valuation logic can be ruthless: rocket companies are valued based on cash flow, while AI companies are valued based on imagination.

Taking Lockheed Martin, a traditional aerospace giant, as a reference, the market has consistently given it a P/E multiple of 20-30 times. Even if we were to give SpaceX, the king of unicorns, a "hard-core tech premium" of 50 times, based on its $8 billion in profits for 2025, its market capitalization would only hover around $400 billion. Even with a 100 times P/E premium under the "new space economy" valuation, its market cap would only reach about $800 billion.

But what about AI companies? OpenAI is seeking a new valuation of 83 billion USD while operating at a loss, and Anthropic has a valuation of 35 billion USD.

What Musk wants is more than 100 billion.

Therefore, the financial logic behind the merger of SpaceX and xAI is not complicated:xAI alone cannot support its valuation, but SpaceX's profits underpin it, creating a package that becomes a combination with profits, a growth story, and a moat.

For IPO underwriters, this is much easier to sell than selling separately.

But Musk also needs a narrative that makes sense of combining the rocket company and the AI company.

So he found one:Space Data Center.

Musk wrote in the merger statement: "Advancements in AI rely on large ground-based data centers that require massive amounts of power and cooling. The global AI industry's electricity demand cannot be met by ground-based solutions, and even in the short term, it would place a burden on communities and the environment."

This statement has a satirical background. xAI's Colossus supercomputer center is being built in Memphis, and the local community has been protesting its pollution issues. The NAACP and environmental organizations have already prepared to file lawsuits.

Musk said that ground-based data centers impose a burden on communities, and his own data center serves as an example.

The solution he proposed is to move computing power into space.

Powered by solar energy, launched by SpaceX rockets, and transmitting data through the Starlink satellite network.

Last Friday, SpaceX submitted an application to the FCC, requesting authorization to launch up to 1 million satellites to support its "Orbital Data Center" project.

"I estimate that within two to three years, the place with the lowest cost for generative AI computing power will be space," Musk said last month at Davos.

This vision is grand and still in its early stages.

No company currently operates a data center in space. All of xAI's computing power is on the ground. Jeff Bezos's Blue Origin has also announced a similar space-based backbone network plan, and Google has a research project called Project Suncatcher focused on space-based data centers. However, these are all still in the conceptual stage.

But an IPO doesn't require a product to be fully realized; it requires a sufficiently big story.

If SpaceX were to go public separately, the story would be about rockets and Starlink. It's already quite impressive, but its growth ceiling is visible. The global commercial launch market is only so big each year, and Starlink's user growth will eventually hit saturation. Adding xAI to the mix, the story becomes "AI + space infrastructure," a narrative with trillion-dollar potential.

Combined with the vision of a space-based data center, the narrative becomes..."The future of human computing power is in orbit, and we are the only company with rockets capable of sending it there."

The difference between these three layers of nesting is significant for underwriters and roadshow PPTs.

As for when the space data center will start operating, that will be something to consider after the IPO.

If a space-based data center is feasible, xAI will have an infrastructure advantage that other AI companies cannot replicate. OpenAI rents AWS and has to share profits with Microsoft; Google negotiates power supply with various state governments and deals with environmental reviews. Musk doesn't need to—he has his own cloud, operating in space.

From rocket launches (SpaceX) to satellite networks (Starlink), data training (xAI), content distribution (X platform), to application scenarios (Tesla's autonomous driving, Optimus robot), the entire industry chain is under Musk's control.

In this game of capital, there is a hidden loser:Tesla shareholder.

Complaints from Tesla's shareholder community have reached a peak. Multiple investors on social media are questioning: In 2020, Musk suggested that Tesla shareholders had a priority subscription right to SpaceX. However, after xAI was established in 2023, Tesla's AI team was poached by xAI, and computing resources were reallocated to xAI. Now, Musk is asking Tesla to invest $2 billion in xAI and also wants Tesla shareholders to indirectly hold shares in SpaceX and xAI at valuation levels of $150 billion and $25 billion, respectively.

An investor did the math: In 2020, when SpaceX made its commitment, its valuation was $100 billion, and now it's $1 trillion, a 10-fold increase. In 2023, xAI was founded with a valuation of $10 billion, and now it's $250 billion, a 25-fold increase. "Right of first refusal" has turned into "buying at the top."

Tesla itself is also running low on cash. It has $44 billion in cash on hand, but its automotive business has seen declining sales for two consecutive years. This week, Tesla announced a $2 billion investment in xAI and plans to double its capital expenditures. Wall Street analysts predict that due to massive investments in AI infrastructure, Tesla may face a cash flow deficit of $5 to $7 billion by 2026.

The timeline speaks for itself:

• December 2025: xAI completes $2 billion in funding, valuation reaches $23 billion
• January 2026: Tesla announces a $2 billion investment in xAI.
• January 30, 2026: SpaceX applies to launch 10 million satellites
• February 2, 2026: Acquisition of xAI is announced.

A series of moves within 60 days. Musk is playing a big game, Tesla shareholders are not on the board, they are just pawns.

Within Musk's "Muskonomy" system, resources flow between the companies, with each transfer creating a new valuation peak.

But Tesla shareholders found that their technology was taken away, their funds were used, and in the end, they could only repurchase these assets through indirect ownership at valuation levels much higher than the originally promised ones.

On the other hand, Tesla would also benefit from Musk's and SpaceX's success, making it a pure-play SpaceX concept stock.

An illustrative analogy is:

Tesla shareholders now resemble an ex-wife whose ex-husband took her savings to start a business. Though she verbally curses Musk for lacking integrity and illegally misappropriating funds, when she sees her ex-husband (SpaceX) about to launch a $150 billion mega IPO, she can't help but rush to reconcile, hoping to secure a family seat on that ticket to Mars. A complex emotion blending Stockholm Syndrome and greed.

Musk wrote one sentence for the merged company's mission:"Manufacture a conscious sun to understand the universe, extending the light of awareness to the stars."

This sentence reveals the underlying logic behind everything Musk does: using a vision so grand it cannot be disproven, he transforms immediate financial issues into a long-term narrative.

SpaceX also survived in this way in its early days. Back then, when the rocket exploded three times and the company was on the verge of bankruptcy, it was the vision that "humans must become a multi-planetary species" that supported its valuation.

This set of methodologies has now been upgraded.

Instead of having one company tell a single story, it's better to tie all the companies together to tell a bigger story.

Rockets provide transportation capacity, Starlink handles data transmission, xAI provides intelligence, X (Twitter) manages data, and Tesla handles energy and robotics. Each of these components has its own shortcomings when considered individually, but when combined into the vision of a "Space AI Civilization," those shortcomings simply become "unrealized links" in the chain.

Musk discovered a secret: during the private company stage, valuation is primarily driven by narrative. As long as the story is big and ambitious enough, investors are willing to believe. The valuation of SpaceX increased from billions to $800 billion, and Tesla's valuation rose from near bankruptcy to $1.6 trillion—all following this logic.

However, the narrative of a single company always has its limits. For example, a rocket company can only talk up to Mars exploration, and an electric vehicle company can only go so far with autonomous driving. Once these narratives hit their ceiling, valuation growth tends to stall.

The solution is: connect all the companies' narratives to build a super narrative.

In this narrative:

SpaceX is an "operator of space infrastructure," xAI is a "pioneer in extending human computing power into space," Tesla is a "carrier of the robotics and energy ecosystem," and X is a "training ground for real-time data."

Each story has its own issues when viewed individually: SpaceX's Mars colonization remains distant, xAI's Grok can't compete with ChatGPT and Claude, Tesla's sales are in a downward trend, and X's advertising revenue has plummeted.

But taken together, these questions form a "grand blueprint still under construction."

Is this picture worth 12.5 billion? A preliminary answer will emerge on the day of the IPO in mid-2026. Whether AI has inflated the valuation of the rocket company or dragged down its IPO, time will tell.

By then, a conscious sun needs to shine into the financial reports.