SpaceX’s (SPACE) announcement about acquiring xAI (X.AI) saw mixed reactions from analysts, with some pondering about benefits and challenges, while others wondered about the future of Elon Musk’s car company Tesla (TSLA).
“The combination of SpaceX and x.AI provides a fascinating combination for investors as AI and space are both growing and individually capture a lot of interest from investors. At the same time, this may also be a drawback for investors who do not want the AI exposure on their space stock. SpaceX may become a public company this year and the acquisition means that SpaceX is no longer a pure-play on space,” said Dhierin Bechai, Investing Group Leader for The Aerospace Forum.
The analysts noted that Musk believes that the future of AI is in space, due to “infinite access” to solar. “However, the reality is that this brings substantial challenges in terms of power budgets, thermal budgets, maintenance and likely will also result in legal complications. The argument brought forward by Musk for the combination intuitively makes sense, but from an engineering perspective it is more complicated than it appears on the surface,” said Bechai.
On Monday, Musk said SpaceX has acquired xAI to form the most ambitious, vertically-integrated innovation engine on (and off) Earth, with AI, rockets, space-based internet, direct-to-mobile device communications, and the world’s foremost real-time information and free speech platform. “This marks not just the next chapter, but the next book in SpaceX and xAI’s mission: scaling to make a sentient sun to understand the Universe and extend the light of consciousness to the stars!” Musk added.
Musk intends to establish space-based data centers. “The basic math is that launching a million tons per year of satellites generating 100 kW of compute power per ton would add 100 gigawatts of AI compute capacity annually, with no ongoing operational or maintenance needs. Ultimately, there is a path to launching 1 TW/year from Earth,” said Musk in SpaceX’s press release on Monday. “My estimate is that within 2 to 3 years, the lowest cost way to generate AI compute will be in space.”
Wedbush (IVES) noted the combined company is expected to price shares in an IPO that would value the company at $1.25T, with xAI valued at $250B, marking the largest tie-up across Musk’s enterprises yet. The shares in xAI will be converted into 0.1422 shares of SpaceX stock, with employees having the option to cash out and sell xAI shares back to the company.
Last week, Tesla (TSLA) said it will invest about $2B in the Grok chatbot maker, xAI (X.AI). Musk had said during Tesla’s earnings call that “We just had like a lot of investors ask us to do this as there’s a lot of investors or Tesla shareholders say like, we should invest in xAI.
“In our view there is a growing chance that Tesla will eventually be merged in some form into SpaceX/xAI over time. The view is this growing AI ecosystem will focus on Space and Earth together…..and Musk will look to combine forces/technologies over time. Tesla now is laser focused on autonomous and robotics in this key era for Musk & Co. and we expect more cross-pollination between Tesla and SpaceX over the coming year which is bullish for the Tesla story in our view,” said Wedbush analysts led by Dan Ives.
The analysts noted that Musk wants to own and control more of the AI ecosystem and “step by step the holy grail could be combining SpaceX and Tesla over the next 12 to 18 months in some form to give the connected tissue between both disruptive tech stalwarts looking to lead theAI Revolution.”
Seeking Alpha analyst The Techie said, “I think Tesla (TSLA) remains part of the conversation here. I think the company now acts as the industrial utility of the empire, driven by the energy storage part of the business, which is the missing link needed to power those orbital data centers. As Tesla invests $2 billion into xAI and pivots capacity toward Optimus robots, the company is evolving from a car manufacturer into the physical AI provider that will eventually deploy hardware, powered by xAI’s intelligence, across Musk’s terrestrial and space-based infrastructure.”
The Techie added that they see the merger of SpaceX and xAI as further confirmation that Elon Musk is building a vertically integrated innovation engine that uses space to address AI’s massive power and cooling needs.
The analyst added that the orbital compute narrative has pumped momentum back into the space sector, and thinks that will continue to be the case in the foreseeable future as AI data centers in space become a bigger point of focus.
“Strategically, this also strengthens the long-term case for SpaceX as a public-market candidate, with a clearer, AI-driven growth story layered on top of launch and satellite services,” said The Techie.