SpaceX and xAI in Advanced Merger Discussions Ahead of Planned IPO
Elon Musk's aerospace company SpaceX and his artificial intelligence startup xAI are engaged in serious discussions regarding a potential merger, according to exclusive reporting by Reuters. The talks come ahead of a planned public offering later this year, with sources indicating the merger would create a unified corporate structure combining space technology with cutting-edge AI capabilities.
Proposed Corporate Structure and Transaction Details
The proposed combination would bring together SpaceX's launch vehicles and Starlink satellite network with Musk's X social media platform and xAI's Grok chatbot under a single corporate umbrella. According to sources familiar with the matter, shares of xAI would be exchanged for shares in SpaceX as part of the transaction structure.
Two Nevada-based entities have reportedly been established to facilitate the potential deal. While some xAI executives might receive cash payments instead of SpaceX stock, no final agreement has been signed yet. The timing and specific structure of the merger remain fluid, with Reuters noting it could not independently determine the transaction's valuation, primary strategic rationale, or completion timeline.
Strategic Push Toward Space-Based AI Infrastructure
The merger discussions align with Musk's aggressive push into artificial intelligence, where he envisions SpaceX serving as a crucial platform for deploying orbital data centers to power AI workloads. Speaking at the World Economic Forum in Davos recently, Musk predicted that "the lowest cost place to put AI will be in space," suggesting space-based AI infrastructure could become viable within two to three years.
SpaceX has already committed $2 billion to xAI as part of a $5 billion equity fundraising round last year. Through xAI, Musk is developing a massive AI supercomputer called "Colossus" in Memphis, Tennessee. This move reflects broader industry trends, with Jeff Bezos' Blue Origin planning a high-capacity satellite backbone network and Google researching orbital data centers through its Project Suncatcher initiative.
Defense Contract Advantages and Strategic Integration
Combining xAI with SpaceX could significantly strengthen the company's position in securing U.S. defense contracts, according to industry analysts. Caleb Henry, director of research at Quilty Analytics, told Reuters that "the Pentagon is pushing rapidly into AI-enabled systems, and having that capability vertically integrated with satellite infrastructure is a strategic advantage."
xAI currently holds a contract worth up to $200 million to supply Grok AI products to the Pentagon. Meanwhile, SpaceX's Starlink and its defense-focused Starshield unit already rely heavily on artificial intelligence for satellite operations, including automated maneuvering in orbit. Starshield is also developing a classified satellite network for a U.S. intelligence agency expected to use AI-enabled sensors for Earth observation.
Valuation Metrics and IPO Preparations
SpaceX currently stands as the world's most valuable privately held company, with a valuation of approximately $800 billion based on recent insider share sales. xAI was valued at $230 billion in November, according to previous reports. Multiple media outlets have indicated that SpaceX is preparing for an initial public offering as early as this year, with an expected valuation exceeding $1 trillion.
The company has already lined up banks for the potential IPO. Earlier this month, xAI raised $20 billion in an upsized Series E funding round, surpassing its original $15 billion target. In a related development, Tesla disclosed this week that it had agreed to invest approximately $2 billion in xAI.
Historical Context of Musk's Corporate Combinations
This potential merger represents the latest in a series of transactions combining Musk-controlled companies. In 2025, Musk folded X into xAI through a share swap, providing the AI startup access to the platform's data and distribution channels. Previously, in 2016, Tesla acquired Musk's solar firm SolarCity in an all-stock deal.
Founded in 2002, SpaceX revolutionized the space industry with its reusable Falcon rockets, enabling rapid deployment of the Starlink satellite constellation that now consists of thousands of orbiting satellites. Musk serves as CEO of both SpaceX and xAI while also leading Tesla and Neuralink, creating a complex web of interconnected technological ventures.
