Elon Musk’s move last week to combine SpaceX and xAI has created one of the world’s biggest and most valuable private companies, which analysts say offers a mix of potential growth and financial risk as it heads toward public markets.
The two companies are very different. SpaceX was founded in 2002 and has established itself as the premier nongovernmental space exploration operation. Musk’s xAI venture was started less than three years ago to focus on AI and more recently social media. In another Musk company combo, xAI acquired the social media platform X last March.
Analysts told NBC News that both entities have something to gain from coming together: SpaceX gets an edge ahead of its IPO, and xAI can expand its AI infrastructure while getting a much needed “injection of cash,” as one expert put it.
In his Monday announcement, Musk said the merger will create a company with “AI, rockets, space-based internet, direct-to-mobile device communications and the world’s foremost real-time information and free speech platform.”
Musk added that he wants to create AI data centers in space by “launching a constellation of a million satellites that operate as orbital data centers.”
And Musk is pushing forward on this concept.
Days prior to the merger announcement, SpaceX described the satellite plan to regulators, according to a filing submitted to the Federal Communications Commission and reviewed by NBC News.
“There’s industrial logic behind combining SpaceX, which would launch and design the satellites that would host the compute with xAI, which has experience operating these compute clusters and has the Grok model that would presumably run on it,” said Nick Del Deo, a senior research analyst with a focus on digital infrastructure at MoffettNathanson.
The concept of data centers in space is “conceivable,” Del Deo said in a phone interview, but he predicted it would take “many years before anything substantive happens.”
“A lot of things need to go right for it to work, let alone for it to work at a scale that is relevant compared to terrestrial alternatives,” he said.
Not surprisingly, Musk envisions a shorter timeline. In the announcement, he estimated that in just two to three years, the “lowest cost way to generate AI compute will be in space.” (Musk has been known to set — and miss — ambitions timelines.)
Andrew Rocco, a stock strategist at Zacks Investment Research, told NBC News that he thinks the acquisition makes sense.
“There’s going to be a ton of synergies that it’s going to be a lot smoother for both of these companies,” he said in a phone interview.
“SpaceX, with its massive payload capacity and basically a near monopoly in space — I think it’s going to help Musk’s other companies kind of catch up in the AI data center race and AI training race,” said Rocco.
Beyond the futuristic visions of space-based data centers, there are near-term financial considerations at play, too.
As SpaceX prepares to go public later this year, the merger could be Musk’s way of positioning SpaceX “strategically” to compete with the expected IPOs of two of his biggest competitors, OpenAI and Anthropic, in the AI race, said Ali Javaheri, a senior research analyst at PitchBook.
Del Deo said one “cynical view” of the merger is that SpaceX needs a “sexy narrative” ahead of its IPO “to get investors more excited in the stock and drive the sort of valuation that they’re hoping for.”
Bloomberg reported that the merger would value the combined companies at $1.25 trillion, with the bulk of the valuation — $1 trillion — coming from SpaceX. However, xAI’s value still pumps up SpaceX’s total valuation ahead of it going public.
A Tuesday note co-authored by Dan Ives, global head of technology research at Wedbush Securities, said this would mark the “largest tie-up across Musk’s enterprises yet.”
Forrester analysts wrote in a Tuesday report that “aligning” the merger as well as the FCC filing ahead of its potential IPO is a “classic Musk valuation inflation.”
“SpaceX is packaging a narrative of hyperscalable, lowest‑cost AI compute from space — the kind of storyline that expands TAM, lifts growth multiples, and reframes Starship as a structural cost moat,” the analysts wrote. “These are classic ingredients for pre‑IPO narrative lift — and a familiar pattern in Musk‑era market signaling. It positions ambition as inevitability, inviting investors to price in a future that engineering has yet to substantiate.”
Rocco, on the other hand, said he thinks it will likely be “one of the most hyped IPOs in history.”
“I can’t think of another one that would be more hyped than this — everyone is trying to get a piece of SpaceX,” he said. “I think it’s going to price higher than most people expect, and most people already expect it to be the largest IPO in history.”
Is Tesla next?
SpaceX and xAI joining forces has driven speculation over what this means for Musk’s electric vehicle company Tesla.
Tesla announced in its latest earnings release that it’s investing about $2 billion to acquire shares of xAI’s preferred stock. The two companies entered into a “framework agreement” to evaluate “potential AI collaborations,” Tesla added.
Wedbush said there is a “growing chance that Tesla will eventually be merged in some form into SpaceX/xAI over time.”
“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 the AI Revolution,” Wedbush continued.
Javaheri echoed this sentiment, saying he thinks this move will eventually lead to “Tesla also getting folded.”
In the long run, Rocco said he thinks it would be a “good synergy,” but that it would be a “very hard sell.” He said if he were a private investor in SpaceX, he would “just want it to come public on its own — they basically have a monopoly.”
Gene Munster, managing partner, co-founder and head of portfolio research at Deepwater Asset Management, said in an interview that he thinks Tesla shareholders would “welcome a combination.”
“Bringing these two visions closer together, specifically around robotics and space and having AI sit in the middle of it, it’s not only a good story, but there’s real substance to it,” Munster said.
