SpaceX and xAI Merger Talks Advance as IPO Approaches

TLDR

• SpaceX and xAI are negotiating a merger before SpaceX’s public offering planned for 2026
• Two Nevada entities were created on January 21 to support the potential deal structure
• SpaceX carries an $800 billion valuation while xAI is valued at $230 billion
• The combination would advance Musk’s goal of launching AI data centers into orbit
• Bloomberg reports SpaceX is also exploring a merger with Tesla

SpaceX is negotiating a merger with xAI ahead of the rocket company’s initial public offering this year. The deal would combine Musk’s space exploration business with his artificial intelligence startup.

Under the proposed terms, xAI shareholders would receive SpaceX shares in exchange. Regulatory filings show two entities were established in Nevada on January 21 to facilitate the transaction.

One filing lists SpaceX and CFO Bret Johnsen as managing members. The second filing names Johnsen as the sole officer. The documents do not specify how these entities would function in a merger.

Sources familiar with the discussions told Reuters that some xAI executives may choose cash payments instead of SpaceX stock. No final agreement exists and the deal terms remain flexible. Musk, SpaceX, and xAI have not publicly addressed the reports.

Company Valuations and Market Reaction

SpaceX holds an $800 billion valuation based on recent private share transactions. This makes it the highest-valued private company globally.

xAI achieved a $230 billion valuation in November after raising $20 billion in Series E funding. The round surpassed the company’s $15 billion target.

SpaceX intends to go public in 2026 with a potential valuation exceeding $1 trillion. Tesla stock climbed 3% in after-hours trading when the merger news broke.

Bloomberg separately reported SpaceX is considering merging with Tesla. Polymarket data shows traders pricing a 48% chance of a SpaceX-xAI merger by mid-2026 and a 16% probability for a Tesla-xAI combination.

Space Data Center Strategy

The merger supports Musk’s plan to build orbital data centers. He has repeatedly emphasized this initiative in recent months.

Speaking at Davos last week, Musk outlined the economic case. Solar power and the extreme cold of space would make orbital facilities cost-effective for AI computing.

The approach aims to reduce costs for running AI models like Grok. Competing efforts include Blue Origin’s satellite network plans and Google’s Project Suncatcher research.

Defense Applications

The merger could strengthen SpaceX’s position for Pentagon AI contracts. The Defense Department is expanding AI use across military systems.

Defense Secretary Pete Hegseth visited SpaceX’s Texas facility this month. He announced Grok integration into military networks as part of an AI acceleration initiative.

xAI holds a Pentagon contract valued up to $200 million for Grok services. The company operates Colossus, an AI training supercomputer in Memphis.

SpaceX’s Starlink satellite network already employs AI for orbital maneuvers. The classified Starshield program uses AI-equipped sensors to track ground targets.

History of Musk Mergers

Musk has previously consolidated his companies. He acquired SolarCity using Tesla stock in 2016.

In 2025, X merged into xAI through a share exchange. This gave xAI access to X’s user data and distribution platform.

SpaceX committed $2 billion to xAI’s $5 billion fundraising round last year. Tesla pledged approximately $2 billion to xAI this week.

Investors view consolidation as addressing concerns about Musk managing multiple companies simultaneously. Gene Munster of Deepwater Asset Management said merging xAI with Tesla could enhance autonomous vehicle and robotics development.

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