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SpaceX Acquires xAI in Largest Merger Ever

$1.25 trillion valuation. Orbital data centers. What it means for AI.

On February 2, 2026, Elon Musk announced that SpaceX has acquired xAI, creating what he calls "the most ambitious, vertically-integrated innovation engine on (and off) Earth." The combined entity is valued at $1.25 trillion, making this the largest merger in corporate history. SpaceX is valued at $1 trillion and xAI at $250 billion in the deal.

The merger brings together rockets, satellite internet (Starlink), AI development (Grok), and the X social media platform under one corporate roof. The stated goal is to build orbital data centers powered by solar energy, which Musk argues is necessary to meet AI's growing compute demands.

Deal Structure

The transaction is structured as a share exchange. One share of xAI converts into 0.1433 shares of SpaceX stock. According to CNBC, documents show xAI at $75.46 per share and SpaceX at $526.59 per share. The deal was completed on February 2, with Space Exploration Technologies Corp. listed as the "managing member" of X.AI Holdings in Nevada public records.

The merger comes ahead of a planned SpaceX IPO that could raise up to $50 billion at a valuation as high as $1.5 trillion, according to the Financial Times. Musk has reportedly been targeting mid-2026 for the public offering.

Why This Merger Happened

Musk cited two primary reasons for the combination. First, xAI needs significant capital to compete. According to The Information, xAI burned approximately $9.5 billion through the first nine months of 2025, roughly $1 billion per month. For context, xAI generated only about $500 million in revenue during this period, compared to OpenAI's reported $20 billion and Anthropic's approximately $10 billion.

Second, Musk argues that terrestrial data centers cannot meet AI's growing power demands. In his blog post, he wrote: "Global electricity demand for AI simply cannot be met with terrestrial solutions, even in the near term, without imposing hardship on communities and the environment." His proposed solution is orbital data centers powered by solar energy, which can operate continuously without the cooling challenges of ground-based facilities.

The Orbital Data Center Vision

Three days before the merger announcement, SpaceX filed plans with the FCC for a constellation of up to one million satellites designed to operate as orbital data centers. These satellites would be positioned at altitudes between 500 and 2,000 kilometers, optimized for continuous solar exposure.

According to Musk's blog post, launching a million tons of satellites per year, each generating 100 kW of compute power per ton, would add 100 gigawatts of AI compute capacity annually. He estimates that "within 2 to 3 years, the lowest cost way to generate AI compute will be in space."

What This Means for the AI Industry

The merger intensifies competition in an already heated AI market. For valuation context: OpenAI was valued at $500 billion in October 2025 and reportedly seeks a $750 billion valuation in its next round. Anthropic signed a term sheet in January 2026 valuing it at $350 billion. xAI's $250 billion valuation in this deal puts it in the same tier.

The combined company now has assets that competitors cannot easily replicate: launch capability, an existing satellite network with roughly 9,000 Starlink satellites and 9 million customers, and a distribution platform. According to Seeking Alpha, this gives the merged entity "unique, space-based AI compute capabilities" that directly challenge traditional hyperscalers like Microsoft, Amazon, and Google.

Challenges and Concerns

Orbital data centers face substantial technical hurdles. Radiation hardening, thermal management in vacuum, limited repair capabilities, and deployment costs all remain unsolved at scale. Astronomer Jonathan McDowell noted that with this filing, there are now an estimated 1.7 million proposed satellites worldwide, raising concerns about orbital congestion. Professor Peter Plavchan of George Mason University described SpaceX's proposal as "the ultimate first-mover territorial claim strategy in lieu of off-world space regulations."

Some analysts view the space-based rationale as secondary to the financial reality. Tim Farrar, president of satellite research firm TMF Associates, told CNBC that the merger allows Musk to capitalize on investor appetite for AI while securing xAI's financial position despite mounting losses. SpaceX cannot deploy all the capital from a potential IPO toward its existing business because there are only so many rocket launches available per year.

Key Takeaways

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Sources: CNBC, SpaceNews, Scientific American