SpaceX Acquires xAI: Musk’s Trillion-Dollar “Internal Cycle”
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SpaceX Acquires xAI: Musk’s Trillion-Dollar “Internal Cycle”
The largest capital arbitrage in history.
Navigating Web3 tides with focused insightsBy Kulie, TechFlow
On February 2, SpaceX announced its acquisition of xAI.
The combined entity is valued at $1.25 trillion—bringing Elon Musk’s rocket business, Starlink, the X platform, and Grok under one roof.
In its official statement, Musk described the new company as “the most ambitious vertically integrated innovation engine on Earth—and beyond.”
Yet publicly available data shows xAI generated $107 million in revenue last quarter, with a net loss of $1.46 billion—and burned nearly $10 billion in cash over the prior nine months, averaging close to $1 billion per month. By contrast, SpaceX’s 2025 profit is projected at approximately $8 billion.
A company burning $1 billion per month has been absorbed into one generating $8 billion annually—and is now preparing for an IPO aiming to raise $50 billion.
For xAI shareholders, this deal has a more practical name: a lifeline.
Shuffling Assets Between Hands
This isn’t the first time Musk has shuffled assets among his own companies.
In March 2025, xAI acquired X. Musk assigned the merged entity a valuation of $113 billion—an amount widely viewed as inflated, given that X’s advertising revenue has yet to recover to pre-Twitter levels. Yet the transaction’s true significance lay not in X’s valuation, but in its 600 million active users’ real-time data—now fully funneled into Grok’s training pipeline. This constitutes xAI’s largest exclusive resource relative to OpenAI and Anthropic.
In January 2026, Tesla invested $2 billion in xAI’s Series E round. Its rationale: deep integration of Grok’s capabilities into vehicle infotainment systems and Optimus robot training. Tesla shareholders had voted last year on whether the company should invest in xAI—approval narrowly exceeded opposition—but the board ultimately declined. This $2 billion investment was executed directly.
On February 2, SpaceX acquired xAI. As Tesla holds xAI shares, it will indirectly acquire a minority stake in SpaceX post-merger.
Meanwhile, xAI spent hundreds of millions of dollars over the past year purchasing Tesla Megapack battery systems to power its Colossus supercomputing center. Tesla, in turn, procures Starlink services from SpaceX to provide connectivity for its vehicles.
X has become a “dowry” within Musk’s commercial empire—first married off to xAI to secure algorithmic legitimacy, then jointly “entering the groom’s family” with xAI into SpaceX—solely to complete the final narrative puzzle piece for the June IPO extravaganza and the $1.25-trillion check.
Capital and talent rotate endlessly across Musk’s companies. Investors have coined a term for this ecosystem: “Muskonomy.”
Ross Gerber, investor in both Tesla and xAI, put it bluntly: “It’s like merging several highly valued companies into one larger, highly valued mess—run by Elon. But viewed differently, it’s now a pure ‘Elon’ stock: want exposure to Elon? Here it is—fully packaged.”
Within public-company frameworks, single controlling persons transferring assets and contracts among affiliated entities typically trigger regulatory scrutiny. Yet nearly all of Musk’s companies remain private—free from public financial disclosure obligations and independent board oversight. Their shareholders comprise a small group of VCs and sovereign wealth funds, unlikely to scrutinize governance as rigorously as public investors.
So long as these companies remain unlisted, this “shuffling between hands” can continue unchecked.
But once IPOs occur, the story changes entirely.
xAI’s Existential Crisis
Why did SpaceX absorb xAI?
Beneath the grand space narratives lies a singular core motive:Emergency rescue.
$1 billion per month—that’s xAI’s current burn rate.
$33 million per day, $1.4 million per hour, $23,000 per minute. By the time you finish reading this sentence, xAI will have burned another $60,000.
Where does the money go? The vast majority flows into Colossus—the supercomputing cluster xAI built in Memphis, Tennessee. It currently houses over 200,000 Nvidia H100-equivalent GPUs, targeting a total power capacity of 2 gigawatts. Chip and battery procurement alone has consumed billions of dollars. Additionally, equity-based compensation expenses totaled nearly $160 million over the first nine months—a reflection of the fierce AI talent war.
Yet revenue growth shows no sign of matching this burn rate.
xAI’s full-year 2025 revenue is projected at roughly $500 million—primarily from Grok API calls and revenue sharing from X Premium subscriptions. Management guidance to investors targets $2 billion in 2026 revenue and profitability by 2027.
$2 billion sounds substantial—yet OpenAI’s annualized 2025 revenue already exceeds $20 billion. Even if xAI hits its target, its scale would still be just one-tenth of OpenAI’s.
Founded less than three years ago, xAI’s valuation has surged from zero to $25 billion, undergoing at least six funding rounds.
Its most recent round—the $20 billion Series E in January—was backed by Nvidia, Valor Equity Partners, and Qatar Investment Authority. Combined with Morgan Stanley-arranged $5 billion debt financing, xAI has raised over $40 billion to date.
A company losing billions annually while generating only $500 million in revenue commands a $25 billion valuation—equating to a 500x price-to-sales ratio.
If listed independently, the secondary market would struggle to justify such a valuation.
A prevailing pattern in U.S. IPOs during 2025 is:Nearly every company trades below its latest private-round valuation after listing.
In contrast, SpaceX’s situation is almost diametrically opposite.
It may be among the world’s most profitable private companies. It is the sole U.S. commercial rocket firm capable of routinely transporting astronauts to the International Space Station. Starlink’s revenue has already surpassed launch services—and represents recurring revenue, with 9 million paying subscribers contributing monthly. This is precisely the business model favored by public markets.
Yet SpaceX faces challenges if listed independently.
Wall Street’s valuation logic is unforgiving: rocket companies are valued on cash flow; AI firms trade on imagination.
Consider traditional aerospace giant Lockheed Martin, which consistently trades at 20–30x P/E multiples. Even granting SpaceX—the “unicorn king”—a 50x “hard-tech premium,” its $8 billion 2025 profit implies a market cap hovering around $400 billion. Even applying a “new space economy” premium of 100x P/E yields only an $800 billion valuation.
AI firms, however, command vastly different valuations: OpenAI seeks an $83 billion new round despite losses; Anthropic is valued at $35 billion.
Musk aims for over $1 trillion.
Thus, the financial logic behind SpaceX’s merger with xAI is straightforward:xAI cannot sustain its valuation alone; SpaceX’s profits provide a safety net—transforming the combined entity into a “profitable, high-growth, defensible” package.
For IPO underwriters, this bundled offering is far easier to sell than separate listings.
Yet Musk also needs a narrative that plausibly unites rocketry and AI.
He found one:Space-based data centers.
The Space-Based Data Center: A New Story for the IPO
In its merger announcement, Musk wrote: “AI progress depends on massive terrestrial data centers, requiring enormous electricity and cooling. Global AI electricity demand simply cannot be met by ground-based solutions—even in the short term—imposing burdens on communities and the environment.”
This statement carries ironic undertones. xAI’s Colossus supercomputing center resides in Memphis—and local communities have actively protested its environmental impact. The NAACP and environmental groups are preparing litigation.
Musk claims terrestrial data centers burden communities—while his own facility exemplifies precisely that burden.
His proposed solution: relocate computing infrastructure to space.
Power it with solar energy, launch it via SpaceX rockets, and transmit data using Starlink’s satellite network.
Last Friday, SpaceX filed an application with the FCC seeking authorization to launch up to 1 million satellites to support its “orbital data center” initiative.
“I estimate that within two to three years, the lowest-cost location for generative AI compute will be in space,” Musk stated last month in Davos.
This vision is grand—and extremely early-stage.
No company has yet operated a data center in space. xAI’s entire computing capacity remains terrestrial. Jeff Bezos’s Blue Origin has announced a similar “space backbone network” plan; Google has a research project called Project Suncatcher exploring space-based data centers. All remain conceptual.
Yet IPOs require compelling narratives—not product readiness.
Listing SpaceX independently tells a story about rockets and Starlink—already strong, yet facing visible growth ceilings. The global commercial launch market is finite; Starlink user growth will inevitably plateau. Adding xAI transforms the narrative into “AI + space infrastructure”—a trillion-dollar story.
Layering in the space-based data center vision elevates the narrative to:“The future of human computing lies in orbit—and we’re the only company with rockets capable of getting it there.”
For underwriters and roadshow PowerPoint decks, the distinction between these nested narratives is profound.
When—or even whether—the space-based data center becomes operational is a post-IPO concern.
If feasible, xAI would gain an infrastructure advantage no other AI firm could replicate. OpenAI rents AWS capacity and shares profits with Microsoft; Google negotiates power supply agreements with state governments and navigates environmental reviews. Musk needs none of that—he owns his cloud, operating in space.
From rocket launches (SpaceX) to satellite networks (Starlink), data training (xAI), content distribution (X platform), and end applications (Tesla Autopilot, Optimus robots), the entire value chain rests firmly under Musk’s control.
Tesla Shareholders: Fuel on the Road to Mars
Within this capital game, one silent loser emerges:Tesla shareholders.
Complaints from Tesla’s shareholder community have reached a crescendo. Multiple investors have questioned Musk on social media: In 2020, he hinted Tesla shareholders would receive priority rights to purchase SpaceX shares—but following xAI’s founding in 2023, Tesla’s AI team was poached by xAI, and computational resources were redirected there. Now Musk demands Tesla invest $2 billion in xAI, while asking Tesla shareholders to hold indirect stakes in SpaceX (valued at $1.5 trillion) and xAI ($25 billion) at those elevated valuations.
One investor calculated: In 2020, when SpaceX’s valuation stood at $100 billion, it has since grown tenfold to $1 trillion; xAI’s valuation rose from $10 billion at inception in 2023 to $25 billion today—a 25-fold increase. “Priority subscription rights” have effectively become “high-price buy-in rights.”
Tesla itself is running low on cash. It holds $44 billion in cash reserves, yet automotive sales have declined for two consecutive years. This week, Tesla announced its $2 billion investment in xAI and plans to double capital expenditures. Wall Street analysts forecast Tesla may face a $5–7 billion cash flow deficit in 2026 due to massive AI infrastructure investments.
The timeline reveals much:
- December 2025: xAI closed its $20 billion funding round at a $23 billion valuation
- January 2026: Tesla announced its $2 billion investment in xAI
- January 30, 2026: SpaceX filed its application to launch 1 million satellites
- February 2, 2026: Announcement of xAI acquisition
A cascade of actions within 60 days. Musk is playing a grand strategy—and Tesla shareholders aren’t seated at the chessboard. They’re merely pawns.
Within Musk’s “Muskonomy” framework, resources flow across companies, each transfer generating new valuation peaks.
Yet Tesla shareholders find their technology siphoned away, their capital redeployed—and ultimately forced to “repurchase” those same assets through indirect stakes—at valuations far exceeding those originally promised.
Conversely, Tesla stands to benefit from Musk’s and SpaceX’s success—making it a de facto pure SpaceX play.
An apt analogy:
“Tesla shareholders today resemble an ex-wife whose savings were taken by her former husband to fund his startup. Though she verbally rails against Musk’s unethical conduct and alleged misuse of corporate funds, upon seeing her ex-husband (SpaceX) poised to execute a $1.5-trillion mega-IPO, she rushes to remarry—hoping for a seat on the ‘ticket to Mars.’ A complex emotional blend of Stockholm syndrome and greed.”
The Evolution of Musk’s Methodology
Musk articulated the merged company’s mission in one sentence:“To build a sentient sun that comprehends the universe, extending the light of consciousness to the stars.”
This statement encapsulates Musk’s foundational logic: Use a vision so vast and unverifiable that immediate financial concerns recede into long-term narrative.
SpaceX survived its early days similarly. When rockets exploded three times consecutively and bankruptcy loomed, it was the vision of “making humanity a multiplanetary species” that sustained its valuation.
Now, this methodology has evolved.
Rather than telling one story through a single company, bundle all companies into one grander narrative.
Rockets provide launch capacity, Starlink handles transmission, xAI delivers intelligence, X supplies data, and Tesla manages energy and robotics. Each component, viewed individually, exhibits flaws—but assembled into the vision of a “space-based AI civilization,” those flaws transform into “unrealized elements of the master plan.”
Musk discovered a secret: At the private-company stage, valuations are primarily narrative-driven. So long as the story is large enough and distant enough, investors will believe. SpaceX’s valuation soared from hundreds of millions to $800 billion; Tesla’s climbed from near-bankruptcy to $1.6 trillion—all driven by this logic.
Yet individual-company narratives inevitably hit ceilings: Rockets max out at Mars; EVs plateau at autonomy. Once ceilings are reached, valuation growth stalls.
The solution? Interlink all company narratives into one overarching super-narrative.
Within this narrative:
SpaceX is the “space infrastructure operator,” xAI is the “pioneer in space-based human computing,” Tesla is the “robotics and energy ecosystem platform,” and X is the “real-time data training ground.”
Each standalone story has problems: SpaceX’s Mars colonization remains distant; xAI’s Grok lags behind ChatGPT and Claude; Tesla’s sales trend downward; X’s ad revenue has plummeted.
Yet together, these issues become “elements of an unfinished grand design.”
Is this vision worth $1.25 trillion? A preliminary answer will emerge on IPO pricing day in mid-2026. Will AI lift rocket valuations—or drag them down? Time will tell.
By then, the sentient sun must shine into the financial statements.
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