In perhaps his boldest move yet, Elon Musk announced that SpaceX has acquired xAI. According to Bloomberg, the deal pushed SpaceX’s valuation to $1.25 trillion, making it the most valuable private company in the world. But this acquisition appears to be far more than just a money grab.
Why Is SpaceX Acquiring xAI?
SpaceX is acquiring xAI to fulfill Elon Musk’s goal of launching orbital data centers to scale AI’s computational capacity. While xAI is responsible for creating AI products, SpaceX specializes in spacecraft and satellite infrastructure. Combining these capabilities allows Musk to develop a full-stack workflow where his companies design AI, launch its infrastructure into space and support its computational demands with satellite networks.
As a refresher, SpaceX is Musk’s aerospace company that designs reusable spacecraft to transport supplies and people into orbit. It also houses Starlink, a low-Earth-orbiting satellite network that provides broadband internet. Meanwhile, xAI is Musk’s artificial intelligence startup known for its Grok chatbot, AI models and accompanying infrastructure. The social media platform X falls under its umbrella as well.
Now, xAI has been absorbed as a subsidiary of SpaceX to, among other things, fulfill Musk’s dream of building data centers in space by forming the “most ambitious, vertically-integrated innovation engine on (and off) Earth,” Musk wrote in a blog post. It’s a massive bet that could either tip the AI landscape in Musk’s favor or deliver a devastating blow to his tech empire.
Here’s what to know about this historic acquisition, and what it could mean for Musk’s AI ambitions and the AI industry as a whole.
Why Did SpaceX Acquire xAI?
The decision to combine SpaceX and xAI accomplishes a couple of things. First and foremost, it provides a major financial and infrastructural boost to xAI, which was founded years after top rivals like OpenAI and Anthropic and has had to spend billions of dollars to catch up. Now that xAI operates within SpaceX’s corporate structure, it has access to SpaceX’s deep capital reserves, engineering talent and more.
This deal also gives SpaceX a more central position in the AI industry, adding fuel to Musk’s ultimate goal of building data centers out in space.
In their bid to get ahead in the AI race, American tech companies as a whole have accelerated the development of data centers, which serve as the necessary infrastructure for handling the technology’s high computational demands. The problem is that the expansion of data centers in the U.S. has strained local environments and energy grids, raising doubts about whether data centers can break past their current boundaries to support more advanced forms of AI.
While some have sought out more efficient energy sources like nuclear power, Musk has proposed a literally out-of-this-world alternative at the heart of SpaceX’s acquisition of xAI: Data centers in space.
“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,” Musk wrote. “By directly harnessing near-constant solar power with little operating or maintenance costs, these satellites will transform our ability to scale compute.”
As Musk notes, the concept relies on a network of orbital satellites that act as data centers, harnessing energy from the sun to power models, agents and other AI tools. The idea seems plausible, at least in theory. Unlike Earth-based satellites, space-bound satellites have 24/7 access to solar energy without objects, weather and other factors obstructing the view. Starlink also has more than 9,000 satellites in orbit right now — and could launch another million satellites in the near future — laying the foundation for an extensive space-based data center network.
What Does This Mean for xAI?
xAI is no longer its own independent company, it is a subsidiary of SpaceX. That being said, xAI’s original mission to develop generative AI and manage the social media platform X (which it acquired in March 2025) will continue under this new, consolidated corporate structure. Grok will still be available, people will still be able to post on X — they will all just operate under the umbrella of SpaceX and, eventually, rely on its “orbital data centers.”
“My estimate is that within 2 to 3 years, the lowest cost way to generate AI compute will be in space,” Musk wrote in an email to SpaceX and xAI employees, according to the New York Times. “This cost-efficiency alone will enable innovative companies to forge ahead in training their AI models and processing data at unprecedented speeds and scales, accelerating breakthroughs in our understanding of physics and invention of technologies that benefit humanity.”
As for xAI’s employees, the Times reports that they were sent a separate email after the deal had been announced saying that most jobs would be unaffected by the merger. The email also stated that the company’s valuation from its fundraising round in January would remain unchanged.
What Does This Mean for the AI Industry?
Data centers in space may sound like a far-fetched idea, but it’s starting to catch on among other players in the AI industry as well. Jeff Bezos’ Blue Origin plans to launch more than 5,000 satellites into space; Nvidia-backed startup Starcloud is pursuing orbital data centers and has already trained AI models in space; and Google is considering equipping solar-powered satellites with its tensor processing units to scale AI.
However, none of these companies would possess the full-stack capabilities that Musk has at his disposal. xAI could focus on building AI models and products, SpaceX could take care of launching satellite infrastructure into space and Starlink could deliver the connectivity needed to access AI 24/7 across the globe. If Musk is right about orbital data centers becoming a widespread solution to AI’s computational costs, he’ll have a head start on everyone else and be well-positioned to seize control of the AI race.
That said, it’s far too early to tell whether Musk is ushering in the next phase of AI’s evolution or simply chasing a phantom vision. Data centers remain grounded for the time being, but given tech leaders’ willingness to test the boundaries of Earth’s resources, they might just turn to space as the next frontier of AI development.
Could This Acquisition Backfire?
The decision to combine SpaceX and xAI hinges on a couple of assumptions that, if wrong, could turn this acquisition into a major bust. Musk is betting on continued growth within the AI industry and investors buying into his vision for SpaceX, neither of which is guaranteed.
Scaling Could Be Limited in an AI Bubble
Musk wants to continue scaling AI even in the face of data centers’ limitations, and space seems to be his answer. To achieve this goal, he’s essentially calling for greater investments to be funneled into his companies through SpaceX’s acquisition of xAI — especially in light of SpaceX’s anticipated initial public offering later this year. This approach is nothing new, of course, given that tech companies went on a huge spending spree in 2025 that incited fears over a possible AI bubble forming.
Throwing more resources at a problem may be the default for the AI industry, but it might not be the most effective strategy. After all, DeepSeek proved that a much smaller and cheaper model could rival those made by larger tech companies, ironically leading these companies to build out their infrastructure in the first place.
Rather than succumb to this same knee-jerk reaction, Musk could explore options to improve his AI products without automatically increasing the financial and natural resources required. Even if his grand scheme succeeds, it’s already set to come with a hefty price tag that investors may not be that enthusiastic about.
xAI Could Be a Burden to SpaceX
SpaceX’s shareholders have plenty of reasons to be worried about its acquisition of xAI. Although it’s not unusual for startups to lose money, xAI keeps trending in the wrong direction: The company reportedly lost $1.46 billion in the September 2025 quarter, surpassing its $1 billion in losses from the prior three months. It also doesn’t help that its Grok chatbot was found to have generated millions of sexualized images, including 23,000 of children, according to an analysis by researchers at the Center for Countering Digital Hate.
Amid this tumultuous time, SpaceX investors may view this deal as a desperate bailout of xAI rather than a forward-thinking decision that benefits both companies. SpaceX’s short-term goals of sending people to the Moon don’t clearly align with xAI’s mission to win the AI race either. All these factors make it fair to ask why Musk greenlighted the deal at all, considering that his companies already share personnel and resources and could continue doing so without risking SpaceX’s standing to save xAI.
This aggressive approach could still pay off, though, with the possibility that Musk does indeed turn the tables on his competitors.
Frequently Asked Questions
Why is SpaceX acquiring xAI?
Elon Musk claims SpaceX’s acquisition of xAI will enable the company to build data centers in space — a necessary goal of his since he believes data centers on Earth can’t meet AI’s computational demands without damaging the environment, according to a blog post. However, SpaceX investors suspect the acquisition may also be a way to bail out xAI, which has struggled with various financial losses and ethical controversies.
Why does Elon Musk believe data centers should be moved to space?
In his announcement of the acquisition, Musk argues that Earth-based data centers can’t fulfill AI’s computational needs without harming the environment and local communities. On the other hand, orbital data centers would have constant access to the Sun’s energy and come with lower maintenance costs, according to Musk. As a result, Musk is convinced space-based data centers are the most effective way to scale AI’s computational capacity.
What financial risks does xAI bring to SpaceX?
Considering that xAI lost $1.46 billion in the September 2025 quarter — more than its losses from the previous three months — and has been mired in controversy, SpaceX’s acquisition of the startup could be viewed more as a bailout rather than a fair deal between the two companies. SpaceX’s short-term goal of reaching the Moon may not mesh with xAI’s push to win the AI race as well, raising questions around why Musk made this deal in the first place when his companies already share resources and could keep doing so without the acquisition.
