Elon Musk, Tesla chief executive officer (CEO), is moving to merge SpaceX, valued at a total of $1.25 trillion, and artificial intelligence (AI) startup xAI due to practical pressure from a lack of funding for AI development, CNBC reported on the 3rd (local time).
Musk cited building an "orbital data center" as the reason for the merger the previous day, but the industry sees that as closer to a long-term vision. CNBC said xAI's urgent task is its cash burn rate, analyzing that the real purpose of the merger is to expand fundraising capacity.
SpaceX is reportedly planning the largest initial public offering (IPO) ever this year, and if listed, it could raise up to $50 billion at a valuation of $1.5 trillion, which many see as the most certain channel for Musk's AI investment funds.
Tim Farrar, head of satellite and communications industry research firm TMF Associates, said, "By integrating xAI into SpaceX, they can secure a financial base to support accumulated losses by tapping into the AI investment fervor." He also noted the need to raise funds early, saying, "No one knows how long the concentration of capital on AI corporations will last."
The cash burn is, in fact, rapid. According to tech outlet The Information, xAI spent about $9.5 billion from January to September last year. Early this year it completed additional fundraising at a valuation of $230 billion, but it is still seen as lagging behind OpenAI ($500 billion) and Anthropic ($350 billion). Tesla also said recently it plans to invest $2 billion in xAI's latest fundraising round.
A favorable capital market and looser regulation are also factors. Some say fundraising should be accelerated to prepare for possible changes in the Donald Trump administration's policy direction in three years. However, Farrar warned that the Musk-centered "Musconomy" is built on trust, saying, "If one pillar of the empire falters, a chain shock is inevitable."
According to CNBC, the merger will proceed as a stock exchange, with 1 share of xAI converted into 0.1433 shares of SpaceX. Internal documents valued the per-share prices at $75.46 for xAI and $526.59 for SpaceX.