Foreword:

In February 2026, Elon Musk's SpaceX fully acquired artificial intelligence company xAI through an all-stock deal, with the new merged entity valued at $1.25 trillion, including SpaceX at $1 trillion and xAI at $250 billion.

This merger is not merely an asset consolidation but a crucial step for SpaceX in pursuing the largest IPO in history.

Author | Fang Wensan

Image Source | Network

Mutual Relief: A Merger Fated to Happen

This commercial space giant, initially planning to raise $50 billion at a $1.5 trillion valuation, deeply binds humanity's imagination of the cosmos with the hottest AI revolution through a [Space + AI] combination.

This move is defined by professionals as [sci-fi financialization], using rockets to finance AI and making space computing power a sexy narrative for capital markets.

Financially, the merger of SpaceX and xAI seems mismatched.

SpaceX is one of the most financially capable private companies globally, achieving $15-16 billion in revenue in 2025, with an EBITDA profit of about $8 billion. Its Starlink business has become a stable [cash cow], with internal equity transaction valuations once approaching $800 billion.

xAI, on the other hand, is a typical [money-burning behemoth], consuming about $1 billion in cash monthly, all invested in Grok model training and Colossus supercomputer cluster construction.

Despite their mismatched appearances, the two hold irreplaceable value for each other. The core of this merger is mutual relief.

As the two most important non-listed companies under Musk, both SpaceX and xAI faced development bottlenecks reliant on single narratives before the merger.

For xAI, its dilemma lies in the intense computing power competition and financing challenges in the AI industry.

To compete with unicorns like OpenAI and Anthropic, as well as tech giants like Google and Microsoft, xAI needs a continuous influx of funds to acquire computing power and sustain model training and iteration.

However, investment in the AI sector by the primary market is becoming more rational. Even OpenAI, valued at $830 billion, relies on IPO rumors to attract hundred-billion-level investments. xAI, founded just three years ago, clearly cannot sustain sufficient market funding.

SpaceX's bottleneck lies in the growth ceiling of its aerospace business.

Despite Starlink's large-scale profitability and stable rocket launch business, the company, with [Mars colonization] as its ultimate vision, faces two core issues.

① Starlink and launch businesses struggle to secure incremental orders, with growth stagnating.

② The Mars colonization plan progresses slowly, and the [interstellar exploration] narrative that once supported its valuation gradually loses its appeal to capital without substantial progress.

As Lu Yi, a partner at private equity firm Brilliant Phoenix AI, said: A pure [rocket + satellite] company is expensive but lacks a sexy story.

These dilemmas make the merger inevitable.

Evidently, SpaceX's financial support for xAI is just a surface phenomenon. This merger is a strategically complementary move for mutual empowerment and support.

The merger compensates for each other's shortcomings, forming a complete closed loop of [rocket transportation + satellite communication + AI computing power + data processing].

Space Computing Power: Engineering Challenges Behind a Sci-Fi Narrative

In an internal memo released by SpaceX, Musk did not mention the logic of financially supporting xAI but attributed the merger's core significance to crack (Note: The original Chinese term " crack " is kept here as it may refer to a specific term or concept that doesn't have a direct English equivalent. It could be translated as "breaking through" or "solving" depending on context.) global AI's computing power bottleneck and proposed the grand vision of a [space data center].

But ideals are plentiful, while reality is harsh. Multiple aerospace industry researchers Speak frankly (Note: " Speak frankly " is translated as "point out" for clarity, though "state bluntly" could also work depending on tone.) that the biggest issue with space computing power lies not in conception but in engineering implementation.

This seemingly perfect capital operation has always been based on the unimplemented concept of space computing power.

This economic plan, depicted by Musk as resource-abundant and low-cost, faces technical challenges difficult to overcome in the short term.

① Satellite orbit collision and debris management: SpaceX plans to launch 1 million Starlink V3 satellites, while the current global total of in-orbit satellites is only about 15,000, meaning satellite orbits will become extremely crowded.

A satellite count in the millions will significantly increase scheduling difficulty. A scheduling error could not only damage Starlink satellites but also threaten the safety of other global satellites.

It could even lead to [space congestion], preventing new satellite deployments in low Earth orbit.

② Space radiation damage to chips: The space environment contains abundant cosmic rays and high-energy particles, which can severely damage AI chips, leading to a significant increase in chip failure rates.

According to estimates, cosmic rays are expected to cause a 5% annual chip failure rate, meaning that even with redundant designs, maintaining stable operation of space data centers will be difficult.

Resolving this issue requires developing highly radiation-resistant dedicated chips, which not only demands enormous R&D investment but also requires a long technological iteration period, making it difficult to achieve in the short term.

③ Space cooling and energy supply balance: Although space's low-temperature environment favors cooling, AI chips generate significant heat during high-load operations. Space, being a vacuum, cannot dissipate heat through air convection and can only do so through radiation.

This cooling method has limited efficiency. Once the heat generated by chips exceeds the radiation cooling capacity, [thermal runaway] occurs, damaging the chips.

Meanwhile, satellite solar panels are vulnerable to damage from space debris and cosmic radiation, making ensuring stable energy supply a difficult problem to solve.

④ Rocket launch stability: Although SpaceX's Starship rocket has achieved reusability, deploying 1 million satellites requires a massive number of rocket launches.

If the success rate of Starship rockets cannot improve, it will not only significantly increase launch costs but also delay the deployment of the orbital data center system.

Deutsche Bank analysis points out that large-scale commercialization of space data centers may not occur until the 2030s, meaning Musk's core technological vision is unlikely to materialize within the next 5-10 years.

During this period, AI and space technologies may undergo new transformations. If a superior solution emerges, Musk's layout could become passive or even obsolete.

Hidden Winner: Google's Venture Capital Returns and Beneficiaries

While the market focuses on Musk's space AI empire, Google emerges as the biggest invisible winner behind this trillion-dollar merger.

Google is reaping one of the most successful venture capital returns in Silicon Valley history through this merger and SpaceX's IPO.

In January 2015, Google and Fidelity jointly invested $1 billion in SpaceX, with Google contributing about $900 million to acquire approximately 7.4% of SpaceX's shares.

At the time, SpaceX was valued at only $12 billion. Falcon 9 had not yet achieved regular recovery, Starlink was still at the PPT stage, and Musk was burning money to prove the feasibility of reusable rockets, with the market full of skepticism about this investment.

Based on a $1.5 trillion valuation, Google's 7.4% stake will be worth $111 billion, representing a return on investment exceeding 120 times, with every dollar invested yielding $123 in returns.

But that's not all. Earlier last year, Google recorded an $8 billion gain in [non-marketable equity securities] in its financial report, derived from SpaceX's valuation reassessment, accounting for 25% of Google's net profit in the first fiscal quarter.

This gain had previously been [hidden]. Since SpaceX is a private company, Google's shares have been largely reflected at cost on the balance sheet for a decade, making their value invisible to the outside world.

Once SpaceX completes its IPO, this $111 billion will be directly reflected in Google's financial report, fundamentally changing the market's perception of Google's investment value.

Besides investors, core suppliers in the space and AI fields are also implicit winners in this merger.

Musk's vertical integration, while emphasizing [autonomous control of core links], does not mean he will completely detach (Note: " detach " is translated as "detach from" for clarity, though "abandon" or "forsake" could also convey the idea.) external suppliers.

Instead, due to business scale expansion, demand for core components and raw materials will significantly increase, driving the development of upstream and downstream suppliers.

In the space field, SpaceX's plan to launch 1 million Starlink V3 satellites to build an orbital data center system will significantly increase demand for satellite chips, solar panels, and rocket engine components.

For long-term core suppliers like NVIDIA (providing satellite chips), First Solar (providing solar panels), and Aerojet Rocketdyne (providing rocket engine components), this represents a huge market opportunity.

In the AI field, although xAI will gradually rely on SpaceX's space computing power, it will still need ground supercomputing clusters in the short term. Meanwhile, Grok model iteration requires significant computing power resources and data annotation services.

For suppliers providing supercomputing equipment and data annotation services to xAI, this merger will provide xAI with stable financial support, increasing its procurement of their services and driving their business growth.

Capital Variables: Valuation Bubbles and Cash Flow Pressure

Currently, SpaceX is valued at about $1 trillion, and xAI at $250 billion, but both valuations lack solid profit support.

If market sentiment changes or Musk's strategies fail to materialize on time, the valuation bubble could burst, causing the merged entity's valuation to plummet and investors to face huge losses.

The merged entity's cash flow will remain under pressure. Although SpaceX has healthy cash flow, xAI's massive losses and the high trial-and-error costs of Starship rockets will significantly deplete SpaceX's cash reserves.

xAI consumes nearly $1 billion in cash monthly, while Starship rocket R&D and launches also require enormous funding. Each Starship launch costs hundreds of millions of dollars, with a success rate below 50%.

According to estimates, the merged entity will need to invest at least $500 billion over the next five years in xAI's model iteration, Starlink V3 satellite deployment, and Starship rocket R&D and launches.

Although SpaceX can raise $50 billion through an IPO, this far from meets the enormous funding needs.

If the merged entity's profitability cannot quickly improve or it fails to secure continuous capital financing, it could face cash flow fracture (Note: " fracture " is translated as "collapse" for severity, though "breakdown" or "cessation" could also work.) risks, leading to the failure of the entire vertical integration strategy.

Conclusion:

Vertical integration is suitable during technological instability. Historically, successful vertical integrations often occur when technological paradigms have not converged, standards have not unified, and market sizes have not exploded.

Once standards mature, vertical integration becomes a burden. When AI models converge, hardware modules standardize, and communication and energy prices become transparent, the advantages of vertical integration will rapidly decline, while organizational complexity will rise exponentially.

Musk's true role resembles the last person daring to make full-stack bets before the collapse of the old system.

The real winners often do not appear in the spotlight, and the real variables are not necessarily in Musk's hands.

Partial references: Tencent Technology: [A SpaceX Investor's View on the xAI Merger], Rongzhong Finance: [$10.5 Trillion, the Largest IPO in History Arrives], Yicai: [Exclusive Voice from a SpaceX Shareholder! The Merger Was Sudden and Swift, Driven by Musk's Huge Ambition], Geek Park: [$250 Billion! SpaceX Merges with xAI, Forming Musk's Trillion-Dollar Empire]