Exclusive-Musk's SpaceX in merger talks with xAI ahead of planned IPO, source

SpaceX and xAI Merger Overview

By Echo Wang and Joey Roulette

Details of the Proposed Merger

NEW YORK, Jan 29 (Reuters) - Elon Musk's SpaceX and xAI are in discussions to merge ahead of a blockbuster public offering planned for later this year. The combination would bring Musk’s rockets, Starlink satellites, the X social media platform and Grok AI chatbot under one roof, according to a person briefed on the matter and two recent company filings seen by Reuters.

Implications for AI and Space

The plan, which Reuters is reporting exclusively, would give fresh momentum to SpaceX’s effort to launch data centers into orbit as Musk battles for supremacy in the rapidly escalating AI race against tech giants like Google, Meta and OpenAI. 

Financial Aspects and Valuations

Musk, the world's richest man, is the CEO of both the private space company SpaceX and the artificial intelligence company xAI, which controls his social media platform X. He also runs electric automaker Tesla, tunnel company The Boring Co. and neurotechnology company Neuralink.

Musk, SpaceX, and xAI did not respond to requests for comment.

Under the proposed merger, shares of xAI would be exchanged for shares in SpaceX. Two entities have been set up in Nevada to facilitate the transaction, the person said.

Reuters could not determine the value of the deal, its primary rationale, or its potential timing. 

Corporate filings in Nevada show that those entities were set up on January 21. One of them, a limited liability company, lists SpaceX and Bret Johnsen, the company's chief financial officer, as managing members, while the other lists Johnsen as the company's only officer, the filings show.

The filings don't contain additional information about the purpose of the companies or their role in any deal.

Johnsen did not respond to a Reuters request for comment.

The person, who requested anonymity because the discussions are confidential, said that some xAI executives could be given the option to receive cash instead of SpaceX stock as part of the deal. A final agreement, however, hasn't been signed, and the timing and structure of the transaction remain fluid, the person cautioned. 

SpaceX is already the world's most valuable privately held company, last valued at $800 billion in a recent insider share sale. xAI was valued at $230 billion in November, according to the Wall Street Journal. Reuters and other media have reported that SpaceX plans to go public some time this year, with a valuation expected above $1 trillion.

DATA CENTERS IN SPACE   

Through xAI, Musk is building out a massive supercomputer for AI training in Memphis, Tennessee, called Colossus. Last year, SpaceX agreed to invest $2 billion in xAI as part of the startup’s $5 billion equity fundraising, the Wall Street Journal reported at the time.

Speaking in Davos, Switzerland, last week, the billionaire entrepreneur said "the lowest cost place to put AI will be in space. And that will be true within two years, maybe three at the latest."

Space-based AI processing, powered by solar energy, is aimed at cutting the cost of generating the computing power that runs and trains AI models such as xAI’s Grok. Jeff Bezos' Blue Origin announced a new high-capacity backbone network of thousands of satellites, while Google is researching space-based data centers with its Project Suncatcher. 

Building data centers in space remains a risky proposition, especially with AI investment evolving so rapidly and often unpredictably. Analysts and some industry executives have questioned whether the envisioned cuts in energy consumption are worth the added costs of tailoring those systems for space.

Folding xAI into SpaceX could boost the company's footing for major defense contracts at the Pentagon, which has sought to ramp up AI adoption in its military networks, said Caleb Henry of space research and advisory firm Quilty Analytics.

U.S. Defense Secretary Pete Hegseth earlier this month visited SpaceX’s Starbase development site in Texas, where he said xAI’s language model and its chat platform Grok will be integrated into military networks as part of the Pentagon’s “AI acceleration strategy," aimed at speeding up the military's decision-making and planning. 

xAI has a contract worth as much as $200 million to provide Grok products to the Pentagon. 

Starlink and its national security variant Starshield already rely heavily on artificial intelligence, such as for automated satellite maneuvers in orbit. Starshield, under a contract with a U.S. intelligence agency, is building a network of hundreds of classified satellites equipped with different sensors that are expected to use AI to help track moving targets on Earth.

LATEST MERGER BETWEEN MUSK COMPANIES 

The deal would not be Musk’s first effort to combine businesses he controls. In 2025, he folded social media platform X into xAI in a share swap that gave the artificial-intelligence startup access to the platform’s data and distribution. Before that in 2016, he used Tesla stock to buy his solar-energy company SolarCity.

Earlier this month, xAI raised $20 billion in an upsized Series E funding round, exceeding its $15 billion target at a valuation of $230 billion. Tesla, Musk's electric car company, on Wednesday said it agreed to invest about $2 billion in xAI.

Founded in 2002, SpaceX disrupted the global space industry with its reusable Falcon rockets, which proved vital to the swift launch of Starlink, a satellite broadband network now consisting of thousands of satellites in space.

SpaceX has lined up banks for an IPO that could come as early as this year.

(Reporting by Echo Wang and Joey Roulette; Additional reporting by Milanna Vinn, Sabrina Valle and David Jeans; Editing by Joe Brock, Dawn Kopecki and Michael Learmonth)