The merger could boost Musk’s push to build AI-powered data centers in space, lowering energy costs and boosting competitiveness against rivals like Google, Meta and OpenAI | Photo credit:
The plan, exclusively reported by Reuters, would give new impetus to SpaceX’s efforts to put data centers in orbit as Musk vie for supremacy in the rapidly escalating AI race against tech giants like Google, Meta and OpenAI.
Musk, the richest man in the world, is the CEO of both the private space company SpaceX and the artificial intelligence company xAI, which runs his social media platform X. He also runs electric car manufacturer Tesla, tunnel company The Boring Co. and neurotechnology company Neuralink.
Musk, SpaceX and xAI did not respond to requests for comment.
The proposed merger would exchange shares of xAI for shares in SpaceX. Two entities have been formed in Nevada to facilitate the transaction, the person said.
Reuters could not determine the value of the deal, its primary reason or its possible timing.
Nevada business records show these entities were incorporated 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 sole officer, the documents show.
The documents contain no additional information about the companies’ purpose or their role in a deal.
Johnsen did not respond to a Reuters request for comment.
The person, who requested anonymity because the talks are confidential, said some xAI executives could be given the option to receive cash instead of SpaceX stock as part of the deal. However, no final agreement has been signed yet and the timing and structure of the transaction remain variable, the person cautioned. SpaceX is already the world’s most valuable private company, last valued at $800 billion in a recent insider stock sale. According to the Wall Street Journal, xAI was valued at $230 billion in November. Reuters and other media have reported that SpaceX plans to go public sometime this year, with an expected valuation of more than $1 trillion.
DATA CENTERS IN SPACE
Through xAI, Musk is building 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 that “the cheapest place to put AI will be in space. And that will be within two years, maybe three at the latest.” Space-based AI processing, powered by solar energy, aims to reduce the cost of generating the computing power that powers and trains AI models like xAI’s Grok. Jeff Bezos’ Blue Origin announced a new high-capacity backbone network of thousands of satellites, while Google is exploring data centers in space with its Project Suncatcher.
Building data centers in space remains a risky endeavor, especially because investments in AI are evolving so quickly and often unpredictably. Analysts and some industry executives have questioned whether the targeted energy savings are worth the additional costs associated with tailoring these systems to the space.
Integrating xAI into SpaceX could strengthen the company’s position for major defense contracts at the Pentagon, which has been trying to ramp up AI adoption in its military networks, said Caleb Henry of space research and consulting firm Quilty Analytics.
US Defense Secretary Pete Hegseth visited SpaceX’s Starbase development site in Texas earlier this month, where he said xAI’s language model and 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 supply 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 contract with a US intelligence agency, is building a network of hundreds of secret satellites equipped with various 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 attempt to combine companies he controls. In 2025, he folded social media platform X into xAI in a stock swap that gave the artificial intelligence startup access to the platform’s data and distribution. Before that, he used Tesla shares in 2016 to buy his solar energy company SolarCity. Earlier this month, xAI raised $20 billion in a ramped-up Series E funding round, surpassing its $15 billion target at a $230 billion valuation. Tesla, Musk’s electric car company, said Wednesday 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 critical to the rapid launch of Starlink, a satellite broadband network that now consists of thousands of satellites in space.
SpaceX has lined up banks for an initial public offering that could take place as soon as this year.
Published on January 30, 2026
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