To Elon Musk’s fan club, there is nothing to see apart from more evidence of the great man’s visionary genius. SpaceX, the rocket firm, is buying xAI, the artificial intelligence developer, and the combination of these two Musk-controlled entities is being valued at $1.25tn (£910bn). Feel the positive vibes ahead of a stock market debut due in June! The most valuable private company in history! The largest ever transaction!
Or, as Musk described it, he is creating “the most ambitious, vertically-integrated innovation engine on (and off) Earth, with AI, rockets, space-based internet, direct-to-mobile device communications and the world’s foremost real-time information and free-speech platform”.
SpaceX’s minority shareholders may have a less stellar view. From their perspective, this all-share transaction must look less like an attempt to “accelerate humanity’s future” and more like an instant bailout of loss-making xAI, conducted with minimal scrutiny of valuation or a meaningful attempt to seek their views.
Remember that, while SpaceX is routinely described for shorthand purposes as owned by Musk, he is not the only person in the capsule. His stake is estimated to be 42%. There have been outside shareholders for years – in the UK, two popular investment trusts, Scottish Mortgage and Edinburgh Worldwide, have SpaceX as their largest holding. Do end-investors in those funds really want to combine with xAI, a cash-burning operation that comes with X, the scandal-generating social media platform (latest news: a raid by prosecutors on X’s French headquarters and an ongoing UK inquiry into indecent deepfakes produced by the Grok AI tool)? One doubts it.
The beauty of SpaceX as an investment, until now, was the purity of its focus on sending satellites into orbit via reusable rockets and operating the Starlink communications system. It is a field in which competitors have been left on the launch pad. SpaceX’s customers include Nasa and the US Department of Defense.
Musk’s strategic justification for combining SpaceX and xAI is that the AI battleground is about to shift to 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,” he argues.
He may be correct in that analysis, but it is still a jump to say the two corporate entities must be housed under the same roof. If xAI needs to use SpaceX’s rockets to establish orbital data centres, business could be done at arm’s-length on commercial terms. Or, if you think the energy angle changes everything, make the case in greater detail than a brief statement and, most of all, ensure valuations are transparently fair.
Musk didn’t even mention terms, although SpaceX is reportedly being valued at $1tn and xAI at $250bn. Those round numbers may be roughly related to valuations at which each firm has raised capital in the recent past, but most assessments would…
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