Elon Musk merges SpaceX with xAI to build data centers in space – or so he says
On Monday, Elon Musk announced that he is merging his two companies, SpaceX and xAI, in a deal that is said to be worth $ 1.25 trillion. The reason, Musk said in the announcement, is that for AI to grow, it needed to go to space.
AI relies on “massive terrestrial data centers” that run on “huge power and cooling,” he said, which comes at a huge cost to the environment and public opposition. The solution: data centers in space. “In the long term, space-based AI is clearly the only way to scale,” Musk said.
Musk isn’t the only one who wants to launch data centers into orbit. Google has Project Suncatcher to build solar-powered AI data centers in space. China is looking at space-based data centers, as is Europe. As we reported last year, space-based data centers – in the form of satellites with solar panels – are the latest Big Tech fad and Silicon Valley’s new venture capital.
On the surface, it sounds like a logical solution to the unique problem presented by power-hungry data centers. Local communities oppose data center projects with concerns about electricity demand, water use, and rising utility rates. Launching those data centers into space means they don’t use up any space on Earth, and in orbit parallel to the sun there is a supply of solar energy.
AI relies on “massive terrestrial data centers” that run on “massive power and cooling,” Musk said, which comes at a huge cost to the environment.
But there’s another, simpler way to look at the Musk merger: SpaceX is profitable, and xAI is not. Not only is xAI unprofitable, it is in the midst of a massive financial burn as it races to compete with well-funded rivals like Google and OpenAI. As Bloomberg recently reported, the AI company is burning nearly 1 billion dollars a month as it spends more money to build data centers, hire talent, and use social media X.
Meanwhile, SpaceX made about $8 billion in revenue on revenue of about $16 billion last year, Reuters report. The biggest driver of revenue is Starlink, which accounts for 80 percent of the company’s revenue. As of 2019, SpaceX has launched more than 9,500 satellites and boasts 9 million internet users. The company is also a major government contractor, having received more than $20 billion in NASA and Department of Defense contracts since 2008. If it goes public later this year, SpaceX is expected to raise up to $50 billion.
Meanwhile, xAI has its own governing body. The Department of Defense uses Grok, in addition to other chatbots, to analyze information flowing through its military intelligence networks.
It’s not clear how investors will feel about combining cash-burning xAI with profitable SpaceX. But it’s important to note that Musk has done this before, when he merged debt-laden SolarCity with Tesla in 2016. Since Musk was the largest shareholder and chairman of Tesla and SolarCity, the shareholders sued to prevent the merger, claiming a $2.6 billion “bailout” of the cash-strung company. Musk eventually won the case, the judge ruled that he did not force Tesla to overpay SolarCity.
Musk is now facing a new lawsuit from Tesla shareholders over his creation of xAI. The lawsuit alleges that Musk breached his fiduciary duty to Tesla by building xAI, which competes with the automaker for AI talent, resources, and Musk’s attention. The news that SpaceX is acquiring xAI will certainly not solve those concerns; if anything, it makes it chaotic and complicated.
So where does all this leave Tesla? In a recent earnings report, Tesla said it is investing $2 billion in xAI “to enhance Tesla’s ability to develop and ship AI products and services around the world.” Grok, an xAI chatbot currently under investigation in several countries to produce images of people having sex with whom they have not consented, including children, has recently been integrated into some Tesla vehicles as a voice assistant. Grok also lags behind OpenAI’s ChatGPT, Google’s Gemini, Anthropic’s Claude, and other major language models in several key metrics.
Data centers in space are pure Musk futurism with no guarantee of success. It’s not as simple as strapping a GPU to a rocket and hitting “launch.” First, GPUs are absolute power hogs. Unless you have a nuclear reactor floating up there, you’re going to need huge solar arrays to power it. Then there is the state of communication; even if you ride the road on Starlink, you still have to find the budget to send information back and forth to Earth. Finally, the numbers start to look very scary.
Musk says combining SpaceX and xAI is the way to make it happen. And maybe one day he’ll take up an investor’s proposal to merge all of his companies, including Tesla, Neuralink, and the Boring Company, into one giant, Musk-run mega-corporation: Musk Inc., if you will. How will Tesla shareholders react?
“Tesla is Musk’s piggy bank, as it is publicly traded; his other companies are not,” Tesla investor James McRitchie said during a speech before the 2024 shareholder meeting, according to Tesla. The Wall Street Journal. “Either he stays long enough to use our shareholders’ money to fund his other ventures, or he quickly changes his focus if we reject his pay package and turn off the cash taps.”
