Elon Musk’s SpaceX and artificial intelligence startup xAI are in discussions over a potential merger ahead of a planned public offering later this year, Reuters reported citing a person familiar with the matter and two recent company filings reviewed by it.
The proposed combination would bring SpaceX’s launch vehicles and Starlink satellite network together with Musk’s X social media platform and xAI’s Grok chatbot under a single corporate structure, the source said. Reuters is reporting the talks exclusively.
Under the proposed structure, shares of xAI would be exchanged for shares in SpaceX, the source added, the news outlet stated. Two Nevada-based entities have been set up to facilitate the transaction. Some xAI executives may be offered cash instead of SpaceX stock, though no final agreement has been signed and the timing and structure of the deal remain fluid.
Reuters said it could not independently determine the valuation of the transaction, its primary strategic rationale, or when it might be completed.
Boost to space-based AI ambitions
The merger talks come as Musk pushes aggressively into artificial intelligence, positioning SpaceX as a key platform for deploying data centres in orbit to power AI workloads.
Speaking at the World Economic Forum in Davos last week, Musk said “the lowest cost place to put AI will be in space,” predicting that space-based AI infrastructure could become viable within two to three years.
SpaceX has already committed $2 billion to xAI as part of a $5 billion equity fundraising round last year, the Wall Street Journal previously reported. Through xAI, Musk is also building a large AI supercomputer known as “Colossus” in Memphis, Tennessee.
Industry players are increasingly exploring space-based computing. Jeff Bezos’ Blue Origin has announced plans for a high-capacity satellite backbone network, while Google is researching orbital data centres through its Project Suncatcher initiative.
Defence contracts and strategic leverage
Combining xAI with SpaceX could strengthen the company’s position in securing U.S. defence contracts, said Caleb Henry, director of research at Quilty Analytics.
“The Pentagon is pushing rapidly into AI-enabled systems, and having that capability vertically integrated with satellite infrastructure is a strategic advantage,” Henry told Reuters.
xAI has a contract worth up to $200 million to supply Grok AI products to the Pentagon. SpaceX’s Starlink and its defence-focused Starshield unit already rely heavily on artificial intelligence for satellite operations, including automated manoeuvring in orbit.
Starshield is also developing a classified satellite network for a U.S. intelligence agency, which is expected to use AI-enabled sensors to track targets on Earth.
Valuations and IPO plans
SpaceX is currently the world’s most valuable privately held company, valued at about $800 billion in a recent insider share sale, according to sources familiar with the transaction. xAI was valued at $230 billion in November, the Wall Street Journal reported.
Reuters and other media have reported that SpaceX is preparing for an initial public offering as early as this year, with an expected valuation exceeding $1 trillion. SpaceX has already lined up banks for the potential IPO, sources have said.
Earlier this month, xAI raised $20 billion in an upsized Series E funding round, exceeding its original target of $15 billion. Tesla disclosed on Wednesday that it had agreed to invest about $2 billion in xAI.
Not Musk’s first internal deal
The potential merger would mark the latest in a series of transactions combining Musk-controlled companies. In 2025, Musk folded X into xAI via a share swap, giving the AI startup access to the platform’s data and distribution. In 2016, Tesla acquired Musk’s solar firm SolarCity in an all-stock deal.
Founded in 2002, SpaceX transformed the space industry with its reusable Falcon rockets, enabling rapid deployment of Starlink, which now consists of thousands of satellites in orbit.
Musk is the CEO of SpaceX and xAI, and also leads Tesla, and Neuralink.
