Musk’s xAI needs SpaceX deal for the money. Data centers in space are still a dream

Elon Musk said a primary reason for merging SpaceX with his artificial intelligence startup, xAI, is to more effectively build “orbital data centers.” That’s for a far-off future.

For now, xAI has a much more pressing need: cash.

In Monday’s blog post announcing the combination of his two companies, Musk estimated that “within 2 to 3 years, the lowest cost way to generate AI compute will be in space.” But xAI requires immense amounts of money to finance its massive infrastructure buildout as the three-year-old company tries to catch up to Google, OpenAI and Anthropic in the booming generative AI market.

SpaceX, which is reportedly aiming to go public this year in what could be a record-setting IPO, may represent Musk’s clearest path to landing that capital. The company is looking to raise up to $50 billion at a valuation as high as $1.5 trillion, according to Reuters.

A major key to SpaceX’s growth is Starlink, its satellite internet service, which has around 9,000 satellites in orbit today and roughly 9 million customers. It recently received authorization from the Federal Communications Commission to put another 7,500 satellites into orbit.

Tim Farrar, president of satellite and telecom industry research firm TMF Associates, said SpaceX can’t put that kind of money to work towards its existing business because there are only so many rocket launches available to get its Starlink satellites up into space each year.

Folding xAI into SpaceX, Farrar said, allows Musk to capitalize on investors’ insatiable appetite for AI holdings, while also securing the AI company’s financial position despite its mounting losses. According to a report from The Information late Monday, xAI has told investors that it burned about $9.5 billion through the first nine months of 2025.

“People are throwing tens of billions of dollars at AI companies right now, and in six months or 12 months time, they might have changed their mind about it,” Farrar said. “Getting the money is feasible” now but may not be forever.

In early January, xAI closed a $20 billion funding round at about a $230 billion valuation. OpenAI was valued at $500 billion in October, and is reportedly looking to bump that up to about $750 billion in its next round. Anthropic signed a term sheet this month for a funding that values the company at $350 billion.

XAI has told investors it burned about $9.5 billion of cash through the first nine months of last year,

In addition to a friendly capital market, Musk has the benefit of an extremely favorable regulatory landscape, as the Trump administration rolls back environmental, antitrust and other regulations.

Nowhere in Monday’s blog post was there mention of any need for regulatory approval, and Musk suggested in the first sentence of the statement that the transaction is done. Public records with the state of Nevada obtained by CNBC indicate that the deal was completed on Feb. 2, with Space Exploration Technologies Corp. listed as the “managing member” of X.AI Holdings.

Of particular importance to Musk is the recent installation of his business associate and former SpaceX investor and customer Jared Isaacman as the head of NASA. Isaacman has supported speeding up initiatives that would expand the agency’s contracts with SpaceX. And at the FCC, Chairman Brendan Carr has been a vocal proponent of SpaceX’s Starlink.

The landscape for tech mergers has also changed dramatically, with President Donald Trump in the White House and Republicans controlling both houses of Congress. The Federal Trade Commission is now run by Trump appointee Andrew Ferguson rather than Lina Khan, who was known for blocking big tech deals during Joe Biden’s presidency.

When it comes to AI, Musk’s longtime friend David Sacks is the White House crypto and AI czar, and has pushed the federal government to limit the amount of oversight AI labs face as they pursue aggressive growth strategies. In December, President Trump signed an executive order issuing a single regulation framework for AI, undermining the power of individual states — namely blue states like California and New York — to implement their own rules.

“To win, United States AI companies must be free to innovate without cumbersome regulation,” the order said. “But excessive State regulation thwarts this imperative.”

While Musk still has three years left of a second Trump administration, he may have only a small window of unified Republican control, with the mid-term elections taking place in nine months and the president’s favorability numbers sinking.

Musk is moving fast. And he likely has the backing of a loyal band of investors who have a long history of supporting his intermingling of resources and merging of companies.

In 2016, Tesla acquired SolarCity for $2.6 billion, rescuing it from a looming liquidity crunch. Before the merger, Musk was a key investor in the solar business and served as chairman of the company, which he started with his cousins.

During his leveraged buyout of Twitter (which later became X) in 2022, Musk sold billions of dollars worth of his Tesla shares to finance the deal. He also tapped dozens of employees, even some executives, from SpaceX, Tesla and tunneling venture The Boring Co., to help him with the takeover and to make sweeping changes to the platform.

At Tesla, Musk has engaged in a number of related party transactions with SpaceX and, more recently, xAI. For example, Tesla has sold car parts and solar equipment to SpaceX, and the automaker relied on SpaceX to develop a special alloy for its Cybertruck.

In 2025, Tesla sold $430 million worth of its giant backup batteries called Megapacks to xAI, according to a filing out last week, accounting for about 3.4% of Tesla’s energy business revenue for the year. The batteries help power xAI’s data infrastructure that it’s building out around Memphis, Tennessee.

Shortly before that filing landed, Tesla said it was investing $2 billion into xAI as part of the company’s latest financing round. In July 2025, SpaceX reportedly invested $2 billion into xAI as well.

Farrar said that Musk’s biggest fans and institutional investors are willing to support the tangled web of transactions, or the “Muskonomy,” in part because they understand the symbolic importance of keeping his entire portfolio strong.

“The whole thing relies on confidence in him,” Farrar said. “If any piece of his empire was to fall by the wayside or go bankrupt, then it would undermine everything.”

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