Elon Musk has revealed that SpaceX acquired the AI startup xAI in a move aimed at integrating its space exploration and AI ventures.

The deal stands as one of the most significant mergers within the technology sector, aligning the renowned space-and-satellite company with xAI, known for its Grok chatbot.

The merger could also enhance SpaceX’s ambitions in data centres as Musk positions himself against key competitors like Google, Meta, Amazon-backed Anthropic, and OpenAI in the burgeoning AI industry.

This deal values SpaceX at $1tn and xAI at $250bn, reported Reuters, citing an undisclosed source privy to the information. As part of the agreement, investors in xAI will receive 0.1433 shares of SpaceX for each share they own in the AI start-up.

Additionally, some xAI executives might choose to accept cash in lieu of SpaceX stock at a rate of $75.46 per share.

Another source indicated to the publication that the combined company’s shares are expected to be priced at about $527 each. SpaceX was previously valued at $800bn during an insider share sale, maintaining its status as the world’s most valuable privately-held firm. The Wall Street Journal reported that xAI had a valuation of $230bn last November.

The merger occurs ahead of a planned public offering by SpaceX that could value the company at over $1.5tn.

Last month, xAI secured $20bn through a Series E funding round, exceeding its initial target of $15bn. Proceeds from the round will be allocated towards developing AI models and computing infrastructure, alongside supporting research initiatives.

The fund raising coincides with xAI’s preparations to train its next-generation Grok 5 model. The company intends to use the capital for expanding infrastructure and accelerating the deployment of AI products.

Musk described the merger as forming “the most ambitious, vertically-integrated innovation engine on (and off) Earth,” with plans for AI-driven applications alongside traditional space technologies. He highlighted the necessity of space-based AI solutions due to the substantial power demands of current terrestrial data centres.

Furthermore, Musk highlighted that space offers consistent solar power, as he outlined plans for satellites to function as orbital data centres and contribute to progress towards a Kardashev II-level civilisation.

The Tesla CEO detailed that launching several satellites will be vital for extending Starship’s capabilities and achieving frequent launches carrying significant payloads. These efforts could potentially add 100 gigawatts (GW) of AI compute capacity annually without ongoing operational costs.

Musk estimates that within two to three years, generating AI compute power will be most cost-effective in space.

The enhanced satellite constellation will comply with established sustainability practices proven successful by SpaceX’s previous satellite systems. While the immediate focus is on launching AI satellites from Earth, the billionaire revealed that longer-term plans include expanding operations to other celestial bodies using advanced technologies such as in-space propellant transfer.

Musk emphasised future possibilities like establishing lunar factories to manufacture satellites with local resources and deploying them further into space. Such advancements aim to significantly increase humanity’s capacity to harness solar energy and support expansion beyond Earth’s boundaries.

He said: “Current advances in AI are dependent on large terrestrial data centers, which require immense amounts of power and cooling. 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.

“In the long term, space-based AI is obviously the only way to scale. To harness even a millionth of our Sun’s energy would require over a million times more energy than our civilisation currently uses!

“The only logical solution therefore is to transport these resource-intensive efforts to a location with vast power and space.”