SpaceX, Elon Musk’s rocket and satellite company and the crown jewel of his business empire, and xAI, his cash-burning artificial intelligence and social media business, have little in common.
That’s why many were puzzled when Mr. Musk said this week that he was merging the companies. The reason he gave sounded like it had less to do with the business synergies that investors love and more to do with the science fiction he loves.
SpaceX, Mr. Musk explained, will move A.I. data centers into outer space, where they can expand and enjoy limitless solar power while avoiding the human bureaucracies that slow progress.
At least, that’s the plan. But behind Mr. Musk’s fantastical vision, there are earthbound reasons to believe that a combination rocket, satellite, A.I. and social media conglomerate with dreams of taking the tech industry into space is not as unwieldy as it sounds. While industrial conglomerates have fallen out of favor in recent decades, tech conglomerates have shown that different businesses can be bundled effectively.
The real question is whether Mr. Musk’s ideas are a few too many steps ahead of reality.
“If you take Elon Musk out of the picture, it’s an odd move to make,” said Eric Talley, a professor at Columbia Law School who specializes in corporate law, governance and finance. “But he seems to be the master of the odd move and has an enviable ability to defy gravity when it comes to these things.”
Alphabet’s companies include Google, which generates tens of billions of dollars through its search business while also running YouTube, and Waymo, the self-driving car company making inroads in a handful of American cities. Amazon now operates businesses as varied as cloud computing and the James Bond movie franchise. And Microsoft, long the dominant maker of personal and business software, also owns LinkedIn and the video game company Activision Blizzard.
Even Tesla, the electric automaker that Mr. Musk runs, acquired a solar energy business in which he owned a 20 percent stake. (Tesla’s solar business loses money, however, and has fallen behind Sunrun and other companies in the number of installations.)
There is also a more grounded business purpose for the merger: Adding xAI bulks up SpaceX before potential plans to go public this year. The deal valued SpaceX at $1 trillion, up from $800 billion in December, and xAI at $250 million. And Mr. Musk hopes to raise as much as $50 billion through the initial public offering.
In addition to extending a financial hand to xAI, SpaceX will go for a slice of the A.I. boom. Investors have eagerly poured money into A.I. start-ups they believe will revolutionize the tech industry, and by incorporating xAI, SpaceX can offer a taste of that new wealth to potential investors.
While experts warn that there are currently technical and physical limitations, Mr. Musk predicted in a memo to employees and investors this week that building data centers in space would become the lowest-cost way to power A.I. within two to three years. It is unclear how Mr. Musk, who often makes bold and inaccurate predictions about when new technologies will emerge, reached that conclusion.
“This cost-efficiency alone,” he wrote, “will enable innovative companies to forge ahead in training their A.I. models and processing data at unprecedented speeds and scales, accelerating breakthroughs in our understanding of physics and invention of technologies that benefit humanity.”
But even in a tech world that has been more receptive to big companies that do lots of different things, the new SpaceX is unusual. Mergers typically wed businesses in the same industry, said Justus Parmar, the chief executive of Fortuna Investments and a SpaceX investor. His company previously passed on an investment in xAI because Fortuna had already invested in OpenAI, a company focused solely on A.I., but Mr. Parmar said he was excited to get a piece of xAI through the merger.
Mr. Musk’s merger of X, his social media platform, with xAI last year brings another business into SpaceX. After acquiring X, formerly known as Twitter, in 2022, Mr. Musk rolled back most of the site’s content moderation rules and reinstated thousands of banned accounts. And Grok, xAI’s chatbot, has launched into antisemitic tirades and introduced sexy A.I. companions.
With those businesses come reputational risks. Both xAI and X are the subjects of several international investigations after Grok produced a spree of nonconsensual nude images last month and posted them on X.
SpaceX, on the other hand, has lucrative government contracts for its rocket launch business and satellite internet service, Starlink. The company has taken on responsibility for life-or-death work, including getting U.S. astronauts to the International Space Station. Mr. Musk has said the ultimate goal is taking humans to Mars.
Mr. Musk has already faced criticism from some analysts and Tesla shareholders that he is spread too thin, contributing to declining sales and profits at the carmaker. He helms SpaceX and xAI as well as several smaller start-ups, including the brain interface maker Neuralink and the Boring Company, a tunneling firm.
There are also worries that Mr. Musk did not consult with some investors before the merger, which is unusual in big-dollar deals. “When you’re investing with Elon, he does not care about what you want,” said Ross Gerber, an investor in xAI. “He looks at you as a lucky participant in his success.”
But the deal could still work, investors say, largely because of Mr. Musk’s business track record. The billionaire turned around Tesla when it was a small company teetering on bankruptcy in 2008, although its profit has flagged in recent quarters. And many investors are eager for anything that gives them a cut of the A.I. bonanza.
SpaceX and xAI may also be able to share some engineering resources and use their combined might to negotiate deals with suppliers of important components, like the specialty computer chips used to power A.I.
Some investors say they hope Mr. Musk builds out the business even further, merging SpaceX and Tesla. He has intermingled some aspects between them, installing Grok in Tesla vehicles and using steel developed by SpaceX to build Cybertrucks, but analysts warn that there would be significant legal challenges to a tie-up. Mr. Musk’s status as the largest shareholder in both companies would most likely prompt suits over conflicts of interest.
“Is it inconceivable that we might see a merger between Tesla and the new SpaceX? I wouldn’t count that out, if the alternative is navigating all these conflicts of interest,” Mr. Talley, the Columbia professor, said.
Still, there are hard lessons for SpaceX in the unraveling of earlier conglomerates. During the 1980s, Mercedes-Benz made passenger jets, trains and washing machines in addition to cars and trucks. ITT, originally a telephone company, owned 350 companies in the 1970s, including Sheraton hotels, Avis Rent-a-Car, Hartford Insurance and Continental Baking, the maker of Wonder Bread.
Some became cautionary tales. Formed in 1892, General Electric reached into nearly every home over the next century. It sold lightbulbs, televisions and washing machines. Its jet engines opened up long-distance travel, its generators lit houses, and its medical equipment helped diagnose patients.
The company also built up a huge finance arm. That backfired when the financial crisis hit in 2008 and the company faced an enormous credit crunch. Eventually, in 2024, a pared-down GE split into three companies.
Kate Conger is a technology reporter based in San Francisco. She can be reached at [email protected].
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