By Jaspreet Singh
Feb 3 (Reuters) – U.S. space stocks rose on Tuesday after Elon Musk announced the merger of SpaceX and xAI in a deal that valued the combined entity at $1.25 trillion, a major push to expand artificial intelligence infrastructure outside Earth.
Musk estimates that within two to three years, the most cost-effective way to generate AI compute will be in space, as Big Tech companies spend hundreds of billions in the pursuit of artificial general intelligence, a theoretical milestone where machines could surpass human capabilities in cognitive tasks.
The record-setting deal sparked a rally in a relatively nascent industry. Shares of Rocket Lab and Planet Labs rose 3.9% and 1.2%, respectively, while AST SpaceMobile added 4.3%. Intuitive Machines gained 4.7% and Redwire was up about 2%.
Musk said the combination aims to create a vertically integrated and ambitious innovation powerhouse, combining AI, rocket technology, space-based internet services, direct-to-mobile communications and a platform for real-time information and free speech.
“Others may buy into Musk’s grand vision of data centers in the cosmos, and this may only whet the appetite ahead of what could be the largest IPO of all time,” AJ Bell investment director Russ Mould said.
The merger of two of the largest privately held companies in the world comes as SpaceX plans a blockbuster public offering this year that could value it at more than $1.5 trillion, two people familiar with the matter have said.
Global investment in space technology is poised to climb further this year, propelled by government spending on defense-linked satellite systems and private sector bets on launch capacity, investment firm Seraphim Space said last month.
“This is the strongest validation yet that space will be the backbone of the next wave of AI,” said Seraphim Space CEO Mark Boggett.
MUSK’S BIG DREAMS
Musk, the world’s richest man, has a long history of making ambitious promises and often delivering late. Many of his biggest ideas are still in the works, including Tesla’s FSD, which still is not fully autonomous despite years of predictions that it soon would be.
The billionaire’s ambition also included the Department of Government Efficiency, which upended Washington with its rapid-fire drive to slash thousands of federal jobs.
His far-flung business empire – what some investors and analysts informally call the “Muskonomy” – also includes brain-chip maker Neuralink and tunnel firm the Boring Company.
Tesla, which last year lost its global EV sales crown to China’s BYD, plans record capital spending of more than $20 billion this year, which will be used to build factories for Cybercab autonomous vehicles, Optimus robots, semi-trucks, batteries and lithium production.
Musk is taking steps toward building data centers in space. SpaceX has recently sought permission to launch a constellation of up to 1 million satellites that will orbit the planet and harness the sun to power AI data centers.
Building and then sustaining a constellation of 1 million satellites, each with a five-year life, would require launching about 200,000 satellites into orbit annually, analysts at MoffettNathanson wrote in a note on Tuesday.
The capital required to build a large orbital compute constellation could be so vast that SpaceX may need to tap public equity markets, the analysts said.
(Reporting by Jaspreet Singh in Bengaluru; additional reporting by Akash Sriram in Bengaluru; Editing by Arun Koyyur)
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