Musk’s xAI requires SpaceX funding. A data center in space is a dream

Elon Musk said the main reason for merging SpaceX and his artificial intelligence startup xAI is to more effectively build “orbital data centers.” That is in the distant future.

For now, xAI has a more pressing need for cash.

In a Monday blog post announcing the combination of the two companies, Musk estimated that “within two to three years, the lowest cost way to generate AI computing will be in space.” But xAI needs significant capital to fund the buildout of its massive infrastructure as the three-year-old company tries to catch up. googleOpenAI and Anthropic in the fast-growing generative AI market.

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

A major key to SpaceX’s growth is Starlink, the company’s satellite internet service, which currently has about 9,000 satellites in orbit and about 9 million customers. It recently received permission from the Federal Communications Commission to put 7,500 more satellites into orbit.

Tim Farrar, president of TMF Associates, a satellite and communications industry research firm, said SpaceX could not spend that kind of money on its existing operations because there are only a limited number of rocket launches available each year to launch Starlink satellites into space.

Farrar said integrating xAI into SpaceX allows Musk to capitalize on investors’ insatiable appetite for AI holdings while ensuring the AI ​​company’s financial health despite mounting losses. xAI told investors it burned through about $9.5 billion in the first nine months of 2025, The Information reported late Monday.

“People are putting tens of billions of dollars into AI companies right now, but in six or 12 months they might change their minds,” Farrar said. It’s possible to get money now, but it may never be possible.

In early January, xAI closed a $20 billion funding round at a valuation of approximately $230 billion. OpenAI’s valuation was $500 billion as of October, but it is reportedly considering raising it to around $750 billion in the next round. Anthropic signed a financing term sheet this month that values ​​the company at $350 billion.

In addition to friendly capital markets, Musk also benefits from a highly favorable regulatory environment as the Trump administration rolls back environmental, antitrust and other regulations.

Nowhere in Monday’s blog post was there any mention of the need for regulatory approval, and Musk suggested in the first sentence of his statement that the deal was done. The deal was completed on February 2, and Space Exploration Technologies Corp. is listed as a “managing member” of X.AI Holdings, according to Nevada public records obtained by CNBC.

Of particular importance to Musk is the recent appointment of Jared Isaacman, a business associate and former SpaceX investor and customer, as NASA administrator. Isaacman has supported accelerating efforts to expand the SpaceX contract. And at the FCC, Chairman Brendan Carr has been a vocal supporter of SpaceX’s Starlink.

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

When it comes to AI, Musk’s longtime friend David Sachs is the White House’s crypto and AI czar and has been pressuring 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 regulatory framework for AI, weakening the power of individual states — blue states like California and New York — to enforce their own rules.

“To win, U.S. AI companies must be free to innovate without burdensome regulations,” the order states. “However, excessive state regulation impedes this obligation.”

Musk still has three years left in the second Trump administration, but with the midterm elections nine months away and the president’s popularity waning, he may only have a short period of time to unify his control of the Republican Party.

The mask moves quickly. And he’s likely backed by a group of loyal investors who have a long history of supporting his mix of resources and corporate mergers.

In 2016, Tesla acquired SolarCity for $2.6 billion, bailing it out of a looming liquidity crisis. Before the merger, Musk was a major investor in the solar power business and served as chairman of the company he founded with his cousins.

During a leveraged buyout of Twitter (later known as X) in 2022, Musk sold billions of dollars worth of Tesla stock to finance the acquisition. He also enlisted dozens of employees, some executives, from SpaceX, Tesla and tunneling venture The Boring to help with the acquisition and make fundamental changes to the platform.

At Tesla, Musk has been involved in a number of related-party transactions with SpaceX and, most recently, with xAI. Tesla, for example, sells auto parts and solar power equipment to SpaceX, and the automaker relies on SpaceX to develop special alloys for the Cybertruck.

Tesla will sell $430 million worth of giant backup batteries called Megapacks to xAI in 2025, accounting for about 3.4% of Tesla’s energy revenue that year, according to a filing last week. The battery will help power the data infrastructure xAI is building around Memphis, Tennessee.

Shortly before this application was filed, Tesla announced it would invest $2 billion in xAI as part of its latest funding round. In July 2025, SpaceX also reportedly invested $2 billion in xAI.

Farrar said Musk’s biggest fans and institutional investors are willing to support complex trades, or “Musknomy,” because they understand the symbolic importance of keeping Musk’s overall portfolio strong.

“It all comes down to trust in him,” Farah said. “If any part of his empire goes astray or goes bankrupt, everything will be ruined.”

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