Elon Musk has officially merged his aerospace and artificial intelligence empires, announcing that SpaceX has acquired xAI in a groundbreaking deal that aims to create what Musk calls “the most ambitious, vertically-integrated innovation engine on (and off) Earth.” The acquisition, confirmed through a memo to employees on February 2, 2026, represents a major consolidation of Musk’s business empire and signals an ambitious pivot toward space-based AI infrastructure.
xAI, founded by Musk in 2023 to compete with OpenAI and Google, recently raised $20 billion in a funding round that valued the AI startup at $230 billion. The company develops Grok, an AI chatbot that has faced controversy over generating inappropriate content. By combining with SpaceX, xAI gains access to the rocket company’s orbital capabilities and significant capital resources, particularly important as SpaceX prepares for an IPO later this year that could value the company at $1.5 trillion.
The strategic rationale centers on launching AI data centers into space. Musk argues that terrestrial data centers cannot meet the massive electricity demands of advanced AI systems without causing environmental hardship. His vision involves deploying up to one million satellites functioning as orbital data centers that harness constant solar power. SpaceX filed an FCC request last Friday to launch this satellite constellation, which would provide 100 gigawatts of AI compute capacity annually.
Musk’s memo outlined an ambitious timeline, estimating that within 2-3 years, space-based AI compute will become the most cost-efficient option. The plan leverages SpaceX’s Starship rocket, capable of launching 200 tons per flight at rates of one launch per hour, to deliver millions of tons of satellites to orbit annually. Each satellite would generate approximately 100 kilowatts of compute power with minimal operational costs.
The acquisition is part of broader consolidation across Musk’s companies. In March 2025, xAI acquired X (formerly Twitter), while both SpaceX and Tesla have each invested $2 billion in xAI. This vertical integration combines AI development, rocket technology, satellite internet through Starlink, direct-to-mobile communications, and social media platforms. Musk envisions this infrastructure eventually supporting lunar manufacturing facilities and Mars colonization, describing it as a step toward becoming a “Kardashev II-level civilization” capable of harnessing the Sun’s full power.
Key Quotes
This marks not just the next chapter, but the next book in SpaceX and xAI’s mission: scaling to make a sentient sun to understand the Universe and extend the light of consciousness to the stars!
Elon Musk wrote this in his memo to employees announcing the acquisition, revealing his grandiose vision for combining AI and space technology to advance human civilization beyond Earth.
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.
Musk articulated the core problem driving the acquisition—the unsustainable energy requirements of AI data centers—which he argues can only be solved by moving compute infrastructure to space where solar power is abundant and constant.
My estimate is that within 2 to 3 years, the lowest cost way to generate AI compute will be in space.
This bold prediction from Musk’s memo suggests a rapid timeline for space-based AI infrastructure to become economically competitive with traditional data centers, potentially disrupting the entire cloud computing industry.
With launches every hour carrying 200 tons per flight, Starship will deliver millions of tons to orbit and beyond per year, enabling an exciting future where humanity is out exploring amongst the stars.
Musk outlined the technical capabilities required to make orbital data centers feasible, emphasizing how AI infrastructure needs will drive improvements in SpaceX’s launch systems and overall space access.
Our Take
This merger represents Musk’s most audacious bet yet on vertical integration, but it also reveals the AI industry’s growing infrastructure crisis. While the vision of space-based data centers sounds like science fiction, the underlying problem is real: AI’s exponential growth in compute requirements is unsustainable with current terrestrial infrastructure. However, the 2-3 year timeline seems extraordinarily optimistic given the technical, regulatory, and economic challenges of deploying one million satellites.
The deal also raises significant concerns about market concentration. By combining AI development, launch capabilities, satellite networks, and social media platforms, Musk is creating an ecosystem with few competitors capable of matching this vertical integration. This could accelerate innovation but also concentrate enormous power over AI infrastructure in one entity. The acquisition’s success will likely depend on whether SpaceX’s IPO provides sufficient capital and whether regulatory bodies approve such massive satellite deployments.
Why This Matters
This acquisition represents a paradigm shift in AI infrastructure development and could fundamentally reshape how the industry approaches the massive computational demands of advanced AI systems. As AI models grow exponentially larger and more power-hungry, the industry faces a critical bottleneck: terrestrial data centers consume enormous amounts of electricity and require extensive cooling systems, raising environmental concerns and straining power grids.
Musk’s space-based solution addresses these constraints by proposing orbital data centers with access to unlimited solar power and natural cooling in the vacuum of space. If successful, this approach could provide competitive advantages in AI development, allowing faster training of larger models without geographical or environmental limitations. The merger also consolidates significant resources—xAI’s AI expertise, SpaceX’s launch capabilities, Starlink’s satellite network, and X’s data platform—creating a vertically integrated AI ecosystem unlike any competitor.
For the broader AI industry, this signals increasing capital concentration among tech billionaires and raises questions about access to cutting-edge AI infrastructure. The deal also highlights how AI development is driving innovation in adjacent industries like aerospace, potentially accelerating space commercialization while centralizing control over critical AI infrastructure in fewer hands.
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Source: https://www.businessinsider.com/spacex-acquiring-xai-deal-elon-musk-2026-2