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Last year, Elon Musk\u2019s xAI artificial intelligence start-up bailed out investors in X<\/a>, his social media platform. Then Musk\u2019s Tesla pumped $US2 billion ($2.85 billion) into xAI, which was burning more than $US1 billion of cash a month. Now he\u2019s caused SpaceX to merge with xAI in a deal valuing the combined businesses at $US1.25 trillion ($1.8 trillion).<\/p>\n See the pattern? As one of the companies he controls needs cash, he turns to another that has it. When that proves insufficient, he has looked to one of the two most valuable companies within his orbit \u2013 one without the approvals and governance complexities of Tesla \u2013 to bail them out.<\/p>\n There was speculation that it would be Tesla that would acquire xAI but, while Tesla has about $US44 billion of cash in its balance sheet, the switch of focus from producing electric vehicles to robotaxis and robots that Musk revealed last month and the cashflow-negative impact of the $US20 billion investment that entails probably ruled it out, at least this time.<\/p>\n SpaceX planned a float this year, with a mooted valuation of about $US800 billion, which would raise about $US50 billion of cash from new investors. Some of that cash will now be available to xAI.<\/p>\n The merged group\u2019s valuation of $US1.2 trillion represents a big lift from the most recent valuations of its components as, just over a year ago, the merged xAI and X was deemed to have an equity value of about $US113 billion and a $US20 billion capital raising last month was struck at a valuation of $US230 billion.<\/p>\n Related Article For the purposes of the merger, xAI is now valued at $US250 billion, while SpaceX\u2019s value has jumped to $US1 trillion and there\u2019s talk of the IPO producing a $US1.5 trillion valuation.<\/p>\n The numbers, and their escalation, are mind-blowing, but so are artificial intelligence\u2019s appetite for capital and Musk\u2019s visions.<\/p>\n xAI is one of the minnows competing with giants in the hugely capital-intensive race to stake out a position in AI.<\/p>\n Where giants like Google, Amazon, Meta and Microsoft have torrents of cashflow from their legacy businesses to fund the hundreds of billions of dollars they are ploughing into AI \u2013 and even they are now having to raise external debt because of the scale of the spending on training large language models and building data centres \u2013 start-ups like xAI, OpenAI and Anthropic are reliant on seemingly endless rounds of equity raisings (and, increasingly, debt issues) at ever-greater valuations.<\/p>\n The sector\u2019s insatiable appetite for capital has outstripped the capacity or willingness of equity markets to supply it, hence the increasing levels of debt in the sector and the incestuous deals between its participants.<\/p>\n On some estimates, the four or five heavyweight players in the sector will spend about $US500 billion over the next three years. It wouldn\u2019t surprise if it were significantly more. This is an extraordinary period of highly focused and extraordinarily capital-intensive industry development.<\/p>\n At some point, perhaps quite soon, there\u2019ll be either a consolidation of the sector or a wipeout of its weaker players.<\/p>\n A puncturing of the ever-inflating, and arguably already highly inflated, valuations would force rationalisation (and cause a lot of pain for the companies and their investors and lenders) if the equity spigot were turned off.<\/p>\n Related Article With the enlarged SpaceX not the only big AI-tinged float planned for this year \u2013 OpenAI and Anthropic have theirs on drawing boards \u2013 the market\u2019s willingness to continue to support financial models that involve massive outlays today for uncertain returns in three, four or five years\u2019 time will be stress-tested.<\/p>\n That\u2019s why, as was the case when xAI was used to bailout investors in X (who were badly underwater on their investments), Musk has turned to SpaceX and its ability to raise a very big lump of cash \u2013 at $US50 billion, an IPO equity raising would be the biggest in history, dwarfing the $US29 billion raised by Saudi Aramco<\/a> in 2019 \u2013 just to keep xAI in the game.<\/p>\n The industrial logic for combining Space X with xAI is thin.<\/p>\n There are not many synergies between launching rockets and operating a network of satellites, an AI start-up that lags its competitors and a controversial social media platform where the interest on its debt absorbs roughly half its revenues.<\/p>\n xAI\u2019s Grok chatbot doesn\u2019t have the users or financial backers (almost the entire AI sector) that OpenAI\u2019s ChatGPT has, nor the distribution platform of Google\u2019s Gemini or the corporate acceptance of a rival start-up, Anthropic (which moved markets with the release of new AI productivity tools on Tuesday).<\/p>\n SpaceX said it was acquiring xAI to \u201cform the most ambitious, vertically-integrated innovation engine on (and off) Earth, with AI, rockets, space-based internet, direct-to-mobile communications and the world\u2019s foremost real-time information and free speech platform.\u201d<\/p>\n Musk himself said the rationale for the merger was that, within two or three years, the least expensive way to do AI computations would be in space.<\/p>\n He envisages putting AI data centres into space on SpaceX\u2019s rockets and said there would be cost efficiencies that would enable innovative companies to train their models and process data at unprecedented speeds and scales.<\/p>\n \u201cThis marks not just the next chapter but the next book in SpaceX and xAI\u2019s mission: scaling to make a sentient sun to understand the universe and extend the light of consciousness to the stars,\u201d he said, whatever that means.<\/p>\n Maybe the future of AI and the data centres needed to support it lies in space, but Musk seems to have skated over the logistics and costs of building something in space that is already stretching, to their limits, AI companies on Earth.<\/p>\n The sector\u2019s insatiable appetite for capital has outstripped the capacity or willingness of equity markets to supply it, hence the increasing levels of debt in the sector and the incestuous deals between its participants.<\/p>\n There is some financial logic to the combination, given that SpaceX is cashflow positive \u2013 it appears to have generated more than $US2 billion of positive cashflow last year and is on a steeply rising curve \u2013 while xAI churned through $US9.5 billion in the first nine months of last year at an annualised rate of more than $US12.5 billion.<\/p>\n It appears obvious, however, that the capital SpaceX raises in its IPO will be quickly devoured by xAI unless the industry trend of capital expenditures rising at a much greater rate than revenues can be reversed.<\/p>\n Related Article Musk does, of course, still have Tesla, valued by the market at more than $US1.5 trillion, that he could merge into a Musk Inc conglomerate if he needs more cash (and if its change in strategy from EVs to robotaxis and robots produces cashflows and earnings to validate the valuation).<\/p>\n On his track record, such a merger appears quite a likely eventuality, particularly if xAI\u2019s demands for cash outstrip SpaceX\u2019s ability to generate it.<\/p>\n Musk\u2019s \u201cvision\u201d for SpaceX appears fanciful. He has, however, demonstrated a remarkable capacity to convince investors to capitalise his visions.<\/p>\n Data centres in space, transported by SpaceX rockets, fed by xAI\u2019s models that have trained on X\u2019s data, perhaps with some future input from Tesla\u2019s engineers and with roles for its robots?<\/p>\n It all sounds fantastical but, if he gets a $US1.5 trillion valuation for SpaceX in its float, it would signal that there are plenty of investors who think his vision can be realised.<\/p>\n The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning<\/a>.<\/p>\n Save<\/p>\n You have reached your maximum number of saved items.<\/p>\n Remove items from your saved list<\/a> to add more.<\/p>\n![\"Elon](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/02\/ea8c620eab78ddc6bbb27ec3bb33abd0e483c98f.jpeg\")
Elon Musk is known for his outlandish plans. AP<\/p>\n![\"Amazon\u2019s](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/01\/4b60be099a9de23e146581218234dbeced7c6b59a0988280dfa964a565bd7a7f.jpeg\")
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Musk himself said the rationale for the merger was that, within two or three years, the least expensive way to do AI computations would be in space.AP<\/p>\n![\"If](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/02\/1770177911_66_f407f66a756988240db2a63c35c5584430c7d661ed0288598ce3d3e69f09244d.jpeg\")
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xAI is getting a helping hand.Bloomberg<\/p>\n![\"Elon](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/01\/6747aba83867395f665837fbe74499038ceb1481.jpeg\")
<\/a><\/p>\n![\"Stephen](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2025\/12\/6a91e35c720253d1f10c275576e4b1125cea8b68.png\")
Stephen Bartholomeusz<\/a> is one of Australia\u2019s most respected business journalists. He was most recently co-founder and associate editor of the Business Spectator website and an associate editor and senior columnist at The Australian.Connect via email<\/a>.From our partners<\/p>\n","protected":false},"excerpt":{"rendered":"February 4, 2026 \u2014 11:58am Save You have reached your maximum number of saved items. Remove items from…\n","protected":false},"author":2,"featured_media":457055,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[23],"tags":[64,63,128,285],"class_list":["post-457343","post","type-post","status-publish","format-standard","has-post-thumbnail","category-space","tag-au","tag-australia","tag-science","tag-space"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/457343","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=457343"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/457343\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/457055"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=457343"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=457343"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=457343"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}