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Elon Musk’s SpaceX has acquired xAI for $250bn, as the world’s richest man combines his two largest private ventures to pursue his ambition to win the AI race by developing data centres in space.

SpaceX based the price for xAI on a recent $20bn funding round that valued the two-year-old start-up at $230bn, according to two people familiar with the matter.

The deal valued the combined company at $1.25tn after Musk marked up the private valuation of SpaceX to $1tn, citing increases in revenue from its Starlink satellite broadband service, the people added. The rocket company was recently valued at $800bn in a secondary stock sale.

SpaceX chief financial officer Bret Johnsen told investors on a call on Monday afternoon that shares in the combined entity would be priced at $527. Shares of xAI will be converted into SpaceX stock at an exchange rate of roughly seven to one.

Executives also confirmed that SpaceX is still aiming for an initial public offering in June. The FT has previously reported that Musk is pushing for the company to list that month because of a rare alignment of the planets Jupiter, Venus and Mercury.

The IPO is expected to raise as much as $50bn, which would make it the largest flotation of all time, exceeding the $29bn raised by Saudi Aramco in 2019.

Monday’s merger, which bankers say could complicate that expedited timeline for the public offering, forms part of Musk’s vision to develop “a sentient sun to understand the Universe and extend the light of consciousness to the stars!” he said in a statement.

xAI and rivals, including Sam Altman’s OpenAI and Mark Zuckerberg’s Meta, have spent the past two years rushing to develop the costly data centres and chips needed to train and power their AI models.

Musk on Monday said “orbital data centres” would be essential to the future of the technology.

“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,” he wrote. “In the long term, space-based AI is obviously the only way to scale.”

SpaceX’s planned IPO would enable the company to fund the launch of large satellites to build out Musk’s ambitions for AI data centres in orbit.

“In an age of AI maximalism, that’s worth trillions and trillions of dollars,” said one investor in both companies.

The news is part of a broader consolidation of different wings of Musk’s empire under one corporate umbrella. Last March, xAI merged with Musk’s social media platform X.

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The takeover valued the overall group at $113bn, pricing xAI at $80bn with X at $33bn. This tie-up allowed the companies to integrate more closely, with xAI training its models on X data while xAI’s Grok chatbot has been added to the social media platform’s social feeds. Musk bought X, formerly known as Twitter, for $44bn in October 2022.

xAI did not immediately respond to a request for comment.

Musk also runs electric-vehicle maker Tesla, brain implant company Neuralink and tunnelling start-up The Boring Co.

Last week, Tesla announced it had invested $2bn in xAI. The billionaire also cut two EV models from Tesla’s line-up and pivoted the company further towards AI chips and building humanoid robots, which has led investors to speculate that Musk’s long-term plan is to merge Tesla with his other businesses.

Further in the future, Musk said SpaceX could begin landing large cargoes on the Moon. He wrote: “Factories on the Moon can take advantage of lunar resources to manufacture satellites and deploy them further into space.”

Additional reporting by Ivan Levingston in London