Four theories about the SpaceX - xAI merger

Spoiler alert: it’s probably not really about synergy

Two of the many theories running around, as captured on my notifications screen

Much of today’s chatter is about Elon’s big merger of SpaceX and xAI (which previously merged with X, previously known as Twitter).

Theory One all about synergy. SpaceX will be oh so much better with access to all your tweets and xAI’s models! That’s the narrative Elon’s selling. You can read it on the SpaceX website, which tells us that the merged everything company will be “the most ambitious, vertically-integrated innovation engine on (and off) Earth, with AI, rockets, space-based internet, direct-to-mobile device communications and the world’s foremost real-time information and free speech platform”. It’s a floor wax that’s also a dessert topping! Hopefully back in the real world the good folks at SpaceX aren’t about to replace their carefully-developed symbolic navigation algorithms with an LLM trained on X. Kaboom.

Theory Two (“Musk is tightening his grip over the tech that shapes national security, social media, and Al”, per WIRED) is that Elon wants to run the world, and what’s better than a soup to nuts integration between owning your tweets and owning the satellites your data crosses? I don’t doubt for a minute that Musk wants to tighten his grip on all of that, but I don’t immediately see how this move accomplishes that.

Theory Three (“Musk’s SpaceX-xAl deal is an ambitious bet that the future of Al compute is in space”, per the Information) also seems dodgy. I hear all the chatter about build data centers in space, but a joint venture between the satellite company and the people building infrastructure for XAI might suffice. If you even believe at all that data centers in space are really going to be a big, profitable thing in the next decade. (Count me skeptical, though the economics of such things is not my area of expertise.)

Me, I think the merger is really a kind of bailout, to give a lot of cash to a company that is otherwise in distress. Fact is, xAI ain’t doing all that great. It’s burning money fast, with no obvious business model or market niche, and has little to show for it. They have also faced a lot of backlash for being reckless and irresponsible; hardly a good brand name. Grok (their main product) doesn’t have the users that ChatGPT has, and it doesn’t have the prestige that Google’s Gemini seems to be racking up. It also doesn’t have the clear corporate focus that Anthropic has. Nor does it have any obvious secret sauce. These numbers below from The Information are jawdropping. Would you want to give up valuable SpaceX shares for an also-ran?

For me anyway, the math ain’t mathing. Trading SpaceX at sixty times 2025 revenue seems, um, optimistic, but at least they have a near-monopoly on both low-cost rackets and satellite internet infrastructure. In contrast, trading xAI at a thousand times revenue when they are in an increasingly crowded field where everyone is being forced into price wars seems nuts. If I owned SpaceX shares I would feel like Elon way overpaid for his own company. For not that much more they could have bought Anthropic, which has had far broader adoption and far less controversy attached to it.

Anyone remember Tesla’s acquisition of Musk’s SolarCity, and how that turned out?

Ps Update to my Sunday essay on OpenClaw. Intensely pro-AI company Microsoft is now warning its own employees about security risks. Per an internal memo reviewed by The Information, the company advises employees that OpenClaw is “not a solved version of computer use” (ie not ready for prime time) and that it “doesn’t suddenly make browser-driving agents reliable“. As Omar might have said, “Oh, indeed.”