• Tighter AI integration expected to drive efficiency gains, create differentiation
• Investor appetite for exposure intensifies, despite skepticism over valuation

Elon Musk’s decision to merge SpaceX with his artificial intelligence and social media business xAI this week marks a dramatic escalation of what was already expected to be one of the most consequential initial public offerings in history.

Rather than carving out Starlink and taking that internet business public, as many once expected, Musk has instead built a far larger, more audacious vehicle: a combined aerospace, satellite, and AI “mothership” that could debut at an eye-watering valuation.

For years, SpaceX resisted going public, preferring the flexibility, and opacity, of private ownership as it pursued capital-intensive ambitions in reusable rockets, global satellite internet, and eventually Mars. That all changed in December, when reports emerged that SpaceX told investors it was targeting a 2026 IPO at a valuation up to USD 1.5tn.

Folding xAI into the picture upends expectations once again. Instead of pitching investors on a capital-heavy, but increasingly predictable, space-infrastructure business, Musk is now asking public markets to underwrite a hybrid platform spanning rockets, satellites, social media, and generative AI — a much broader, and riskier, proposition.

“This wasn’t what people were modeling,” one sector advisor noted.

Under terms described by investors familiar with the agreement, SpaceX is valued at roughly USD 1tn and xAI at USD 250bn, creating a combined entity worth about USD 1.25tn today, with an IPO valuation rumored closer to USD 1.5tn. The strategic rationale centers on vertical integration: SpaceX’s launch capabilities, Starlink’s global satellite network, and xAI’s need for massive compute resources.

A bigger, flashier investor thesis

The vision is expansive. SpaceX could deploy data centers and power infrastructure in orbit, where solar energy is abundant, to feed xAI’s computing demands.

Proponents argue that tighter AI integration will drive efficiency gains across Musk’s businesses and create a differentiated platform few competitors can replicate.

“It does add additional sizzle to the investor thesis,” the sector advisor said. “When you think about data centers in space, its request to launch a million satellites — it becomes an even more audacious plan.”

From a capital-markets perspective, some investors see the merger as a natural evolution. Joseph Alagna, founding partner at Buttonwood Funds, which invested in SpaceX about a year and a half ago, argues that scale itself is the point.

“This could be the biggest public offering of all time and raise more in one deal than most IPO markets do in an entire year,” Alagna said.

Buttonwood’s SpaceX position — now worth more than four times its entry value — is now worth roughly USD 70m. Alagna believes demand will be enormous once the company lists, particularly as institutions look beyond the slowing growth of today’s mega-cap tech stocks. “AI is transforming the world,” he said. “What looks expensive today may look cheap in three to five years.”

Skepticism beneath the excitement

Yet even among supporters, there is recognition that the merger complicates an already complex equity story.

There are public-market reference points on individual pieces of the business, with a fund strategist pointing to Rocket Lab on the launch side, and telecom peers as loose benchmarks for Starlink, even though he cautioned that none operate at anything close to SpaceX’s scale.

The sector advisor questioned whether the transaction would make sense absent Musk’s shared ownership across the companies. “Would independent companies merge like this without shared control?” he asked. “I doubt it.”

On the surface, there appears to be limited commercial synergies between SpaceX and X (formerly Twitter), the controversial social media network that Musk combined with xAI last year.

Some wonder if adding xAI introduces new risks — financial, political, and reputational — into what was once a more focused aerospace and connectivity narrative. Those risks include xAI’s heavy cash burn, unresolved questions around AI assistant Grok, polarization surrounding X, and broader governance and social concerns.

“There’s also the question of hockey-stick projections,” the sector advisor said. “How much capital will they need to raise to finance all of this? And how do you underwrite growth across such different businesses?”

Other advisors echo that tension. One banker working with a cornerstone SpaceX investor described a mix of enthusiasm and ambiguity around the strategy. “All bets are on,” the banker said. “They don’t know exactly what the endgame is yet. A Tesla tie-up is a real possibility. Elon doesn’t care what it looks like. He’ll do whatever is expeditious.”

The Tesla question

That uncertainty looms largest around Tesla. Multiple sources say there has been discussion of eventually combining the SpaceX-xAI entity with Tesla via acquisition or merger either before or after an IPO. Such a move may even materially affect Musk’s compensation, following Tesla shareholders’ approval in late 2025 of a pay package that could reach USD 1tn if Tesla’s market cap hits USD 8.5tn within a decade. Whether that scenario materializes remains unclear.

The sector advisor believes sequencing matters enormously, warning that bundling too many distinct businesses into one public company risks confusing investors and obscuring value — an outcome reminiscent of unwieldy multi-industry conglomerates. “I would have advised for a clean Starlink IPO,” the advisor said. “Simple, transparent, easy to value.”

Despite some skepticism, appetite for exposure is intense. Secondary market liquidity has largely dried up since Musk floated a USD 1.5tn SpaceX IPO valuation, according to advisors and investors who are fielding calls from would-be buyers.

A share sale at the end of 2025 valued SpaceX at roughly USD 800bn, leaving investors to ask: why sell now? Once news hit that SpaceX could go public at USD 1.5tn, the secondary market shut down overnight, according to Alagna. “I had people calling me asking to buy SpaceX for USD 950m, and I said, “I’m not selling.” So, access is the challenge.

Koch Capital Advisory founder and managing partner David Koch says most remaining exposure is through special purpose vehicles, with little direct stock available.

“Elon is holding this very tightly. He wants to approve everyone who comes onto the cap table pre-IPO,” Koch said.

“Even with those secondary sales, you are not getting anywhere close to the kind of liquidity you’d have with a public listing,” the fund strategist added.

Traditional IPO investors are preparing as well.

While some ECM desks privately question whether USD 1.5tn is justified, history suggests skepticism can be quickly overwhelmed by momentum. “Once you’re in IPO land with a marquee listing, excitement takes over,” Koch said. “Suddenly USD 1.5tn doesn’t seem so big.”

A high-wire act

For public-market investors, the ultimate test will be clarity.

An IPO advisor at a major consultancy agency noted that mergers ahead of listings heighten scrutiny around governance, integration, and disclosure.

“The key is a simplified, investable equity story,” this advisor said. “Public investors value transparency — even when the technology is complex.”

Musk, however, has never opted for simplicity.

By merging SpaceX and xAI, he has chosen ambition over clarity and scale over straightforwardness. The move may amplify investor interest and unlock unprecedented capital, but it also raises fundamental questions about focus, risk, and execution. As one advisor put it: “The xAI deal is done. Musk is committed. Now we all get to watch how it plays out.”

Messages left for SpaceX, xAI, and Tesla were not returned. Musk could not be reached.