SpaceX Acquires XAI for $1.25 Trillion

0:00SpaceX has officially acquired Elon Musk's AI startup XAI. This is a record-setting deal that makes both of these companies combined worth about$1.25 trillion. This is creating what Elon Musk is calling the most, quote-unquote, ambitiously vertical integrated technology company ever built. There's a lot of craziness going on, including building AI data centers in space, having SpaceX fire them up, having XAI run them. There's a lot of wildness. But, of course, this is also all on the backs of an IPO that is supposed to be happening to the most valuable private company in the world, SpaceX. So today on the podcast, I want to get into the numbers on this whole deal, everything going on, the viability of this kind of AI data center and space deal, how fast this whole deal went together, I think blew a lot of people away.

0:46So let's get into all of that. Before we do, if you want to try any of the top AI companies, including XAI's Grok or any other thing from Google, Anthropic, OpenAI, Image, Audio, Text, all of that, go check out my startup, which is called AIbox.ai. just like Chatshippity, but it allows you to chat with all of the top AI models, image, text, and audio in one place,$20 a month. If you have multiple subscriptions to multiple different AI softwares, I hope this saves you a ton of money and also is way more simple to use and keeps all of your AI conversations, all of your AI files and documents in one space for$20 a month.

1:20So if you want to go check it out, there's a link in the description to AIbox.ai and let me know what you think. Okay, so this SpaceX and XAI deal is obviously a massive deal. It was just confirmed by Bloomberg and it values SpaceX at about a trillion dollars and then it's valuing XAI at about 250 billion. So this is according to a bunch of documents that CNBC saw. So structured as kind of like a share exchange, This whole deal together converts each share of XAI into 0.1433 shares of SpaceX stocks, which basically gives it a price of$75.46 per XAI share and$526.59 per SpaceX share. Okay, anyways, I mean, that's just like the financial number breakdown on this.

2:10So there was a whole memo posted on SpaceX's website. Elon said that the primary motivation behind this merger is to push the SpaceX to be able to build orbital data centers. This is something that he has been emphasizing a lot over the last few months. So this isn't a completely new idea that came out of nowhere. And there are other companies that have worked on similar things. They've raised money to do drug discovery, drug research in space. Because apparently mixing compounds, there's a bunch of benefits that you get with zero gravity and other things. So it's a concept we've sort of seen before.

2:43It sounds very futuristic to have data centers in space. Here's a quote from the memo that Elon wrote. It says, Current advances in AI are dependent on large terrestrial data centers, which require immense amounts of power and cooling. Global electric demand for AI cannot be met without terrestrial solutions, even in the near term, without imposing hardship on communities and the environment. What he's noting there is something that I have talked about a lot on the show because I'm obviously super pro AI and pro AI innovation. What I don't like, you know, he says imposing hardships on communities.

3:18I mean, I guess it's also kind of interesting because XAI has a bunch of lawsuits against them because they're just firing up giant diesel generators in some communities. Some people complain about the smog and noise. So that's one element of it. But honestly, even for that, I'm going to give him credit because he created his own electrical system for the data centers. What I really dislike is there is many places where the government is giving incentives to companies to come and build data centers and they're giving them electrical subsidies. But what does an electrical subsidy from the government mean?

3:46All that means is that the cost of electricity still has to get paid for and it's getting paid for by the overall community. So when I was living in Arizona, the cost of my electricity almost doubled over a couple of years. I mean, I'm not gonna say 100 % of it is due to government subsidies, but that is definitely 100 % a portion of it. We had a ton of chip manufacturing companies move in. There's a lot of different things. And this is absolutely, you know, it really sucks when you go from paying, I think in Arizona, I'd pay like$700 a month for electricity. This is like AC in the summer to cool the house.

4:19So to me,$700 to cool your house in a month is insane. That's, you know, that's like a mortgage on some homes or half a mortgage. It was actually, yeah, I guess half the cost of the mortgage on that particular home. So anyways, it's ridiculous. And so I've been speaking out against this. He obviously acknowledges it. I I mean, he's getting sued for it in some regards. I think this is definitely something that's notable just considering the facts that XAI has already had all of these different environmental and community impact criticisms because they have a data center in Memphis, Tennessee, I think that gets the most criticism.

4:52So this merger that they're bringing together is obviously, I mean, the elephant in the room is that these are two companies owned and controlled by Elon Musk, and they both have very different financial pressures. XAI is burning about a billion dollars a month as they're trying to build infrastructure and compete with OpenAI and Anthropic. SpaceX, on the other hand, is generating about 80 % of its revenue from launching and operating its own Starlink satellites. That's according to routers who put that number out, which is pretty phenomenal. I mean, SpaceX is a massive company. They have these hundred million dollar contracts with the government, a lot of big contracts with other companies to shoot satellites into space.

5:28And so they make a lot of money from that. I didn't realize that 80 % of the revenue was just from their Starlink satellites that they're shooting up, which of course is a phenomenal product in its own because you basically, it's like the only system of satellites that you can get connectivity all around the entire globe with. I know a lot of people that have, that use these and T-Mobile partnered with them and stuff. So, I mean, it's obviously very profitable. Elon Musk said that building space-based data centers is going to require a constant stream of satellites, but he didn't specify exactly how many.

6:01That requirement basically guarantees long-term launch demand for SpaceX, especially because the Federal Trade or the Federal Communications Commission rules have just come out that require satellites to be de-orbited after about five years. So if he has to go and de-orbit all the satellites, it's basically SpaceX has a permanent job shooting these things up if he can make that a real thing. So, I mean, this would be the ultimate financial boom for SpaceX. And of course, XAI is going to see a bunch of benefit from this. And they've already been pioneering the tech and working on the tech. And beyond just building like AI models, they're actually building the data center.

6:37So they're perfectly set up for this and they have the experience. So while these kind of data centers in space are definitely a long-term vision, the company's near-term priorities are pretty obvious. SpaceX is focusing on proving its Starship rocket can safely carry astronauts to the moon and then also to mars while xai also has a lot of pressure to scale their grac their grok chatbot a lot of their other underlying ai models and the controversy around all of that i think right now the pressure is something that they feel the washington post reported on monday that elon loosened some content restrictions on grok he made a bunch of changes that contributed to the tool being used to generate a whole bunch of nsfw images and xai had a ton of controversy around those and you know different company or countries banning xai and grok for that and so there's like a whole bunch of drama there i think another motivation behind all of the merger obviously is just money xai has really struggled to keep up with some of the competitors that have raised these enormous funding rounds opening i was valued at about 500 billion dollars in october anthropic recently signed to signed a term sheet which valued them at 350 billion dollars By comparison, XAI was valued at about$230 billion in a$20 billion funding round that closed last month.

7:54So the valuation is behind. I mean, the usage on OpenAI is way higher. The usage of Anthropik for developers and for enterprise is way higher. And Grok definitely has a market carved out. I mean, by merging with Twitter, it was a great move. A lot of people on Twitter message Grok all the time. I mean, if you're ever in the Twitter comments, you're going to see at Grok. Verify if this is true. There's Grok summaries of everything. And to be honest, Grok used to be my default model I used before they started kind of implementing a lot of their adult content and stuff into it. And then obviously I just couldn't use it since it's an account that my family uses.

8:28And I use AI to make bedtime stories for my kids. So I can't use Grok on there. So I basically have removed Grok entirely from any of my workflows. Hopefully they can get the company fixed. but who knows if not then I guess that's just uh that's the lane that they chose in any case SpaceX and Tesla interestingly enough have also both previously invested about two billion dollars into XAI uh and then Elon who co-founded OpenAI before of course all the drama and he left in 2018 um so there's a lot of drama with that but then he went on in 2023 to go launch XAI and then he He later kind of pulled X into it.

9:10And, you know, so there's kind of this like, it seems like there's a snowball effect of all of these different Elon Musk companies getting rolled in X into XAI, XAI into SpaceX. And Elon Musk is saying that the combined entity is worth about$113 billion back when XAI and X merged. Now it's at$230,$250 billion. dollars. So all of this, the deal is coming as SpaceX is preparing for, you know, a very long anticipated IPO. Like everybody's been talking about this. We've had the IPO markets have been frozen over for a long time. So no one's been kind of going out, but basically SpaceX and Stripe are like the two biggest private companies that everyone is talking about that are going to IPO.

9:53And so it's kind of at an interesting moment. It feels, I mean, honestly, it's kind of interesting. I feel like Elon is definitely the, he's a pro at kind of weaving these big, you know, ambitious visions. SpaceX is about taking people to Mars and making Earth multi-planetary, right? Like a big, huge vision. And now it's like, okay, we're going to build data centers in space with XAI. So I think he's great at building long-term visions. And then he's able to raise a lot of money for attacking those visions. Elon didn't say anything about the IPO timeline in his memo when the two companies merged.

10:25But I think there's some previous reports that said that they're kind of trying to get this all done as early as June. The Financial Times reported that SpaceX could seek to raise as much as$50 billion at a valuation of$1.5 trillion. I think Elon Musk right now is also kind of privately saying that a mid-June timing is something that they're looking at, and$50 billion would be some crazy amounts of money. Beyond just AI and rockets though, Elon Musk also now controls an ever-expanding network of all of these different interconnected companies, Tesla, Neuralink, Boring Company. Now he's got this merger with SpaceX and XAI, which basically become the backbone of this kind of broader strategy that's tying all AI and satellites and space launches, global communications infrastructure.

11:11I mean, this is a massive technological organization that he's building. Whether the orbital data centers are actually going to be technical or economically viable is still an open question, right? Like we don't have these. It's obviously an interesting vision and interesting idea. Is it actually make money? Is it going to be more economically viable than just building data centers on Earth? I think that all remains to be answered. I think this deal does cement Elon Musk's belief that the future of AI is not going to be built solely on Earth, something he said a lot. So that'll be interesting.

11:43This is going to be a pretty wild company to watch grow. I mean, say what you want about Elon and his politics or anything else. But obviously, this guy is a visionary thinking much bigger than anyone else at this point and able to pull off some of these really incredible projects. It'll be fascinating to see if he's able to pull this one off and to see if this is going to alleviate some of the electrical and power issues that these data centers on Earth are having. So this will be a really big one to watch, I think, in the future. Thank you so much for tuning into the podcast. If you enjoyed this episode, make sure to...

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12:51Thanks so much for tuning in and I'll catch you in the next episode.