Behind SpaceX’s Surprise Deal to Buy xAI

0:00You don't need AI agents, which may sound weird coming from ServiceNow, the leader in AI agents. The truth is, AI agents need you. Sure, they'll process, predict, even get work done autonomously. But they don't dream, read a room, rally a team, and they certainly don't have shower thoughts, pivotal hallway chats, or big ideas. People do. And people, when given the best AI platform, they're freed up to do the fulfilling work they want to do. To see how ServiceNow puts AI to work for people, visit servicenow.com. Elon Musk reshapes his tech empire as SpaceX acquires XAI. Plus, the Epstein scandal sends shockwaves across the Atlantic.

0:41And the House prepares to vote as soon as today to end a partial government shutdown. We have a one-vote margin now, so what could go wrong? That's fine. It's Tuesday, February 3rd. I'm Luke Vargas for The Wall Street Journal. And here is the AM edition of What's News, the top headlines and business stories moving your world today. We begin with a major tie-up as SpaceX is buying XAI, a deal that brings together Elon Musk's well-established rocket business and his AI startup to form a$1.25 trillion company. The merger was confirmed in a memo yesterday by Musk, saying the deal will, quote, form the most ambitious, vertically integrated innovation engine on and off Earth.

1:24But as Journal tech reporter Berbergin explains, the move was unexpected, as industry observers had anticipated that XAI would merge with Tesla instead.

1:32Berber Jin:We've reported that SpaceX is looking to go public as soon as the middle of this year, and this merger definitely throws a little bit of a curveball in those ambitions, because SpaceX on its own is a profitable business, and XAI, on the other hand, doesn't generate a lot of revenue, but it burns through billions of dollars every year on computing costs. So by merging the two companies together, he's essentially taking a very money-losing, cash-intensive business and pairing it with SpaceX. Berber added that he'll be looking to see how investors like this combination and whether they buy into Musk's long-term vision for the new company.

2:08Berber Jin:In a blog post, Elon essentially said that the merger is in service of this kind of almost sci-fi-esque vision of building AI data centers in space. So Elon talked about having SpaceX building a constellation of data centers in space that can power AI training in the future. And a lot of tech CEOs, including Google Sundar Pichai and Sam Altman at OpenAI, have talked about space as a new frontier and be able to harness the power of the sun and have more leeway to build data centers in places where there are fewer regulations. ends. SpaceX previously invested$2 billion into XAI. And last week, Tesla committed to invest the same amount in the company.

2:52Republican House Speaker Mike Johnson says he has the votes to end a partial government shutdown as soon as today. That follows a push by President Trump to pressure a handful of House Republicans to drop their opposition to the bill unless it included voter ID legislation. Johnson has a thin majority in the House and will need near-unanimous support from Republicans if he hopes to pass the measure. Across the aisle, Democratic minority leader Hakeem Jeffries said that while some in his party may back an eventual spending package, they're united in opposing an earlier procedural vote. Democrats are committed to this fight.

3:26And again, we've made clear, line in the sand, red line, we've articulated the things that will be necessary for there to be a full year appropriations bill connected to ICE funding. One of those demands that federal officers wear body cams is being partially addressed by the administration. Homeland Security Secretary Kristi Noem says that officers in Minneapolis will receive body cameras effective immediately, an effort that would expand to DHS law enforcement nationally, quote, as funding becomes available. Speaking in the Oval Office, President Trump told reporters that the move was all Noems.

4:06Well, it wasn't my decision. I would have, you know, I'd leave it to her. They generally tend to be good for law enforcement because people can't lie about what's happening. So it's generally speaking, I think, 80 percent good for law enforcement. As a part of shutdown talks, Democrats also want to bar federal agents from wearing masks and mandate that they carry proper identification. Some 350 ,000 Haitian immigrants to the U.S. will no longer lose their work permits or become targets for deportation today after a federal judge blocked the Trump administration from revoking their temporary protected status.

4:41DHS had moved to end the protections last year, arguing it was in the national interest. However, the judge said that the government offered no evidence Haitians under the designation posed a threat to the U.S. and that the decision was, quote, motivated, at least in part, by racial animus. The administration has sought to end protected status designations for a range of countries, including Honduras, Somalia, and Venezuela, with a number of those efforts tied up in the courts. And former President Bill Clinton and former Secretary of State Hillary Clinton have offered to give depositions to a House committee investigating sex offender Jeffrey Epstein.

5:21The two had been facing a contempt vote after earlier declining to appear for depositions. The Clintons have said they had no personal knowledge of Epstein's criminal activities, though Bill Clinton has acknowledged flying on Epstein's private jet. Lawyers for the two have argued the subpoenas against them are designed to embarrass the Clintons, while Democrats say the chair of the House Committee and Republicans are failing to investigate President Trump's connections with Epstein. Meanwhile, the fallout from the latest release of Epstein documents, which included photos of former Prince Andrew kneeling over an unidentified woman, is now reaching across the Atlantic, as journal correspondent Max Colchester explains.

5:59In the UK, the Epstein scandal has morphed from something which focused on potential bad behaviour by individuals, which was chronicled in the tabloids, into what could now morph into a police investigation. On Friday, documents were made public which appear to show that a former senior member of the British government, Lord Peter Mandelson, was forwarding internal information from Downing Street to Epstein directly, which raises the question of whether Epstein was able to trade on that non-public information. The British police have said they are looking at the emails in question and will determine whether to launch a fully fledged investigation.

6:36And there's a key ramification from this, which is now British Prime Minister Keir Starmer is saying that Peter Mandelson and Andrew Mountbatten-Windsor should give evidence to the House Oversight Committee. And the Prime Minister has suggested that Lord Mandelson should quit Britain's House of Lords. So we're talking about real world ramifications now from this scandal. Mandelson, who quit the ruling Labor Party this week, says he has no recollection or record of having received money from Epstein, as newly released emails appeared to show, and he didn't immediately respond to an email requesting further comment.

7:11Andrew, who didn't reply to an email requesting comment, has denied allegations he abused an American teen introduced to him by Epstein. Coming up, we'll weigh the long-term impact of America's aggressive foreign policy strategy as U.S. allies search for alternative trading partners. That chat with The Journal's David Luno after the break.

7:49your online broker to get started. See what adding futures can do for you at cmagroup.com slash podcast. Derivatives are not suitable for all investors and involve risk of losing more than the amount originally deposited in any profit you may have made. This is not a recommendation or offer to buy, sell, or retain any specific investment or service.

8:08Can the world separate its views of President Trump from its treatment of Americans and American brands? It's one of several questions that Journal-UK Bureau Chief David Luno has set out to answer as the White House's America First strategy risks becoming an America alone approach to foreign relations. David, you write that America's allies are becoming increasingly disenchanted with the U.S. This is based not only on interviews that you conducted, but also on public opinion polling. Could you just walk us through what you're seeing in those surveys? Well, the surveys make for grim reading here in Britain, which has pretty much always been America's strongest overseas ally, our partner in crime in many ways.

8:47The number of Brits who view the US unfavorably has doubled in the last two years to 64%. In Germany, 71 % now view the US as an adversary. And across Europe, only 16 % view the US as an ally. Those are by far the lowest numbers we've ever had. And yeah, it's not only Europe. I mean, nearly two thirds of Canadians and Mexicans now hold unfavorable views of the US, and they view the US as a bigger threat than China, which is also something very new. We're seeing that in Brazil and a lot of other third countries. Favorable views of the US are also falling in Asia among our longest standing allies there, so places like Korea and Japan.

9:33There are only very few exceptions to this. So across much of the world, it's a pretty dark view of the US right now. David, we're talking here about America's brand reputation, but I'm curious about American brands. Are we seeing a potential business impact here too? The U.S. has proved really resilient in the past to the occasional bouts of sort of boycotts of American products. I mean, after the Iraq war, we saw that as well. That's generally held up well. The U.S. has enormous reservoirs of soft power. We have the best universities in the world. We make the movies and the music that everyone wants to listen to.

10:05People like American technology, or the world's most innovative economy. So there's a lot of pluses. But right now, as the US sort of disengages with globalization, other countries are over time. It's not just creating an app to allow Canadians to find Canadian-made products. It's that Canada is now making free trade agreements with India, with the Europeans, trading more with China. They're all going to diversify their trade a little bit away from the United States as a hedge. They're also going to be pursuing their own defense buildups independently or at least more locally sourced than they would have in the past.

10:42So the Europeans are going to rearm. Are they going to buy F-35s? Maybe for now, but they're not always going to just buy American to rearm. So American defense sales will also probably suffer on the margin. So will it be as easy for American films to do as well abroad if the American image isn't so good? Will people want to use their Apple phones or Microsoft or AI that's made in America? Right now, they don't have much choice. But as a diversification slowly takes hold, they will have increasing choices. And if they don't like the United States, they will make choices that don't align with our economic interests.

11:19David Luno is The Wall Street Journal's UK bureau chief. David, thank you so much. It's a pleasure. And that's it for What's News for this Tuesday morning. Today's show was produced by Hattie Moyer and Daniel Bach, our supervising producer. was Sandra Killhoff, and I'm Luke Vargas for The Wall Street Journal. We will be back tonight with a new show. Until then, thanks for listening.

11:51Data is everywhere. When orchestrated properly, it sings. At Morningstar, we analyze and enrich data making it actionable and powerful for you. Morningstar where data speaks.