Musk Folds xAI Into SpaceX, Cites Limits on Earth-Based AI Infrastructure

Elon Musk is moving his artificial intelligence ambitions into orbit, announcing on Monday that SpaceX has acquired xAI, Musk’s artificial intelligence startup.

The move brings AI development directly under the aerospace company’s control, a year after merging his social media company X with xAI.

In a statement published on SpaceX’s website, Musk said the acquisition reflects growing limits on Earth-based power and cooling infrastructure, which he argues now constrain the scaling of advanced AI systems.

Musk did not disclose the acquisition price, but The Information reported that SpaceX bought xAI for $250 billion. The news comes as rumors of SpaceX filing for an IPO continue to circulate. Following the xAI acquisition, SpaceX is now valued at $1.25 trillion according to Bloomberg.

“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,” Musk wrote. “In the long term, space-based AI is obviously the only way to scale. To harness even a millionth of our Sun’s energy would require over a million times more energy than our civilization currently uses.”

While Musk has said AI could one day surpass human intelligence, finite resources and concerns about the environmental impact of data centers have slowed development.

Musk’s proposed solution is a constellation of up to one million satellites designed to function as orbital data centers, shifting large portions of AI compute infrastructure beyond Earth’s physical constraints.

Musk’s expansive vision for xAI hinges on Starship, SpaceX’s reusable heavy-lift spacecraft, which has yet to demonstrate sustained operational reliability following a test explosion over Turks and Caicos last year. Musk said that in 2025, about 3,000 tons of payload reached orbit, primarily through Falcon rockets, and argued that Starship is designed to operate at a far larger scale.

“My estimate is that within two to three years, the lowest cost way to generate AI compute will be in space,” he said. “This cost-efficiency alone will enable innovative companies to forge ahead in training their AI models and processing data at unprecedented speeds and scales, accelerating breakthroughs in our understanding of physics and invention of technologies to benefit humanity.”

The acquisition raises technical challenges for SpaceX, particularly in transmitting signals back to users on Earth. Musk said latency could be addressed through integration with Starlink’s laser-based satellite network, while lunar resources and off-Earth manufacturing could support heavier infrastructure.

Other concerns include Grok, xAI’s AI system, which has drawn scrutiny following several high-profile incidents, including a July 2025 episode in which it claimed to be “MechaHilter” and a more recent incident involving the generation of non-consensual sexual images.

“Grok has shown a repeated history of these meltdowns, whether it’s an antisemitic meltdown or a racist meltdown, a meltdown that is fueled with conspiracy theories,” Public Citizen’s big-tech accountability advocate J.B. Branch previously told Decrypt.

SpaceX did not immediately respond to a request for comment by Decrypt.