Elon Musk is combining SpaceX and xAI to build data centers in space, or so he says

Elon Musk announced on Monday that it was Merging two of his companiesSpaceX and xAI, in a deal said to be worth $1.25 trillion. the reason, Musk said in an announcementFor artificial intelligence to grow, it needs to go into space.

He added that artificial intelligence relies on “large terrestrial data centers” that operate on “huge amounts of energy and cooling,” which comes at the expense of the environment and great opposition from society. The solution: data centers in space. “In the long term, AI in space is clearly the only way to scale,” Musk said.

Musk isn’t the only one looking to launch data centers into orbit. Google has Project Suncatcher To build artificial intelligence data centers in space powered by solar energy. China is looking into space data centersas is the case in Europe. As we reported last year Satellite data centers – In the form of satellites equipped with solar panels Big Tech’s latest fad and Silicon Valley’s newest investable venture.

On the surface, it seems like a logical solution to the unique problem posed by power-hungry data centers. Local communities rise up against data center projects Due to concerns about electricity demand, water use, and rising utility rates. Launching these data centers into space means that they do not occupy any space on Earth, and in sun-synchronous orbit there is availability of solar energy.

But there’s another, simpler way to look at Musk’s merger: SpaceX is profitable, while XAI is not. Not only is xAI unprofitable, it’s in the midst of serious cash burn as it races to compete with well-funded rivals like Google and OpenAI. like Bloomberg I mentioned recentlythe artificial intelligence company spends about $1 billion a month, spending significant sums to build data centers, hire talent, and operate the social media platform X.

Meanwhile, SpaceX made profits of about $8 billion on revenue of about $16 billion last year. Reuters I mentioned. The main revenue driver is Starlink, which accounts for up to 80 percent of the company’s revenue. Since 2019, SpaceX has launched more than 9,500 satellites and has up to 9 million broadband Internet users. The company is also a major government contractor, having secured more than $20 billion from NASA and Department of Defense deals since 2008. When it goes public later this year, SpaceX is expected to raise up to $50 billion in investment.

Meanwhile, XAI has its own government relationships. The Department of Defense uses Grok, as well as other chat programs, to analyze information flowing through its military intelligence networks.

It’s not clear how investors will feel about merging money-burning xAI with profitable SpaceX. But it’s important to note that Musk has done this before and when He merged debt-laden SolarCity with Tesla in 2016. Since Musk was the largest shareholder and chairman of both Tesla and SolarCity, shareholders filed a lawsuit to block the merger, claiming it was a $2.6 billion “bailout” for the cash-strapped company. Musk ultimately won the lawsuit, with the judge ruling that he did not force Tesla to overpay for SolarCity.

Musk is now facing a new lawsuit from Tesla shareholders over his creation of xAI. The lawsuit claims That Musk breached his fiduciary duty to Tesla by forming XAI, which competes with the automaker for AI talent, resources, and Musk’s attention. News that SpaceX will acquire xAI certainly won’t resolve these concerns; If anything, it makes it more messy and complicated.

So where does all this leave Tesla? In the latest earnings report, Tesla said it is investing $2 billion in XAI “To enhance Tesla’s ability to develop and deploy AI products and services in the physical world at scale.” Grok, xAI’s chatbot Currently under investigation in multiple countries To create unwanted sexual images of people, including children, it was recently integrated into some Tesla vehicles as a voice assistant. Grok also lags behind OpenAI’s ChatGPT, Google’s Gemini, Anthropic’s Claude, and other large language models in several key metrics.

Data centers in space are a purely mystical futurism with no guarantee of success. It’s not as simple as strapping a GPU to a rocket and pressing “launch.” First, GPUs are complete power hogs. Unless you have a nuclear reactor floating out there, you’ll need huge solar panels to power it. Then there is the communication situation; Even if you’re taking a flight on Starlink, you still have to figure out the budget needed to send information back and forth to Earth. Eventually, the numbers started to look pretty scary.

Musk says combining SpaceX and xAI is the way to achieve this. Perhaps one day he will take up hopeful investors’ proposal to merge all of his companies, including Tesla, Neuralink, and the Boring Company, into one massive Musk-run company: Musk Inc., if you will. How will Tesla shareholders react?

“Tesla is Musk’s liquid stock, as it is publicly traded, while his other companies are not,” Tesla investor James McCritchie said during a presentation ahead of the company’s 2024 shareholder meeting. according to The Wall Street Journal. “He will either stick around long enough to use our shareholders’ capital to fund his other projects, or turn his attention sooner if we reject his salary package and turn off the money tap.”