What does the merger of SpaceX and xAI mean? UBS: Ushering in the era of "orbital AI"

What does the merger of SpaceX and xAI mean? UBS: Ushering in the era of "orbital AI"

Musk has just completed a move that could reshape the global capital market landscape: merging xAI into SpaceX. This merger not only creates a super-giant with a valuation of $1.25 trillion, but also directly lifts Musk’s personal net worth to $850 billion.

However, for investors, this is more than just a numbers game. In its latest research report on February 4, UBS keenly pointed out that this marks the beginning of the “Orbital AI” era—moving data centers into space. At the same time, this deal fundamentally alters SpaceX’s previously clear investment logic: investors will no longer face a company solely generating strong cash flow as the champion of space infrastructure, but must now accept a “Space + AI” hybrid—not only having to assess SpaceX’s operational strength, but also to pay for xAI’s staggering capital expenditure. With an IPO possibly as large as $50 billion approaching, this narrative shift is the core risk and opportunity that all institutional investors must reconsider.

Remapping the Trillion-Dollar Empire: Musk’s “Ultimate Bet”

According to UBS analysis, as early as September 2024, the market predicted that Musk would become the world’s first trillionaire by 2027 through his “space race bets.” Now, this forecast seems to be accelerating towards reality. Earlier this week, Musk quickly acted to merge xAI into SpaceX through an all-stock deal.

UBS trader Jephine Wong detailed the valuation logic of this deal in her client report: the merged entity is valued at about $1.25 trillion, including approximately $1 trillion for SpaceX, and about $250 billion for xAI.

By comparison, WeWork’s former CEO Adam Neumann once boasted in 2019 about being the first trillionaire, but now can only watch Musk’s empire leave everyone in the dust. Through an internal share swap priced at $526.59 per SpaceX share, Musk not only consolidated his business empire, but also created a financial giant. Yet, this isn’t just a simple addition, but a clear strategic signal: SpaceX is planting the AI flag in the space sector.

Orbital AI: From Science Fiction to Capital Story

UBS emphasized in its research report that the core selling point of this deal lies with “Orbital AI.” Musk isn’t content to compete in terrestrial computing power; he is betting that in the next two to three years, a significant share of computation—essentially space data centers—will operate in low-Earth orbit.

To support this grand narrative, the company has already submitted a bold application to the Federal Communications Commission (FCC), requesting approval to launch up to 1 million satellites for computing functions. UBS noted that the strategy of folding xAI into SpaceX is meant to leverage low-Earth orbit dominance to lead next-generation AI computing. For the potential IPO that could launch this summer or fall, this is a daring story line intended to convince investors that the lowest-cost AI computing will happen in space.

Financial Truth: A Tug of War Between Cash Flow and Money-burning Machine

However, stripping down the grand vision, UBS recommends investors focus on the cold reality behind the financial statements. This merger introduces massive financial complexity, bundling together a “money printing machine” with a “money burning machine.”

According to UBS data, SpaceX’s current financial health is extremely strong, mainly due to support from around 9 million Starlink users and its absolute dominance in the global launch market. SpaceX’s revenue for 2025 is expected to reach $15-16 billion with about $8 billion in EBITDA. This used to be a perfect, highly profitable IPO story.

In contrast, xAI’s financial status is radically different. UBS data shows that in the first nine months of 2025, xAI generated only about $210 million in revenue but burned through $8-9.5 billion. Even after previously raising over $20 billion (including $2 billion from Tesla), xAI’s current burn rate is still nearly $1 billion per month. UBS analysts pointedly remarked, this merger essentially uses SpaceX’s operational muscle to support xAI’s enormous appetite for capital expenditure.

IPO Prospects and Investor Divides

At present, management says this deal will not disrupt the planned 2026 listing schedule. The company still intends to push ahead with a public offering this year and has started contacting cornerstone investors, targeting raise amounts as large as $50 billion. However, the roadshow narrative logic has fundamentally shifted.

UBS analyst John Hodulik pointed out, market reactions already show investor anxiety. EchoStar, which owns about 3% of SpaceX-related assets, saw its share price drop after the merger news broke, suggesting not everyone is sold on the "Orbital AI" story. Now, investors face a new conundrum: the originally clear-cut space infrastructure investment has become a complex blend that requires balancing strong operating cash flow and large-scale AI capital commitments.

This isn’t just about expanding opportunities—it’s about the complexity of the story. As UBS asks: as the historic IPO approaches, does xAI really possess hidden market advantages? Or is this just a way to package risk-heavy assets into premium ones before the listing? In this new “Space x AI” narrative, investors must make their own calls in this trillion-dollar wager.

Risk Reminder and DisclaimerThe market bears risks; investments require caution. This article does not constitute personal investment advice and does not consider individual users’ special investment goals, financial situations or needs. Users should consider whether any opinions, views or conclusions in this article are suitable for their particular circumstances. Investing accordingly is at your own risk.