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How & Why SpaceX is Moving the AI Data Center Race to Space

Key Takeaways

  • After the xAI acquisition, SpaceX is valued at $1.25 trillion.
  • SpaceX will help Elon Musk bypass Earth-bound energy scarcity & rising electricity costs.
  • The SpaceX/xAI entity will affect several public companies.

SpaceX Valued at $1.25 Trillion After Combining with xAI

Thoughts on the SpaceX xAI Deal

The acquisition of xAI by SpaceX will value the combined entity at $1.25 trillion. What’s important for investors to understand is that, in this case, the combined entity will eventually be worth more than the sum of its parts because it will transform SpaceX into a vertically integrated AI-infrastructure play and will strengthen the Musk ecosystem. In my view, the primary goal of the acquisition is to leverage SpaceX’s massive payload capacity and near-monopoly in space to gain an edge in the AI data center race.

The Benefits of Data Centers in Space

As hyperscalers like Amazon ((AMZN - Free Report) ), Alphabet ((GOOGL - Free Report) ), and Microsoft ((MSFT - Free Report) ) jockey for AI dominance, compute will be king (as it is needed to train large AI models). However, currently, the main headwind for the AI buildout is energy scarcity. The U.S. electric grid is already overwhelmed, and with more energy-hungry data centers being built, this will only worsen. Additionally, the Trump Administration has warned that it will not allow U.S. big tech companies to drive up electricity costs for U.S. households. In other words, big tech companies will need to produce their own off-grid energy or compensate U.S. households for any electricity price hikes.

Space-Based Data Centers will be More Efficient

Elon Musk has stated that the solution to this problem is to house AI data centers in space. Not only is solar energy abundant in space, but cosmic data centers would also be cooled naturally and cheaply by the frigid temperatures there. Remember, Tesla ((TSLA - Free Report) ) has a thriving energy business and acquired SolarCity in 2016. Tesla Energy also has the megapack, which allows users to store unused electricity.

SpaceX/xAI Impact on Publicly Traded Companies

Satellite & Communications

The SpaceX/xAI deal will strengthen Musk’s growing dominance in satellites and communications. Companies like Viasat ((VSAT - Free Report) ) use fewer, more expensive Geostationary (GEO) satellites. Conversely, Starlink leverages thousands of small, low-cost satellites in Low Earth Orbit (LEO). The deal may squeeze prices and make VSAT’s business less profitable. That said, the stock is holding relatively well so far, so the impact is yet to be a concern for investors. Meanwhile, EchoStar ((SATS - Free Report) ), a satellite TV and communications provider, should be insulated from any negative outcomes, as it already has a long-term licensing deal with SpaceX to provide service to Boost Mobile subscribers.

National Security & Defense

The SpaceX and xAI entity will help the company continue to gain momentum in the national security arena. AI and space synergies have several important uses in national security, such as satellite imagery (analyzed with AI) and government satellite constellations powered by hardened AI models. SpaceX will have an edge versus traditional defense companies because it will be a one-stop shop for launch, connectivity, and AI for defense. That said, it’s hard to be bearish on defense stocks when 2026 will be a record year for defense spending of ~$840 billion. In other words, I expect SpaceX to take market share, but since the entire pie is growing, I remain bullish on defense names like LMT.

Space Launch Companies

In my view, as Musk did with electric vehicles, the SpaceX xAI merger will speed up the pace of innovation and get AI data centers to space faster than if it did not occur. While SpaceX will be the dominant player in the field, launch companies like Rocket Lab ((RKLB - Free Report) ) may benefit as big tech companies follow Musk’s lead and rush to get more efficient and cost-effective data centers in space.

Space-Hardened AI & Processing Chips

While the current semiconductor leaders like Advanced Micro Devices ((AMD - Free Report) ) and Nvidia ((NVDA - Free Report) ) will continue to dominate the growing data center boom on Earth, space will require specialized hardware. Microchip Technology ((MCHP - Free Report) ) could benefit from the space-based AI data center buildout, as the companyproduces a product line of radiation-hardened microcontrollers that are critical for low-power AI tasks in smaller satellite constellations.

In-Flight Wi-Fi

In-flight Wi-Fi is already being disrupted by Starlink. Starlink provides faster, lower-latency, and more reliable in-flight Wi-Fi than legacy players like Gogo ((GOGO - Free Report) ). I expect the xAI and SpaceX merger to accelerate the disruption.

In conclusion

Elon Musk’s broad business empire is reaching a critical tipping point. The combined SpaceX/xAI entity will make the countless solar energy, AI compute, and space launch synergies that much more powerful. SpaceX’s ecosystem will allow the company to provide top-of-the-line service at competitive prices due to its vertical integration. This is a good deal for investors.

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