SpaceX-xAI Deal: Deepwater’s Gene Munster Says Putting Data Centers In Space Has 2 Big Advantages

SpaceX and xAI are now under a single umbrella and will be overseen by Musk to drive space-based AI growth.

• Munster said that, at the core of the deal, is Grok, which will be an important tool for xAI to continue doing everything it has been doing.
• Musk said on Monday that terrestrial solutions cannot currently meet AI's electricity demand and that this necessitates space-based AI.
• Munster said that the deal provides insight into how data centers will use power to source AI growth.

Two of Elon Musk’s companies are now coming together, highlighting how AI and space go hand in hand. Ahead of a potential IPO, the billionaire’s rocket company bought his intelligence startup xAI, aiming to create artificial intelligence, which would be powered from space.

Deepwater Asset Management's managing partner Gene Munster said in a post on X that putting these data centers in the sky has two distinct advantages and to build on those Musk has got together “the best company that is good at bringing objects in this space that, of course, is SpaceX and then you build the best company in terms of scaling up data centers, and that is xAI.”

He noted that the core of the deal is Grok, which will be an important tool for xAI to continue doing what it has been doing. Munster said Musk has emphasized Grok's importance for software development and that it will be a key tool for xAI to advance its work and improve internal coding tools.

The Advantages

Munster said the deal provides insight into how data centers will use power. “When you have a satellite in it, it has better access to solar and doesn't have the liability of cooling either. So, from a power perspective, much more efficient,” Munster said.

“As we think about these data centers on Earth and think about the inference piece going beyond the training … the power is going to be an increasing problem, and that is partially solved by putting things in this space,” he added.

Munster said the second advantage is that there are no boundaries, like a terrestrial boundary. “The idea of the internet with no boundaries is powerful, data center with no boundaries has a similar appeal to it, because it (internet) just gets much more difficult to cut off,” he said.

Musk said on Monday that terrestrial solutions cannot currently meet AI's electricity demand and that this necessitates space-based AI. He said the merger looks to harness solar energy from space to power AI goals.

SpaceX IPO

SpaceX is reportedly targeting a valuation of around $1.5 trillion, which would place it near Saudi Aramco’s market value at the time of its record $29 billion debut. Munster said that the deal with xAI “really lays the groundwork for Elon to achieve what he's been talking about for some time now, which is creating the most valuable company on Earth.”

“More importantly, is that just even having these two together has created an opportunity for him to cast a vision that no other company can put out there and when you have those resources at your disposal to be able to go after something that no other company can do, that creates an opportunity to create the world's largest company,” Munster said.  He added that, in general, the company is tracking around $1.2 trillion.

SpaceX-xAI Deal Terms

On Monday, Reuters reported, citing sources, that as part of the deal, xAI will receive 0.1433 shares of SpaceX for every share of xAI. Some xAI executives could also elect to receive cash instead of SpaceX stock and would likely receive $75.46 per xAI share, the report said.

How Are Stocktwits Users Reacting?

Stocktwits users were not universally happy about the deal, and one user asked whether xAI could quietly fade into obscurity, similar to SolarCity.

Retail sentiment on SpaceX was in ‘bearish’ territory late Monday, with message volumes at ‘high’ levels, according to data on Stocktwits. In the last 24 hours alone, retail message volume on Stocktwits jumped 325%, and over the past year, the stock has seen a 160% spike in followers on the platform.

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