Dear Reader,
Today is Wednesday, February 4th, and today I want to talk about Elon Musk — specifically SpaceX, and its acquisition of xAI earlier this week.
I've seen a lot of commentary on this deal. Most of it has been glowing.
"Oh, Elon does it again."
"Another visionary move."
But I don't see many people asking the most important question:
What's the math here?
That's always the game I like to play.
So I spent some time thinking through this deal, and I want to share what I'm seeing.
On Monday, Elon Musk confirmed that SpaceX — which is expected to go public — has acquired xAI, the company behind Grok and the platform formerly known as Twitter, now X.
We already knew SpaceX was headed toward an IPO. But now, by folding xAI into the structure, xAI suddenly gets access to SpaceX's capital story.
And Elon has been framing this move in a very specific way.
He's said this is about overcoming the limits of Earth-based data centers — power constraints, energy bottlenecks — and that the real future of AI scale is space-based data centers.
He's even said, "In the long term, space-based AI is obviously the only way to scale."
That may very well be true.
But here's the question I keep coming back to:
If this is a long-term vision, why merge xAI into SpaceX right now?
Because in the near and medium term, this creates a very real problem.
xAI is burning cash. A lot of it.
It's a model developer. It runs Grok. It's tied to consumer subscriptions on X. It's trying to sell enterprise AI services — so far, without much traction.
And it's competing directly with Google, Meta, Anthropic, and OpenAI — companies with deep pockets and entrenched distribution.
That's a brutal fight.
SpaceX, by contrast, is a phenomenal business. It has competition, but it's miles ahead of everyone else. Starlink is dominant. Launch services are dominant. The contracts are long-term and recurring.
But SpaceX doesn't generate the kind of cash xAI is going to need.
Last year, SpaceX reportedly generated around $15 billion in revenue.
Meta did over $200 billion.
Even Tesla — another Musk company — is far larger, with roughly $95 billion in revenue in 2025.
And Tesla itself is in the middle of a radical transformation.
As we've talked about before, Tesla is moving away from cars and toward robots — the Optimus humanoid robots. They're even shutting down auto plants in the U.S. to retool them for robot production.
That's an extraordinary pivot.
We actually published a report on this last year — what we call embodied intelligence — where AI moves off the screen and into the physical world. Simmy just updated that report recently.
And that update matters more than people realize.
Because this isn't about chatbots getting smarter on a screen.
It's about AI stepping into the physical world — into factories, warehouses, hospitals, and eventually everyday life.
That's why we've been mapping exactly where this embodied intelligence will show up first and which companies are set to benefit the most from it.
If you haven't read our updated report yet, I highly recommend you check it out now.
So Elon clearly understands where AI is going.
Which is why this xAI move raises questions.
Why attach a cash-burning, hyper-competitive AI model business to one of the most valuable and strategically important private companies in the world?
You have to ask:
Is this about synergy… or is this about creating an exit?
Is this a way to effectively sell xAI to public investors by bundling it with SpaceX's story?
It reminds me a little of MicroStrategy — now just called Strategy — and its role as a massive Bitcoin holder.
For years, I've wondered: who was selling all that Bitcoin to them?
Because liquidity in Bitcoin was limited, especially among long-term holders. And it made me think — was Strategy effectively becoming a vehicle for large, early holders to exit into public markets?
I can't prove that, obviously.
But when I look at this SpaceX–xAI deal, I can't help but wonder if something similar is happening.
Is SpaceX being used to absorb xAI — and eventually hand it off to public investors who are overwhelmingly enthusiastic about SpaceX?
Now, to be clear: I love SpaceX.
It's a phenomenal company.
Starlink is a fantastic business.
The launch dominance is real.
The contracts are real.
I'm genuinely excited about the IPO.
But this xAI move gives me pause.
Fighting a two-front war is extremely difficult.
You're dealing with completely different capital needs, competitive dynamics, and time horizons.
And when you take on Google, Meta, and OpenAI on one side — while running the most advanced aerospace business on Earth on the other — you're inviting pressure from both directions.
Elon Musk is no slouch. He knows what he's doing.
But even great operators make capital allocation mistakes.
So I'll be watching this very closely.
It doesn't change my view of SpaceX as a great company — but it does make this deal, and the structure around it, something to think very carefully about.
Anyway, that's all I have for today.
Have a wonderful day.
I'll see you tomorrow.
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