On Monday, Elon Musk introduced that he was merging two of his firms, SpaceX and xAI, in a deal mentioned to be price $1.25 trillion. The rationale, Musk mentioned in an announcement, was that to ensure that AI to develop, it wanted to go to house.
AI depends on “massive terrestrial information facilities” that run on “immense quantities of energy and cooling,” he mentioned, which comes at nice expense to the surroundings and neighborhood opposition. The answer: information facilities in house. “In the long run, space-based AI is clearly the one strategy to scale,” Musk mentioned.
Musk isn’t the one one seeking to launch information facilities into orbit. Google has Challenge Suncatcher to construct solar-powered AI information facilities in house. China is trying into space-based information facilities, as is Europe. As we reported final yr, space-based information facilities — within the type of satellites with photo voltaic panels — are Massive Tech’s newest fad and Silicon Valley’s latest investable enterprise.
On the floor, it seems like a logical answer to the distinctive drawback introduced by power-hungry information facilities. Native communities are rising up towards information middle tasks over considerations about electrical energy demand, water utilization, and rising utility charges. Launching these information facilities into house means they aren’t taking on any house on Earth, and in a sun-synchronous orbit there may be the supply of photo voltaic power.
AI depends on “massive terrestrial information facilities” that run on “immense quantities of energy and cooling,” Musk mentioned, which comes at nice expense to the surroundings
However there’s one other, easier approach of taking a look at Musk’s merger: SpaceX is worthwhile, and xAI isn’t. Not solely is xAI not worthwhile, it’s within the midst of a critical money burn because it races to compete with well-financed rivals like Google and OpenAI. As Bloomberg just lately reported, the AI firm is burning about $1 billion a month because it spends closely to construct information facilities, recruit expertise, and run the social media platform X.
In the meantime, SpaceX generated about $8 billion in revenue on an estimated $16 billion of income final yr, Reuters reported. The primary income driver is Starlink, which accounts for as much as 80 p.c of the corporate’s income. Since 2019, SpaceX has launched over 9,500 satellites and boasts as much as 9 million broadband web customers. The corporate can be a serious authorities contractor, having secured over $20 billion in NASA and Protection Division offers since 2008. When it goes public later this yr, SpaceX is anticipated to lift as much as $50 billion in funding.
In the meantime, xAI has it personal authorities tie-ups. The Division of Protection is utilizing Grok, along with different chatbots, to investigate data that flows by its army intelligence networks.
It’s not clear how traders will really feel about merging the cash-burning xAI with the worthwhile SpaceX. But it surely’s necessary to notice that Musk has executed this earlier than, when he merged the debt-ridden SolarCity with Tesla in 2016. Since Musk was the most important shareholder and chairman of each Tesla and SolarCity, shareholders sued to dam the merger, alleging it was a $2.6 billion “bailout” of a cash-strapped, struggling firm. Musk finally gained the lawsuit, with a choose ruling that he didn’t drive Tesla to overpay for SolarCity.
Musk now faces a brand new lawsuit from Tesla shareholders over his creation of xAI. The lawsuit alleges that Musk breached his fiduciary obligation to Tesla by forming xAI, which competes with the automaker for AI expertise, sources, and Musk’s consideration. The information that SpaceX is buying xAI actually gained’t settle these considerations; if something, it makes it extra chaotic and complicated.
So the place does this all go away Tesla? In the newest earnings report, Tesla mentioned it was investing $2 billion into xAI “to boost Tesla’s potential to develop and deploy AI services into the bodily world at scale.” Grok, xAI’s chatbot that’s presently below investigation in a number of nations for producing nonconsensual sexualized photos of individuals, together with kids, was just lately built-in into sure Tesla autos as a voice assistant. Grok additionally lags behind OpenAI’s ChatGPT, Google’s Gemini, Anthropic’s Claude, and different massive language fashions in a number of key metrics.
Information facilities in house is pure Musk futurism that has no assure of success. It’s not so simple as simply strapping a GPU to a rocket and hitting “launch.” First off, GPUs are whole energy hogs. Until you’ve obtained a nuclear reactor floating up there, you’re going to want a large photo voltaic arrays to energy it. Then there’s the communication state of affairs; even if you happen to’re hitching a trip on Starlink, you continue to have to determine the price range for sending data forwards and backwards to Earth. Finally, the numbers begin to look fairly scary.
Musk says merging SpaceX and xAI is the best way to make it occur. And maybe sooner or later he’ll take the suggestion of bullish traders to mix all his firms, together with Tesla, Neuralink, and the Boring Firm, into one large, Musk-run mega-corporation: Musk Inc., if you’ll. How will Tesla shareholders react?
“Tesla is Musk’s liquid piggy financial institution, because it’s publicly traded; his different firms will not be,” Tesla investor James McRitchie mentioned throughout a prevote presentation earlier than the corporate’s 2024 shareholder assembly, in keeping with The Wall Avenue Journal. “Both he sticks round lengthy sufficient to make use of our shareholder capital to fund his different ventures, or he shifts his consideration sooner if we reject his pay bundle and switch off the cash faucet.”
