By Jen Saarbach & Kristen Kelly, Co-Founders of The Wall Street Skinny
Last March, we talked about Elon Musk’s X (the artist formerly known as Twitter) / xAI merger, and why the headline valuation didn’t really matter. The deal was all stock, both companies were private, and Elon had majority ownership in both companies. Valuation wasn’t about discovering “true” value, it was about setting relative ownership and, just as importantly, avoiding an embarrassing write-down.
At the time, xAI was valued at roughly $80bn, based on recent funding rounds, rounds Elon himself participated in, meaning he helped set the price. X, meanwhile, was valued at exactly the same FIRM value Elon paid when he bought Twitter in 2022.
That might sound strange, since the original Twitter headlines screamed $44bn. But that number was the enterprise value, not the equity value. To complete the acquisition, Elon loaded the business with roughly $12bn of debt, meaning the equity he actually put in was closer to $33bn.
And when xAI acquired X, he used that same $33bn equity value again.
We don’t think that $33bn number was an accident. It was chosen to prevent him from having to take the L (despite the fact that other investors, like Fidelity’s Blue Chip Growth Fund, had marked the investment down by 80%). By structuring the deal as an all-stock transaction and pricing it at the equity level, no cash changed hands, existing xAI investors absorbed the dilution, and no one had to publicly acknowledge that X might be worth less than what he paid. It also didn’t hurt that a lot of the investors in X were also invested in xAI.
Elon’s newest SpaceX x xAI merger is similar. Only this time, the numbers are bigger.
The Deal, at a High Level
SpaceX and xAI are merging in another mostly all-stock transaction.
The key term is the exchange ratio:
- xAI investors receive 0.1433 shares of SpaceX for every xAI share they own
- Or, more intuitively: 7 shares of xAI get you 1 share of SpaceX
That ratio, not the headline valuation, is what matters. So where did those numbers come from for these two private companies?
According to the FT:
- SpaceX was valued at $1 trillion in the transaction
- Up from an $800bn valuation in a recent secondary sale
- Per the FT “Musk marked up the private valuation citing increases in revenue from its Starlink satellite broadband services.”
- xAI was valued at $250bn
- Just weeks earlier, xAI completed a $20bn funding round at a $230bn valuation…where the extra $20bn came from? Who knows!
- This is up sharply from roughly $113bn less than a year ago, when the X–xAI deal happened
Now what is almost more interesting is TIMING. Usually, companies go public so that their public equity can be used as acquisition currency. And SpaceX is expected to go public June 9th (officially because of alignments of the planets, but doubt it’s lost on anyone the date he chose is also 6/9) which is just FOUR months away. There is also a rumor that Musk is exploring an acquisition of Tesla ahead of the IPO. So again, the question is: why now?
Officially? The stated reason is Musk wants to build data centers in space.
The more cynical take? Musk needs the cash flows from SpaceX to help with the cash burn from xAI. We know all the big AI companies are churning through cash, some (including xAI) have begun raising debt to finance the cash needs, others like Microsoft have been able to continue to fund through operations. It also gives the now-combined SpaceX a higher valuation for its IPO.
The Bigger Point
Regardless, just like the X–xAI merger, this deal isn’t really about whether xAI is “worth” $250bn or whether SpaceX is “worth” $1 trillion. Ultimately, during the IPO investors will decide what they believe the company is worth. It will be interesting to see if combining all these companies (and eventually possibly even Tesla) helps or possibly hurts the valuation. There is the concept of a “conglomerate discount”, but at the end of the day, things often work differently when Musk is involved.
That problem eventually lands with public investors, likely in a SpaceX IPO, whenever Elon decides the time (and the planets) are right.