SpaceX is not a "cash cow"! Analyst: Integrating xAI could pose financial risks for the aerospace giant

Elon Musk’s decision to integrate his AI startup xAI into SpaceX is potentially creating hidden risks for the aerospace giant. Bloomberg columnist Thomas Black points out that, despite SpaceX’s significant lead in reusable rocket technology and substantially lower launch costs, using it as a “cash cow” for xAI could divert it from its established leadership position and burden it with heavy financial obligations.

According to Bloomberg, this potential merger is valued at up to $1.25 trillion, with SpaceX contributing $1 trillion. However, market opinion suggests there are currently no substantial synergies between the two. SpaceX has agreed to invest $2 billion in xAI, but this is just the beginning, as xAI is currently burning through $1 billion per month, and with its competition for chips and data center resources among other well-funded tech companies, this expenditure shows no signs of slowing in the short term.

This strategy marks a significant shift in SpaceX’s risk exposure. As a pure aerospace company, SpaceX relies on the Starlink network and a large number of launches to achieve about a 50% profit margin, reaching peak profitability. In contrast, xAI faces fierce competition from tech giants like Alphabet Inc., Microsoft, Meta Platforms, and Nvidia, as well as agile startups like Anthropic and OpenAI, making the outcome uncertain.

Analysts believe that, as the Starship rocket prepares to enter commercial service, nothing can shake SpaceX’s leadership unless Musk makes a catastrophic mistake that shackles SpaceX financially. Unfortunately, bringing this money-burning AI business under its wing seems to be exactly that kind of high-risk move—treating SpaceX as a funding tool.

The Profitability Moat of the Space Dominator

SpaceX’s dominance in aerospace is undeniable. Since its first successful rocket launch in 2008, its progress has been remarkable. Last year, SpaceX completed 165 missions, accounting for over half of global launch activity. This has also given the U.S. a leading position in the space race against China.

The company’s revenue model is clear and robust. Besides charging clients based on payload weight, SpaceX’s main profit driver is the Starlink satellite network, which has 9,000 satellites. Clients like United Airlines and shipping giant AP Moller-Maersk are flocking to Starlink because it offers global coverage and internet speeds far surpassing traditional geostationary satellites. Reuters reports that SpaceX achieved approximately $8 billion in profit on about $16 billion in revenue last year, a 50% profit margin that is extremely impressive for a hardware manufacturer.

Additionally, SpaceX holds a significant position in government contracts, with key clients including NASA and the Department of Defense. Its reliability and low-cost advantages have deepened government reliance. With recent purchases of large amounts of wireless spectrum to provide satellite-to-phone services, the outlook for its commercial and government space activities is bright, and diversification to spread risk is unnecessary.

The Black Hole of xAI and Funding Risks

However, Musk’s use of SpaceX’s cash reserves to fund his AI startup is disrupting this balance. According to Bloomberg, xAI is in a dire “cash-strapped” state, consuming about $1 billion per month.

While SpaceX has few distant competitors in aerospace—such as Jeff Bezos’s Blue Origin and Eutelsat Communications—xAI operates in an extremely crowded and expensive field. Predicting the actual demand for AI computing power and how the technology will evolve is highly risky.

This scenario feels familiar to investors. In 2016, Tesla shareholders approved Musk’s acquisition of the struggling SolarCity. Although that $2 billion deal ultimately led Tesla to pivot toward batteries and robotics, and proved to be a wise diversification amid the global EV price war, it does not mean the same logic applies to SpaceX.

Lack of Synergy and Strategic Misalignment

Currently, SpaceX does not need xAI. As a pure space company, it is continuously expanding its lead over competitors. Even if “space data centers” become a reality, SpaceX does not need to acquire xAI to develop that market. Instead, all AI companies will queue up to buy dedicated data center satellites manufactured by SpaceX and use Starship’s low-cost launch services.

SpaceX is already seeking FCC approval to deploy an orbital constellation of up to 1 million satellites for data centers. Although space-based data centers face huge cost barriers, solving this does not depend on acquiring xAI.

From a business fit perspective, Tesla would be a better home for xAI. For Optimus humanoid robots to work effectively in factories or homes, they must rely on agile AI to convert commands into actions. If xAI can solve this problem, it could unlock enormous potential for mobile robots. If SpaceX needs robots for future Mars missions, it can simply buy them from Tesla or its competitors—this is cheaper and less risky than internal development.

Currently, few startups are in the reusable rocket field, and none match SpaceX’s advanced level. Musk’s decision to tie xAI to SpaceX actually adds unnecessary risk to this huge competitive advantage. For investors, the hope is that Musk’s dream of landing on Mars takes priority over his short-term injections into AI startups.

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