U.S. space stocks climbed on Tuesday after Elon Musk announced a merger between SpaceX and xAI that values the combined company at $1.25 trillion, boosting ambitions to build artificial intelligence infrastructure in orbit.
Musk said that within two to three years, space could become the cheapest place to generate AI computing power, as Big Tech pours hundreds of billions of dollars into the race for artificial general intelligence.
The blockbuster deal sparked a rally across the space sector. Rocket Lab shares jumped 3.9%, Planet Labs rose 1.2%, AST SpaceMobile gained 4.3%, Intuitive Machines climbed 4.7%, and Redwire added about 2%.
Musk said the merger is designed to create a vertically integrated technology platform spanning AI, rocket launches, satellite internet, direct-to-mobile communications, and real-time information services. Investors say the vision could fuel enthusiasm ahead of what may become the largest IPO ever, with SpaceX reportedly eyeing a valuation above $1.5 trillion.
Global investment in space technology is expected to accelerate further this year, driven by government spending on defense-related satellites and private investment in launch capacity.
Analysts see the deal as a major signal that space will play a central role in the next phase of AI development.
Musk’s broader ambitions span Tesla, Neuralink, the Boring Company, and sweeping government efficiency efforts, though many of his most ambitious projects remain works in progress. Tesla plans more than $20 billion in capital spending this year, while SpaceX has sought approval to launch up to 1 million satellites to power orbital AI data centers.
Analysts warn that building and maintaining such a constellation would require launching roughly 200,000 satellites per year and could demand enormous capital, potentially pushing SpaceX to seek public market funding.