SpaceX is not a "cash machine"! Analyst: Integrating xAI may bury financial risks for the aerospace giant

Elon Musk's decision to merge his artificial intelligence startup xAI into SpaceX poses potential risks for the aerospace giant. Bloomberg columnist Thomas Black analyzes that, although SpaceX has established a significant lead with its reusable rocket technology and drastically reduced launch costs, treating it as a "cash cow" for xAI could divert it from its existing leadership position and burden it with heavy financial liabilities.

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

This strategy marks a significant change in SpaceX's risk exposure. As a pure aerospace company, SpaceX has achieved about a 50% profit margin through its Starlink network and numerous launch missions, currently at the peak of its 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, with the Starship rocket preparing to enter commercial service, unless Musk makes extremely poor decisions that financially shackle SpaceX, nothing can shake its leadership position. Unfortunately, incorporating this "money-burning beast" of an AI business seems to be a high-risk move that views SpaceX as a financing tool.

The Profit Moat of the Aerospace Giant

SpaceX's dominance in the aerospace sector is unquestionable. Since its first successful rocket launch in 2008, its pace of progress has been remarkable. Last year, SpaceX completed 165 missions, accounting for more than half of global launch tasks. This has also allowed the U.S. to maintain a dominant position in the space race against China.

The company's profit model is clear and robust. In addition to charging customers for launch fees based on tonnage, SpaceX's main profit source is its Starlink network, which has 9,000 satellites. Customers, including United Airlines Holdings and shipping giant AP Moller-Maersk A/S, flock to Starlink because it offers global coverage and internet services that far exceed traditional geostationary satellites in speed. According to Reuters, SpaceX achieved about $8 billion in profit from revenues of up to $16 billion last year, with a 50% profit margin being extremely impressive for a hardware manufacturer. **

In addition, SpaceX also holds an important position in government contracts, with major clients including NASA and the Department of Defense. With its reliability and cost advantages, the government's reliance on SpaceX is deepening. As the company recently purchased a large amount of wireless spectrum to provide satellite direct-to-phone services, the prospects for its commercial and government space activities are bright, and there is no need to diversify to mitigate risks.

The Bottomless Pit and Financing Risks of xAI

However, Musk's use of SpaceX's cash reserves to fund his AI startup is disrupting this balance. According to Bloomberg, xAI is in an extreme state of "cash shortage," consuming about $1 billion per month.

Although SpaceX has only a few long-distance competitors in the aerospace field, such as Jeff Bezos's Blue Origin and Eutelsat Communications SACA, the field in which xAI operates is extremely crowded and expensive. Predicting how much AI computing power the world truly needs and how the technology will evolve is highly risky.

This scene feels familiar to investors. In 2016, Tesla's investors approved Musk's merger of the struggling SolarCity into Tesla. Although that $2 billion deal ultimately opened the door for Tesla's transformation into the battery and robotics sectors, and proved to be a potentially wise diversification move against the backdrop of a global electric vehicle price war, it does not mean that the same logic applies to SpaceX.

Lack of Synergy and Strategic Misalignment

At present, SpaceX does not need xAI. As a purely space company, it is continuously expanding its lead over competitors. Even if a "space data center" becomes a reality, SpaceX does not need to own xAI to develop this market. On the contrary, all AI companies will line up to purchase dedicated data center satellites manufactured by SpaceX and use the low-cost launch services provided by Starship.

SpaceX is already seeking approval from the Federal Communications Commission to deploy an orbital data center constellation with up to 1 million satellites. Although space data centers face enormous cost barriers, solving this issue does not rely on acquiring xAI.

From a business fit perspective, Tesla would have been a better home for xAI. For the Optimus humanoid robot to work effectively in factories or homes, it must rely on agile AI to translate instructions into actions. If xAI can solve this problem, it will unleash the immense potential of mobile robots. If SpaceX needs robots to perform Mars missions in the future, it can easily purchase them directly from Tesla or its competitors, which is cheaper and carries lower risks than internal incubation.

Currently, there are very few startups in the reusable rocket field, and none can match SpaceX's advanced level. Musk's decision to bind xAI with SpaceX actually adds unnecessary risks to this significant competitive advantage For investors, the most desired outcome is that Musk's dream of landing on Mars takes precedence over his short-term need to continue investing in AI startups