RPT-BREAKINGVIEWS-Elon Musk engineers his sky-high meme machine

By Robert Cyran

NEW YORK, Jan 30 (Reuters Breakingviews) - Elon Musk has two problems. They might have one out-of-this-world solution. The planned listing of his rocket-maker SpaceX will finally bring the ascendant near-monopolist public, but could use a bold new growth story to justify a worth exceeding $1 trillion. Meanwhile, xAI, his social network and artificial intelligence effort, is incinerating cash. Merging the two, as Reuters reported is under consideration, could conceivably solve both issues. More importantly, it would create the kind of outlandish hype that Musk excels at turning into astronomical valuations.

SpaceX aims to raise a colossal $50 billion at a valuation of around $1.5 trillion, according to the Financial Times. There are two oddities here. After hefty investment developing rockets to cost-effectively put up its globe-spanning Starlink satellite network, the business should be throwing off cash. It’s hard to see why it might need so much extra. Moreover, Starlink is most useful in low-density rural areas. If it taps out those markets, that’s a problem. The company estimated total revenue should be up to $24 billion in 2026, Bloomberg reported. It needs many years of high growth to justify a value of over 60 times that sum.

Here's where xAI comes in. In the frenzied race for AI supremacy, Musk’s cash-guzzling company risks running short on resources. Rivals like OpenAI attract astonishing amounts of money seemingly monthly. Musk already turned to his carmaker, Tesla TSLA.O, to raise $2 billion for xAI after doing likewise with SpaceX last year. A fresh pot of money from public markets must be mighty tempting.

Moreover, there’s a classically Muskian, outlandish moonshot in the making. At the World Economic Forum in Davos, the billionaire proclaimed that “the lowest cost place to put AI will be in space.” That’s questionable, given the cost and practicality of running data centers in orbit. But so too is a vision of automatons building self-driving cars, and it sustains Tesla’s ever-more-absurd valuation even as its core business ebbs.

After all, Tesla is valued at some 13 times estimated revenue over the next year, or 35 times higher than General Motors GM.N, according to LSEG data. Perhaps Musk can similarly put stars in the eyes of SpaceX investors, winning crucial time and money for his technological gambles.

He may yet be pulled down to Earth. His car company faces ruinous Chinese competition. xAI has no obvious tech edge over rivals. Even investor mania over chatbots has its limits, as Microsoft MSFT.O proved when its market value crashed by $360 billion on heightened spending and a hiccup in financial results. Of course, such pedestrian things as earnings and plausibility have failed to stop Musk yet.

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CONTEXT NEWS

Elon Musk’s SpaceX is in discussions to merge with xAI ahead of the rocket and satellite company’s planned initial public offering later this year, Reuters reported exclusively on January 29. SpaceX hopes for a valuation exceeding $1 trillion in its IPO, Reuters previously reported.

SpaceX was valued at over $800 billion in a recent sale of shares held by insiders. xAI, which operates the social network X and develops artificial intelligence systems including chatbot Grok, was valued at $230 billion in November, according to the Wall Street Journal. In Davos, Switzerland earlier this month, Musk said “the lowest cost place to put AI will be in space”.