SpaceX’s $1.25 Trillion AI Merger: Is Musk’s Orbital Data Center Plan a Moonshot or Megabubble?

If you thought the AI trade was running out of superlatives, Elon Musk just gave Wall Street a new one: orbital data centers that could cost $5 trillion a year, and a $1.25 trillion private merger between SpaceX and xAI. The market’s collective jaw hit the floor, and for once, even the algos seemed to pause in disbelief. In a week where tech stocks were already in freefall, thanks to AI model panic and a $300 billion vaporization of market cap, Musk’s latest move is either the ultimate contrarian bet or the most expensive science experiment since the Large Hadron Collider.

The facts: SpaceX has confirmed the acquisition of xAI, Musk’s private AI developer, in a deal that would make even SoftBank blush. The price tag? $1.25 trillion, according to YouTube reports and MarketWatch analysts. The rationale? SpaceX wants to build data centers in orbit, leveraging its launch infrastructure and Starlink’s global reach to create what Musk calls the “AI backbone of the solar system.” MoffettNathanson analysts estimate the capital needs at $5 trillion a year, yes, per year, if Musk’s vision is to be realized. The market, already jittery from a tech rout, responded with a mix of awe and skepticism. Tech ETF XLK flatlined at $141.96 (+0%), refusing to join the latest Musk mania. Meanwhile, the broader tech sector is still licking its wounds from the AI-driven selloff, with software stocks in particular getting hammered as investors digest the implications of runaway AI models and deferred IT spending.

Context is everything. Musk’s move comes at a time when the AI hype cycle is both peaking and fragmenting. On one hand, AI models are now so powerful that they can erase $300 billion in equity value in a single session, as reported by WSJ. On the other, the very companies that enabled this AI boom, cloud giants, chipmakers, and hyperscalers, are now warning of slowing demand and capex discipline. Gartner’s latest note says customers are “slowing and deferring everything possible” as they try to make sense of the shifting AI landscape. Against this backdrop, Musk’s orbital ambitions look less like a moonshot and more like a Mars colony: audacious, headline-grabbing, and possibly disconnected from near-term economic reality.

But let’s not kid ourselves, this is classic Musk. The man has a track record of pulling off the improbable, from reusable rockets to mass-market EVs. Yet the scale here is unprecedented. A $1.25 trillion private merger would instantly create one of the largest private tech conglomerates on the planet, dwarfing most public companies. The $5 trillion annual capex figure is so large it borders on the surreal. For comparison, global IT spending in 2025 is projected at just over $5 trillion, total. Musk is essentially proposing to double that, singlehandedly, in orbit. It’s the kind of number that makes even the most jaded trader check the calendar for April Fool’s.

The market’s muted reaction is telling. XLK at $141.96 barely budged, suggesting that institutional investors are taking a wait-and-see approach. There’s a growing sense that the AI trade has become a victim of its own success, with valuations stretched and expectations bordering on the delusional. The SpaceX-xAI merger is a high-beta bet on the next phase of AI infrastructure, but it comes at a time when risk appetite is fading and capital discipline is back in vogue. The days of “growth at any price” are over, at least until Musk launches his first orbital server farm.

The cross-asset implications are fascinating. If Musk pulls this off, it could create a new class of investable assets, orbital infrastructure, AI compute in space, and perhaps even tokenized satellite bandwidth. But the risks are enormous. The capital requirements alone could crowd out other tech investments, while the technical and regulatory hurdles are daunting. There’s also the not-so-small matter of whether anyone actually needs an AI data center in low Earth orbit. For now, the market is content to watch from the sidelines, popcorn in hand.

Strykr Watch

For traders, the technicals are as flat as the press releases. XLK is stuck at $141.96, with no meaningful movement despite the Musk news. The sector is still digesting last week’s AI panic, with RSI readings hovering near neutral and no clear momentum in either direction. The next real catalyst will likely come from earnings or a material shift in Fed policy, not another Musk headline. That said, watch for any break above $145 on XLK, that could signal renewed risk appetite and a rotation back into high-beta tech. On the downside, a break below $138 opens the door to a deeper correction, especially if the AI narrative continues to unravel.

The risk is that Musk’s orbital ambitions become a distraction, drawing capital and attention away from more grounded opportunities. There’s also the potential for regulatory backlash, especially if the merger is seen as anti-competitive or a national security risk. And let’s not forget the operational risks, building and maintaining data centers in space is a logistical nightmare, with countless points of failure. If the market senses that Musk is overreaching, the backlash could be swift and brutal.

But there are opportunities here, too. If Musk can execute, the upside is enormous. The creation of a vertically integrated AI-space conglomerate could unlock new revenue streams and create a moat that’s almost impossible to breach. For traders, the play is to watch for signs of execution, successful launches, partnership announcements, and actual revenue from orbital services. If those materialize, the market will have to re-rate the entire sector. In the meantime, look for relative value plays in the AI and space infrastructure space, companies that benefit from the hype but don’t carry the same execution risk as SpaceX-xAI.

Strykr Take

This is either the greatest trade of the decade or the most expensive science project in history. Musk has a habit of defying gravity, both literally and figuratively, but the numbers here are so big that even he may have met his match. For now, the market is right to be skeptical. But if Musk delivers, the upside is out of this world.

Date published: 2026-02-04 00:00 UTC