Musk Backs Tesla-SpaceX Merger as AI Revenue Surges

Elon Musk stated that merging SpaceX and Tesla would be a "good idea," revealing that special committees have been formed to examine the proposal. Following these comments, shares of the space and technology company rose 8% after market close.

Special Committees Review Integration

SpaceX announced its first profits since listing on Tuesday. During a conference call with investors, Musk projected annual recurring revenue between $500 billion and $1 trillion by the end of 2027, attributing this growth to rising demand for data center capacity fueled by the artificial intelligence boom.

Musk clarified that he cannot participate in the discussions because he is a party with conflicting interests. The committees consist of independent board members and were established at the request of shareholders, who must ultimately approve any deal. This marks the first official confirmation that the two companies are engaged in talks regarding integration.

Strategic Synergies and Terafab Timeline

The billionaire emphasized significant benefits from combining the entities, noting proximity to superintelligence. He highlighted collaborative opportunities in software development, chip design, robotics, and connectivity, specifically mentioning the Starmind constellation project for launching objects from Earth to orbit.

Terafab, the joint venture for chip manufacturing between the two firms, is scheduled to produce its first test chip in May or June of next year. The project aims to reach mass production by the third quarter of 2028. Tesla shares increased 1.8% during after-hours trading.

Financial Performance and AI Growth

SpaceX reported a 161% surge in third-quarter revenue, reaching $14.58 billion compared to the same period last year. Artificial intelligence revenue jumped nearly tenfold to $7.56 billion, primarily derived from leasing data center capacity to developers such as Anthropic, Google, and Reflection AI, rather than from its own models.

The company posted net income of $4.4 billion against a net loss of $1.1 billion in the prior year, exceeding analyst expectations of $1.57 billion. Capital expenditures nearly tripled to $19.6 billion due to continued massive spending on computing infrastructure. Musk holds approximately one-fifth of Tesla’s shares and slightly less than half of SpaceX’s equity, giving him control over the merged entity according to analysts.

Starlink Expansion and Starship Status

The satellite internet unit expanded its subscriber base to 13.6 million in the third quarter, surpassing the analyst forecast of 12.19 million. However, average monthly revenue per user declined from $99 in 2023 to $69 in the current quarter as the company entered foreign markets with cheaper packages.

Barclays indicated last week that an announcement could occur before Tesla’s annual meeting in December. The Starship reusable rocket system has not yet entered commercial service but is expected to enable the deployment of higher-bandwidth Starlink satellites and AI-based computing infrastructure in orbit. Reliable reusability remains critical to the long-term strategy, while the space sector continues to face high costs and uncertainty.