NEW YORK — SpaceX, led by Chief Executive Elon Musk, has breathed life back into artificial intelligence stocks that had slumped amid talk of a bubble. The company swung to a profit for the first time since its listing, showing that its AI business can make money. Musk went further, unveiling a plan to combine SpaceX and Tesla and signaling the creation of a technology giant. Investors priced in considerable expectations for a vision that would place everything from the ground to space, and from software to hardware, inside a single company. The catch is that the merger is ultimately tied to the AI funding crunch of a high-rate environment. With SpaceX's capital expenditures still exceeding revenue, Tesla's cash could prove highly useful in getting the AI business and the Terafab chipmaking project — a mega-scale semiconductor production facility — onto a firm footing. The merger is also seen as a masterstroke for strengthening Musk's grip on his companies. The obstacles are approval from a majority of shareholders and political pressure. In particular, with Musk serving as the overwhelming largest donor to the Republican Party ahead of the midterm elections on Nov. 3, a Democratic victory could bring political turbulence. That is all the more true because both Tesla and SpaceX are closely tied to U.S. federal government policy.
SpaceX Swings to First Profit Since Listing, Lifting AI Sentiment as SI Becomes Top Revenue Source
On the 21st, Wall Street's three main indexes all rose for the first time in a while: the Dow Jones Industrial Average gained 0.69%, the Standard & Poor's 500 added 0.58% and the Nasdaq Composite climbed 1.05%. Most technology stocks advanced, including Nvidia (2.54%), Apple (1.32%), Microsoft (0.20%), TSMC (1.60%), Facebook parent Meta (0.47%), Broadcom (1.03%), SK hynix (2.48%), Micron (1.96%) and AMD (3.36%), lifting the recently weak Philadelphia Semiconductor Index 1.97%. The gains came as bargain hunters piled into AI-related shares that investors had abandoned after a downgrade of cloud provider CoreWeave's credit standing.
Driving the New York market that day were SpaceX's results, released after the previous session's close. On the 20th, SpaceX disclosed third-quarter revenue of $14.58 billion, up 161% from a year earlier. That was 86.5% higher than in the second quarter and well above the $12.72 billion analysts had expected, according to the London Stock Exchange Group. Operating profit came to $2.791 billion and net profit to $4.404 billion, the first profit since the company's Nasdaq listing on June 12. SpaceX posted operating losses of $273 million in the third quarter of last year and $143 million in this year's second quarter. Adjusted earnings per share came to 35 cents, nearly triple the 13 cents expected. On the strength of the results, SpaceX and Tesla shares jumped 7.79% and 3.41% on the 21st.
By segment, growth was most pronounced in superintelligence, or SI, the company's term for AI. Musk aligned himself with the label on Sept. 29, when President Donald Trump, pushing back against industry calls to slow development, signed an executive order replacing the term AI with SI. At the White House that day, Musk habitually used the word AI, then glanced at Trump and immediately corrected himself to SI. On the 4th of this month, Musk wrote on X, formerly Twitter, that there is no more AI and that SI is better. SpaceX merged in February, ahead of its listing, with xAI, the developer of the generative AI model Grok.
Third-quarter revenue in the SI segment surged 830% from a year earlier to $7.56 billion. With that, SI overtook communications to become the company's largest revenue segment. The acquisition of AI coding startup Cursor, Grok's growth and cloud service contracts drove the results. AI computing capacity expanded to 1.7 gigawatts. The SI segment posted a profit of $431 million even after accounting for $1.2 billion in stock compensation costs tied to the Cursor deal.
The communications segment, which includes Starlink, generated revenue of $5.248 billion. Operating profit in the segment reached $2.367 billion, roughly double the year-earlier figure. Starlink subscribers totaled 13.6 million, up 1.6 million from the second quarter. Average revenue per user rose 5% over the same period to $69.
Space segment revenue was $1.767 billion, up 6% from a year earlier and 84% from the previous quarter. The segment's operating loss narrowed sharply to $7 million from $542 million in the second quarter. Third-quarter capital spending totaled $19.593 billion, of which $16.444 billion went to the SI segment. SpaceX Chief Financial Officer Brett Johnson said the company posted a remarkable growth rate on the back of growth in communications and the turnaround in SI.
Merger Talks With Tesla Made Official; Market Expects Robotics, Chip and Space Businesses to Converge
SpaceX went on to say that demand for AI computing is overwhelming supply and that it can recoup related new investment within a year. At the earnings call, Musk said every hyperscaler, or operator of mega-scale data centers, and dozens of smaller firms are persistently asking to lease more computing, and that if the company accommodated all of them it could lease out several times as much. When Johnson put the payback period for new computing investment at one year, Musk added that next year it could be recovered in six months. He said he was fairly confident about bringing an additional 10 gigawatts online next year, and that if everything went well, the chance of securing 20 gigawatts of power infrastructure was not zero.
SpaceX forecast fourth-quarter capital spending of $35 billion to $40 billion, roughly double the $19.593 billion spent in the third quarter. Johnson said the company is in talks with multiple debt funding sources, and projected companywide revenue of $33 billion to $37 billion for the first quarter of next year.
Musk also said that on the Terafab project, deliveries of equipment such as extreme ultraviolet lithography machines from the Netherlands' ASML are being moved up. He added that SpaceX is targeting full-scale chip production at the Terafab facility in the third or fourth quarter of 2028.
Drawing more attention than the results was news that SpaceX and Tesla are pursuing a merger. Musk said that at the request of shareholders, each company's board had formed a special committee to review a combination. He said there are considerable advantages to merging the two companies now that they are close to reaching SI, and declared the merger a good idea. Musk highlighted the condition that more than 50% of all shareholders must approve the combination, and stressed that looking across all of the company's projects, including Starship, it would be hard to find a company anywhere in the world with capital efficiency as strong as SpaceX's.
A Tesla-SpaceX combination has been the subject of speculation on Wall Street several times. Dan Levy, an analyst at global investment bank Barclays, said in a report on the 14th that he expected Tesla's annual shareholder meeting to be held no later than Dec. 6, and predicted the merger would be made official before the meeting. SpaceX has to date purchased more than $100 million worth of Tesla Cybertrucks, and xAI is also buying large volumes of Tesla energy storage system batteries.
The market expects a Tesla-SpaceX merger to generate synergies by combining AI computing with infrastructure. On the 21st, SpaceX shares at one point surged more than 11% intraday on the vision of linking the Starlink satellite network directly to Tesla's robotaxi service, Full Self-Driving software and the Optimus humanoid robot to complete the world's only integrated ground-and-space AI platform.
Spending Exceeds Revenue, Making EV Cash Vital; Merger Would Aid Musk's Control and Pay
Wall Street goes a step further, seeing somewhat more complex interests behind Musk's push to merge Tesla and SpaceX. One view is that the purpose of the merger may be to raise cash through Tesla. SpaceX's results have improved, but its cash flow remains poor enough that third-quarter capital spending of $19.593 billion exceeded revenue of $14.58 billion. From Musk's standpoint, there is a strong incentive to channel Tesla's abundant cash generation and its battery and energy storage technology into SpaceX's data centers and Terafab. When SpaceX merged with xAI, analysts widely argued the deal was done to funnel initial public offering proceeds into an AI business that posts losses every year because of enormous capital investment. Ultra-long-term projects such as space data centers, in that assessment, were merely window dressing for the IPO and merger process.
Another point to consider is that a successful merger would strengthen Musk's control over Tesla. Musk currently holds only about 20% of Tesla. That is a world apart from SpaceX, where his dual-class shares give him an overwhelming roughly 82% of voting power. According to Barclays and others, if SpaceX acquires Tesla through a share exchange, Musk would at a stroke secure more than 56% of the voting rights in the combined entity — a majority.
Some see Musk pursuing the merger to make his own pay targets easier to hit. Musk designed SpaceX's compensation plan so that he can receive 1 billion Class B shares, each carrying 10 votes, if he builds a permanent colony on Mars and lifts the company's value to $7.5 trillion. At Tesla, he is set to receive compensation worth up to $1 trillion if he raises the company's market capitalization to $8.5 trillion by 2035 and meets robotics and autonomous driving development goals. Those valuations would be hard to reach at either company alone, but if the two combine, their total market capitalization would immediately rise to $3.6899 trillion as of the 21st, making the targets easier to meet.
On the 19th, Musk abruptly announced on X that he would give one of his SpaceX shares to every child in the United States next year. Bloomberg estimated that giving one share to every American child would require about $10.5 billion. Bloomberg also noted that Musk has a history of blurting out ideas that never materialize, or proposing plans and later explaining that he was joking.
Against that backdrop, Musk and SpaceX have become entangled in allegations that they are deliberately restricting the sharing of military information with Ukraine in its war against Russia. Ukrainian President Volodymyr Zelenskyy, who has said U.S. intelligence sharing was halted, appealed again on X on the 19th that speeds on SpaceX's Starlink satellite communications service, used in military operations, were stalling at 130 to 161 kilometers per hour across multiple front lines. Zelenskyy said resupply was being delayed and the use of medium-range attack drones and interceptors for Shahed drones — the suicide drones Russia launches — was being restricted. According to Britain's Telegraph, Ukraine's air force either received no U.S. early warning at all about Russian ballistic missiles fired toward the capital, Kyiv, or received it barely a minute in advance. Ukraine suspects deliberate action because the situation emerged after a Russian diesel supply agreement between Trump and President Vladimir Putin on the 9th. At the time, Trump pressed Ukraine to accept what he called an energy truce and urged it to halt airstrikes on Russian oil facilities. Trump has been put at a disadvantage heading into the midterm elections by rising domestic diesel prices tied to the wars in the Middle East and Ukraine. When Ukraine did not stop the strikes, Trump went on to raise the idea of Zelenskyy stepping down.
Controversy Over Order to Restrict Ukraine's Starshield; Democrats Vow Payback Against Top Republican Donor
On the 16th, Reuters reported that the White House had issued an order to restrict the satellite system — Starshield — used for Ukraine's battlefield communications and drone operations. Starshield is a military satellite system developed by SpaceX. Ukraine's military receives Starshield service with support from the U.S. government, attaching terminals to drones and using them to attack key Russian facilities and shoot down attack drones.
There have also been reports that Musk ordered the limits on Starshield internet speeds. The Wall Street Journal reported on the 20th that Musk was angered by Ukraine's drone strikes on Russian diesel refining facilities and consequently restricted Starshield access. Sources differed over whether Musk acted on his own or had coordinated in advance with Trump.
Musk himself drew a line on the 14th, writing on X that all limits on the speed of the Starshield system are decided by U.S. military authorities and ultimately by the U.S. president. Trump also said at the White House on the 16th that it was not something he did and that it probably was not Musk either. U.S. Defense Secretary Pete Hegseth likewise told reporters on the 20th, during a visit to a defense contractor's plant in Wisconsin, that the department had never issued any such order. Secretary of State Marco Rubio, meeting reporters on the 21st en route to India, stressed that what he could say for certain is that neither the U.S. president nor anyone in the government had asked for any changes to the Starshield system.
The Starshield affair appears likely to have significant political consequences for Musk's business going forward. According to The New York Times on the 12th, Musk has since July been the largest single donor to Republican-aligned groups and to the super PAC he founded, providing more than $276 million. Of that, $158 million went to Senate Leadership Fund, a super PAC backing Republican Senate candidates, an amount exceeding the total raised by its Democratic counterpart in the quarter. SpaceX and Starlink are inseparable from the policies of agencies such as NASA and the Federal Communications Commission. The electric vehicle business and SpaceX's AI subsidiary, SpaceXAI, are also sensitive to federal policy. Musk himself led the Trump administration's Department of Government Efficiency from January to May last year, spearheading spending cuts and the dismissal of federal workers.
Democrats are vowing to go after Musk if they win the midterm elections. On the 20th, the political outlet Politico reported that candidates to chair House standing committees and Democratic lawmakers are planning congressional investigations targeting Musk. Those are expected to cover his conduct as head of the Department of Government Efficiency, contracts between SpaceX and NASA, Tesla's clean energy subsidy benefits and the suspicions over the Starshield cutoff.
Democrats on the Homeland Security Committee have already demanded testimony from Musk over a Government Accountability Office report last month that found the Department of Government Efficiency overstated its cost savings. The Ways and Means Committee has also called for an investigation into a data breach suspected of being linked to the department.
If Musk pulls off a merger of SpaceX and Tesla this year, the new entity is set to become a technology giant capable of moving the New York market. How long any merger synergies last, of course, will largely depend on subsequent earnings. Given Musk's political activities, the midterm election results and the opposition's offensive will also bear watching.
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