Key Points Elon Musk's rocket maker SpaceX has acquired artificial intelligence startup xAI in a deal that will value the company at $1.25 trillion, CNBC has confirmed. The transaction comes ahead of a potential blockbuster initial public offering for SpaceX later this year. Musk announced the deal in a blog post Monday and said a main reason for the merger was to better build "orbital data centers." watch now Oracle's credit default swaps are plummeting as financing plan boosts investor confidence Another main reason for the merger is to provide more capital to xAI, which makes the Grok chatbot. The startup is burning through cash as it races to build out infrastructure against rival AI labs such as OpenAI and Anthropic. OpenAI was last valued at $500 billion in October and Anthropic signed a term sheet last month for a round that valued it at $350 billion. By comparison, xAI was last valued at about $230 billion in a $20 billion funding round closed last month. Musk, who was a co-founder of OpenAI and departed in 2018, created xAI in 2023. Its Grok AI tool has recently come under fire for allowing users to create sexualized images, including of children. SpaceX, which makes satellites and reusable rockets, is in position to benefit from the push to launch data centers in space to feed booming AI demand. The company is widely known for its Starlink satellite internet service and has contracts with the Department of Defense and NASA, supporting its moon missions. News of SpaceX's potential 2026 IPO first broke in December, with Musk calling a report about the planned offering "accurate" shortly thereafter. The Financial Times previously reported that Musk is preparing the debut for mid-June to time with his birthday and a planetary alignment. — CNBC's Lora Kolodny contributed to this story. watch now