How the AI Backlash Could Make Elon Musk Even Richer

On Tuesday, Elon Musk revealed that SpaceX and Tesla are considering a merger through special committees. This potential combination could lead to a company valued at about $3.5 trillion, merging rockets, satellites, electric vehicles, robots, batteries, and AI data centers. If it happens, this would be an unprecedented corporate merger.

The rationale behind merging the two firms makes sense. There’s likely significant overlap in their investor bases, many of whom are banking on Musk’s knack for transforming unconventional ideas into successful businesses. This also implies that the usual takeover premium might not really apply here. Since there’s no external buyer attempting to take control, shareholders would merely be trading their investments in two Musk companies for one much larger enterprise. The exchange ratio will be crucial, especially for those investors who don’t have equal shares in both companies. Sure, you’ll have to pay for investment banks and lawyers to affirm that the deal is fair, but it’s hard to imagine they would conclude otherwise.

It’s All AI Now

The merger is particularly intriguing because Musk’s diverse collection of businesses is cleverly turning into one massive AI enterprise.

Tesla is known for producing nearly autonomous vehicles and is also developing humanoid robots. SpaceX offers rockets and Starlink, along with an AI division that now encompasses what was once xAI. Recently, SpaceX announced that its AI operations earned $7.6 billion in revenue during the third quarter—more than its Starlink and launch services combined. Musk’s ambitions also extend to a substantial semiconductor manufacturing initiative, and he has plans to deploy AI data centers into space.

And this notion of orbital AI data centers gets really interesting, especially since some of Musk’s biggest critics could ironically drive that vision forward.

The NIMBYs Are Coming for AI

You might have noticed how the backlash against data centers is really gaining momentum across the nation. According to the National Conference of State Legislatures, lawmakers in 16 states are contemplating moratoriums on data center construction. Tracking local restrictions has revealed 513 active moratoriums, with another 164 proposed or pending in seven states.

This backlash is even influencing national policy. Former President Donald Trump, who refers to AI Super Intelligence and believes deeply in the role of AI in America’s economy and security, recently adopted a more populist view on this issue. He mentioned that data centers should have to generate their own power instead of raising costs for consumers and implied that companies might need to strike financial agreements with communities, possibly offering direct payments to residents in exchange for building permissions.

It’s understandable that locals would want these incentives. No one wants to see their electricity bills soar to fund a massive tech firm’s dreams. Plus, if the AI advocates are right about future profits, it’s reasonable for communities to seek their share. The renowned Coase Theorem suggests that concerns over externalities can often be resolved through bargaining, where those gaining from a project compensate those who hold rights or local regulatory power to block it.

That said, ensuring data centers pay for their own energy, compensate locals, and navigate tougher regulations isn’t without cost. If building a data center in a town or state becomes too expensive, AI firms might just look for alternatives. If enough municipalities raise the price significantly, then maintaining extraterrestrial data centers might start looking more appealing.

Interestingly, there’s quite a large overlap between those who oppose Elon Musk and those against AI data centers—it’s almost like a single group. Yet, their crusade against local data centers could inadvertently bolster Musk’s wealth.

There’s No Zoning Board in Orbit

For about a year now, Musk has been expressing interest in launching AI data centers into space, where solar energy is abundant and there are no nearby residents to complain about noise or energy expenses. SpaceX’s rockets could transport the necessary equipment to orbit, while Starlink would handle communication, and Tesla’s expertise in power systems and manufacturing would be invaluable.

However, launching anything into space is quite costly. That’s one reason why SpaceX generates substantial revenue. In a paper published in April titled Orbital Data Centers: Spacecraft Constraints and Economic Viability, physicist Slava Turyshev noted that, in a typical scenario, the costs associated with launching and establishing space-based computing infrastructures would need to drop significantly to be competitive with terrestrial data centers. His analysis indicated ideal cost ranges of $250 to $1,000 per kilogram for launches and spacecraft construction—lower than current launch costs alone.

That’s a significant gap to bridge, perhaps even for Musk. It would likely be a multi-year journey. Nevertheless, Turyshev’s assessment relies on the cost of constructing data centers on Earth. If those expenses increase due to new government regulations, energy demands, community payments, or lengthy permit processes, the reduction in orbital computing costs required to make it feasible becomes less burdensome.

Musk doesn’t necessarily need to reduce the costs of space computing to match current Earth-based prices. He just has to lower them to whatever terrestrial data centers end up costing under the influence of NIMBY opposition and regulatory hurdles.

Many objections regarding data centers in space arise from the simple fact that it’s never been attempted before, and we lack a roadmap. But, then again, that was also the case with self-driving vehicles and reusable rockets. Musk has a solid track record of transforming seemingly far-fetched engineering ideas into reality.

Now, as political resistance to AI infrastructure grows, it might just shift the economic landscape in Musk’s favor.

All those opposing AI data centers in their neighborhoods could unwittingly assist Musk in launching them beyond everyone’s reach.