How the AI Backlash Could Make Elon Musk Even Richer

On Tuesday, Elon Musk disclosed that SpaceX and Tesla have formed special committees to consider a merger. Combining the two would create a company worth something like $3.5 trillion, bringing together rockets, satellites, electric cars, robots, batteries, and AI data centers. It would be the biggest corporate merger in history.

There’s a certain logic to combining the companies. There is probably a lot of overlap between the investors in SpaceX and Tesla, many of whom are essentially betting on Musk’s ability to turn improbable-sounding ideas into profitable businesses. This also suggests that a traditional takeover premium might not make much sense. There’s no outside buyer paying to take control. The shareholders would simply be exchanging their stakes in two Musk companies for ownership of one very big Musk company. The exchange ratio will matter, of course, especially for investors who don’t own equal proportions of both. You’ll have to pay investment bankers and lawyers to issue fairness opinions about the transaction, but there’s zero chance they’ll come back saying it isn’t fair.

It’s All AI Now

What makes the merger interesting is that Musk’s collection of seemingly unrelated businesses is increasingly becoming one enormous AI enterprise.

Tesla famously makes almost-autonomous cars and has been working on humanoid robots. SpaceX has rockets, Starlink, and an AI business that now includes what used to be xAI. SpaceX reported Tuesday that its AI operations generated $7.6 billion in revenue in the third quarter, more than its Starlink or space-launch businesses. Musk is also working on a giant semiconductor manufacturing project and wants to put AI data centers into orbit.

And this idea of AI data centers in space is where things really get weird because the biggest enemies of AI and Musk may wind up playing a key role in making that a reality.

The NIMBYs Are Coming for AI

As you might have heard, the backlash against data centers has spread like a wildfire across the country. The National Conference of State Legislatures says lawmakers in 16 states have considered moratoriums on data center development. Siting Radar, which tracks local restrictions in seven states, counts 513 moratorium records in force or recently adopted and another 164 pending or proposed.

And the backlash is becoming national policy. President Donald Trump, who calls AI Super Intelligence and is a big believer in the importance of AI to the future of America’s economy and national security, recently took a populist turn on the issue. On Wednesday, he also said he wants data centers to provide their own electricity rather than drive up costs for other consumers. On Wednesday, he suggested that companies should also negotiate financial deals with communities, perhaps paying residents a dividend in exchange for permission to build.

You can understand why people would want these concessions. Nobody likes the idea of having their electricity bills driven up to subsidize some trillion-dollar technology company’s ambitions. And if the SI enthusiasts are right and these things are going to generate gazillions in profits in the future, why wouldn’t local residents demand a cut? Indeed, the famous Coase Theorem tells us that questions about externalities are typically resolvable through exactly this kind of bargaining. The party that stands to make a fortune from a project pays off the party that may have a property right or a local government regulatory ability to veto it.

But that also means there’s a price to making data centers pay for their own power, compensate local residents, and navigate an increasingly hostile regulatory environment. If you drive the cost of building a data center in your town or state too high, the AI companies will look elsewhere. If enough municipalities drive the cost high enough, then the cost of extraterrestrial data centers becomes less prohibitive.

And here’s the funny thing. The Venn diagram of people who hate Elon Musk and people who hate AI data centers is basically a circle. But their crusade against data centers could wind up making Musk much, much richer.

There’s No Zoning Board in Orbit

For around a year or so, Musk has been talking about putting AI data centers into space, where solar energy is plentiful and there aren’t any local residents to complain about the noise or the electricity bills. SpaceX’s rockets would carry the equipment into orbit, Starlink could provide communications, and Tesla’s expertise in power systems, batteries, and manufacturing could be enormously useful.

Of course, putting anything into space is not cheap. That’s one of the reasons SpaceX makes so much money doing it. In an April paper titled Orbital Data Centers: Spacecraft Constraints and Economic Viability, physicist Slava Turyshev calculated that, under one representative scenario, the cost of launching and constructing orbital computing infrastructure would have to fall dramatically to compete with terrestrial data centers. His calculation suggests allowable costs of just $250 to $1,000 per kilogram for launch and spacecraft construction, well below current launch costs alone.

That’s a pretty big gap to close, even for Musk. At the very least, it would likely take several years. But Turyshev’s comparison depends on the cost of building data centers on Earth. If that cost goes up because of government restrictions, electricity requirements, payments to communities, or long permitting delays, the reduction in orbital computing costs needed to make the economics work gets smaller.

Musk doesn’t have to bring the cost of computing in space all the way down to today’s terrestrial costs. He just has to bring it down to whatever terrestrial computing winds up costing because of NIMBY anti-data center activism and regulation.

A lot of the objections to the idea of data centers in space boil down to the fact that it has never been done before and we do not know how to do it. But that was true of self-driving cars and reusable rockets. Musk has a pretty good record of turning seemingly crazy engineering projects into businesses.

And now the growing political opposition to AI infrastructure may be moving the economic goalposts in his favor.

The people who want to stop AI data centers from being built in their backyards may wind up helping Musk put them over everyone’s heads.