xAI began as a segment of X, formerly known as Twitter, after Musk acquired the social media platform in 2022, using its access to real-time text and information as AI training data.
By spring of 2025, it was independently incorporated and valued more highly by investors than X.
Its main product is Grok, which has come under scrutiny several times over its AI image generation feature.
In recent weeks, the European Commission and UK watchdog Ofcom both launched investigations into X over concerns Grok was used to create sexualised images.
xAI said in January it had imposed restrictions on Grok users that limit image editing.
Emma Wall, chief investment strategist at Hargreaves Lansdown, said Musk was the market leader in the "two incredibly frontier technologies" of AI and space exploration.
She said because the new merger is entirely private, it hasn't been tested by the market in the same way as Tesla, which is publicly listed.
"But what you're seeing priced in at these valuations is a kind of multi-decade vision for the company to put... energy and energy generation into space, data centres into space," she told BBC Radio 4's Today programme.
However, Wall said any potential benefits would not be seen on earth for "10, 20, 30 years".