Morgan Stanley analysts argue that deepening technological and infrastructural ties between Tesla Inc. (NASDAQ: TSLA) and Space Exploration Technologies Corp. (NASDAQ: SPCX) could lead to a merger. The bank views the companies' joint push into physical AI as a "shared mission" to convert energy into intelligence.

Deepening Web Of Shared Infrastructure

Analysts led by Adam Jonas noted that the two firms share technology, talent, and infrastructure. As large language models approach performance limits, investor attention is shifting toward physical AI, an opportunity Morgan Stanley believes the companies are uniquely capable of addressing, potentially jointly.

The analysts identified 71 mentions of Tesla in SpaceX's S-1 filing. Of these references, 34% cited direct collaboration, while 41% related to governance and related-party transactions.

Compute And Connectivity Flow Both Ways

The companies are jointly building Terafab, a Texas chip factory with Intel Corp. (NASDAQ: INTC), at a cost exceeding $119 billion. They are also co-developing an AI platform called Macrohard.

SpaceX purchased $506 million worth of Tesla Megapacks and $131 million worth of Cybertrucks in 2025 for its Colossus compute cluster. Quarterly filings showed Megapack purchases totaled $329 million in the first half of the year.

SpaceX supplies Tesla with compute capacity set to reach 4.9 gigawatts by 2027, along with Starlink connectivity for the Cybercab. In return, Tesla provides SpaceX with data-collecting robots, energy storage technology, and manufacturing expertise from a workforce more than six times larger than SpaceX's.

Musk Has Fueled Merger Talk

Elon Musk recently suggested that the extensive collaboration between the firms warrants consideration of a merger. Speaking on the All In Podcast with SpaceX President Gwynne Shotwell, Musk asked listeners to imagine what action might be taken given the close collaboration across multiple areas.

Investor Ross Gerber stated that a merger could become a "must-have" investment for global investors. However, he warned it would be dilutive for SpaceX shareholders and unfavorable for Tesla investors based on current valuations.

SpaceX holds a valuation of $2.06 trillion, compared to Tesla's $1.48 trillion, according to TradingView.

What the Numbers Show

The valuation gap between the two entities is significant. SpaceX is valued at $2.06 trillion, which is approximately 39% higher than Tesla's $1.48 trillion valuation. This disparity underscores Gerber's warning regarding potential dilution for SpaceX shareholders in any combined entity.

Market Reaction

SpaceX shares closed 0.56% lower on Monday at $151.85 before climbing 0.58% in extended trading. Tesla shares rose 3.03% to close at $375.30, then fell 0.01% in after-hours trading. Benzinga edge rankings indicate SpaceX stock has a positive price trend across short, medium, and long-term horizons.

Space Exploration Technologies Corp (NASDAQ: SPCX) saw its Nasdaq-100 index weighting more than double to 2.82% during the quarterly rebalance on Monday, up from 1.28% previously.

The adjustment reflects the company's market capitalization exceeding the $2 trillion mark, ranking it as the seventh-largest constituent by value. Despite this scale, its prior weighting lagged due to a thin float following its July IPO.

Passive Fund Flows

The significant increase in index weighting compels index-tracking funds to adjust their holdings. Analysts estimate the rebalance could trigger between $15.5 billion and $22 billion in total passive buying across QQQ, leveraged, inverse, and other Nasdaq-linked products.

xAI Launches Grok 4.7

Separately, xAI, the artificial intelligence unit integrated into SpaceX operations earlier this year, released Grok 4.7. The company describes it as its top-performing model for software development and general knowledge tasks.

Key features of the update include:

• A larger foundation model with extended reinforcement-learning training for multi-hour problems.
• Enhanced self-checking abilities and stronger handling of extended context.
• A rebuilt safety framework designed to resist jailbreak attempts while minimizing refusals of harmless requests.

Pricing remains unchanged at $2 per million input tokens and $6 per million output tokens. The model is live across Cursor, Grok Build, the Grok API, and third-party integrations.

Launch Schedule and Price Action

SpaceX completed a Starlink mission via Falcon 9 from California over the weekend. The next scheduled launch is the USSF-385 mission on Friday, September 26, using a Falcon 9 from California with a booster landing targeted for a droneship.

At the time of publication, SPCX shares edged down 0.48% to $151.97.