Space Exploration Technologies Corp. (NASDAQ: SPCX) and Tesla Inc. (NASDAQ: TSLA) are deepening their collaboration on infrastructure and technology as they pursue "physical AI," a focus that has led Morgan Stanley analysts to speculate that a merger between the two companies may be on the horizon.

Analysts led by Adam Jonas at Morgan Stanley described the relationship as a "shared mission of converting energy to intelligence." The bank noted that the two companies share technology, talent, and infrastructure. They argued that the firms are "uniquely capable" of addressing the opportunity of physical AI, either separately or jointly.

The analysts cited data from SpaceX’s S-1 filing, which contained 71 mentions of Tesla. Of these, 34% referenced direct collaboration and 41% were tied to governance and related-party transactions.

Key infrastructure projects include the joint construction of Terafab, a chip factory in Texas with Intel Corp. (NASDAQ: INTC) that costs over $119 billion. The companies are also co-developing an AI platform called Macrohard.

Financial transactions between the firms include SpaceX purchasing $506 million worth of Tesla Megapacks and $131 million worth of Cybertrucks in 2025 for its Colossus compute cluster. SpaceX’s quarterly filing showed Megapack purchases totaled $329 million in the first half of this year. Additionally, SpaceX supplies Tesla with compute capacity set to reach 4.9 gigawatts by 2027 and Starlink connectivity, beginning with the Cybercab. Tesla, conversely, provides SpaceX with data-collecting robots, energy storage technology, and manufacturing expertise from a workforce over six times the size of SpaceX’s.

Elon Musk has stoked speculation about a potential merger. In an interview with the All In Podcast this month, Musk stated that given the collaboration on so many levels, people should "imagine what action one might take when there’s so much close collaboration in so many areas." Investor Ross Gerber has suggested a merger could become a "must-have" for global investors, though he warned it would be dilutive for SpaceX shareholders and a poor deal for Tesla investors given their current valuations. According to TradingView, SpaceX has a valuation of $2.06 trillion compared to Tesla’s $1.48 trillion.

On Monday, SpaceX shares closed 0.56% lower at $151.85, while Tesla closed 3.03% higher at $375.30.