SpaceX and Google Want to Launch Data Centers Into Space -- 2 Things Investors Should Know
Orbital data centers may prove critical to AI growth.
By Ryan Vanzo
The historic SpaceX (SPCX 5.22%) IPO is now behind us. The company successfully raised $75 billion from outside investors, a sum that could balloon even higher thanks to underwriter allotments and additional share sales. With its market cap soaring, I wouldn't be surprised to see SpaceX sell even more shares at a richer valuation sooner rather than later.
What will the company do with all this new capital? A quick glance at the company's IPO prospectus reveals the answer. Of the company's claimed $28.5 trillion total addressable market, $26.5 trillion of that is dedicated to a single growth opportunity. It's not rockets or Starlink, but artificial intelligence (AI).
Artificial intelligence growth, however, will be greatly limited by data center infrastructure. Without more data centers, SpaceX's AI ambitions will remain capped. Building more data centers as quickly as possible is, therefore, now critical to SpaceX's long-term growth and survival.
There's just one problem: Data centers themselves have several growth constraints.
"The race to scale AI has triggered one of the largest infrastructure build-outs in modern history," observes a recent report from global consultancy McKinsey & Co. "By our estimates, global spending on data centers could reach $7 trillion by 2030. Whether a build-out is successful depends on many nuances, including the availability of capital and energy resources."
SpaceX now has plenty of capital to build massive amounts of data centers. But there is still the issue of energy resources. This challenge is a big reason SpaceX CEO Elon Musk has considered launching data centers into space -- so-called orbital data centers. It's also why other major technology companies like Alphabet, the parent company of Google, are interested in space-based data centers. In space, cooling needs would be significantly reduced, with abundant solar power available for near-constant use.
According to reports, SpaceX and Google may soon be teaming up to make orbital data centers a reality. The potential is huge. But there are two concerns investors should be wary of.
1. Orbital data centers are not a current reality
Launching data centers into space remains a theoretical possibility. No company or individual has ever succeeded in doing so. And depending on who you ask, it might not even be possible.
The vacuum of space, for example, makes convection physically impossible. Heat dissipation, therefore, becomes an immense physical challenge, likely requiring breakthroughs and new technological approaches with minimal real-world proof points. "Ultimately, the physics tax is universal," warns one industry report. "Whether managing heat rejection in the vacuum of low Earth orbit or managing power density in a hyperscale facility in Northern Virginia, the constraint is never the silicon. It's the thermodynamics."
Others, however, caution that the physics are indeed possible. The question is really whether overcoming physics is worth the economic cost. "This is not physically impossible; it's only a question of whether this is a rational thing to scale up economically," notes Andrew McCalip, an industry insider. "The answer is it's really close. And if you own both sides of the equation, SpaceX and xAI, it's not a terrible place to be. I wouldn't bet against Elon."
2. Capital constraints could make partnering critical
SpaceX now has significantly more capital at its disposal. But its capital is not never-ending. This is likely why we see SpaceX talking with Google about a potential partnership rather than funding its efforts completely independently. Google, after all, is already spending heavily to make orbital data centers a reality.
"Last year, Google announced its own plans to launch prototype satellites by 2027 as part of a moonshot initiative called Project Suncatcher," reports The Wall Street Journal. Partnering with a well-funded SpaceX could lower its launch costs and speed deployment. SpaceX, meanwhile, can generate revenue for both its rocket and AI segments by partnering with Google. In a nutshell, Google will front much of the upfront capital, relieving SpaceX of some of the financial strain.
For its part, Google appears relatively bullish on the idea. "We'll send tiny racks of machines and have them in satellites, test them out, and then start scaling from there," Google's CEO, Sundar Pichai, said in November. "There's no doubt to me that a decade or so away, we'll be viewing it as a more normal way to build data centers." Investors, however, need to form their own assessment.