Since the S-1 filing, xAI has taken over and is likely the largest share of revenue. I would estimate that ~95%+ of xAI revenue, and 100% of its profit, is from renting their datacenters.
This is a datacenter REIT bolted onto a social media company bolted onto launch business bolted onto a niche ISP. The expected price to sales is ~100x. The best datacenter REITs trade at ~10x and pay a dividend, which SpaceX does not. Meta trades at ~7x sales. Comcast is one of the best-run ISPs, and it pays a 5.5% dividend on a stock trading at < 1x sales.
To say SpaceX is overvalued is to even beginning to convey the magnitude of the situation. It's going to be very painful when the valuation normalizes.
Do companies like Uber, Tesla, etc ever intend to pay dividends? If a stock never intends to pay dividends, the value of the stock is simply the price the next shumck is willing to pay.
Excellent question. They may not intend, today, to pay dividends. However, the same question could have been asked about the successful tech companies of the '00s. Companies don't like to start paying dividends until they are fairly certain of their future profit stream and therefore ability to continue paying (and increasing) the dividends in the future.
Apple, Oracle, Nvidia, Cisco, Alphabet, Meta, Salesforce, and Qualcomm all pay dividends now. It's not unreasonable to expect Uber and Tesla to pay in the future. However, the median time after IPO for similar companies to pay a dividend is close to 20 years. So we could expect Uber to perhaps wfstart paying sometime around 2039. Tesla...is Tesla so who knows?
The value of the stock is your share in the underlying business. Because underlying business changes over time (hopefully for the better) you are not simply hoping another shmuck pays you more, like with tulips, whose underlying value does not change with time. You own a portion of a concern that is improving its own fortunes.
Furthermore, dividends are approved by the board once per quarter or once per year. A dividend on a stock is not a contractual guarantee like it is on a bond. Therefore, it cannot be a basis of value.
With your logic, Berkshire Hathaway is a long-running greater-fool tulip bubble whose shares are only bidded up by finding more shmucks.
Well, the value of the stock for people who essentially do not have any meaningful control of the business must essentially be tied to the expectation of some liquidity event down the line -- future cash flows. So this could come in the form of dividends, sale of the stock, bankruptcy proceedings, or a purchase of the business.
If I knew for certain (big if) that a business would never have a liquidity event and I couldn't transfer my ownership then it's dead capital for all intents and purposes and you could consider its value essentially $0, right?
And you can sell your tulip. But if the mania stopped and you suddenly _couldn’t_ find another person to sell it to, would you now be upset you paid $5000 for a tulip? What’s the value at which you wouldn’t be upset? Ok, that’s the intrinsic value of a tulip to you.
The thing about a profitable business that is different from a tulip is that it can at any point decide to issue a one-time or ongoing dividend. It can sell off parts to create cash. It has lots of optionality. Public companies have even more liquidity, which creates more optionality.
Even if you don't have immediate liquidity, it would obviously be worth something to have a slice of e.g. Rolex SA. That's obviously different than owning a tulip.
I disagree with the last statement. The reason why most companies in the US have at least a nominal (one penny per share) dividend is that many pension funds have a requirement to only hold shares that issue dividends. Pension funds are all tax sheltered, so they don't need to worry about paying taxes on dividends. For retail investors, dividends are mostly worse that share buy backs. Why? Dividends are taxed, and the money needs to be reinvested.
Dividends are also one way of income in retirement, much more predictably than selling stock. The yields are worse than bonds, but they can be considered to be mostly to rise with inflation, albeit on a year or two delay. Dividends also act as a discipline to keep management focused on the business, since you need to pay real money to shareholders, instead of just doing whatever good idea you have, regardless of whether it is a net benefit to the company.
> The only reason to do a dividend is because people like the feels of getting a cash payout.
Not really, when capital entities came up, the initial goal was to deliver return on invested capital,i.e. something "you get out of the business/back".
Or do you think back in 14th wenn Dutch East India Company was created, that you could by shares and sell them later to a higher bidder after the mission was accomplished? :-)
That’s the story, but it’s bullshit. The underlying intrinsic value of a stock can only be materialized if the company liquidates and you receive a share of the sell off of its assets. How many publicly traded companies abruptly decide they’re tired of the business, stop in their tracks, and liquidate their assets? This only really happens if the company is acquired or if it goes bankrupt. Acquisition is the closest the story comes to truth, but it’s also just forced sale to a greater shmuck. If a company goes bankrupt, a tiny fraction of the current stock price would be realized into cash for common investors because of all the privileged investors and lenders ahead of them, not to mention that the actual value of capital assets etc probably doesn’t cover all the losses (the company’s going bankrupt after all). The value of the underlying capital assets are essentially never returned to the common investors, and the idea that you own a portion of them is in practical terms a lie.
Yes, the profits it pays out are the one thing that actually makes sense, but the premise of the grandparent post was to ask what a share is worth _without_ dividends. And the answer is that shares are intrinsically worth very little. Liquidation value (actual liquidation - bankruptcy or going out of business or an exchange closure) is rarely ever practically realized for common investors. Even if you’re trading on the discounted expectation of a larger liquidation pie, nearly 0% is still nearly 0%.
Voting rights are also not valuable by themselves - they are only useful to steer the company towards greater future payouts, which means you are appealing to some other entitlement to value.
If you zoom out, a company is a temporary arrangement of people and things that makes more money than it spends _over time_. They are not really designed to accumulate and store value in and of themselves. The machines the employees use to do the work is a small fraction of the overall utility of a living breathing business. The valuable part is the capacity of this techno-social organism to reliably and continuously make profit, which is far greater than the sum of its parts. So if the profit that’s being earned is never paid out to stakeholders, then there’s no point in being a stakeholder. If the profit is redirected to make the organism bigger, then you are trading now-dollars for future-dollars which must be appropriately discounted. If everyone expects a company to do this forever, then the correct price is what the expected liquidation share should be, and that number is basically zero.
Yet, stocks that do not pay dividends exist at high valuations. What that tells you is that modern day stock trading is tulips: the lion’s share of the value derives from a temporarily stable, shared, _correct_ perception that someone else will buy it back from you.
The reality is that general investors are the greater fools in this arrangement. The prevalence of preferred stock is a tell that there are owners and there are “owners”. What we should do is recognize this and admit that the big initial investors and employees themselves are the owners, because they are the group small enough to actually realize liquidation value (should it ever be necessary). The public investors have no realistic claim on that value, so their shares should be more clearly labeled as dividend rights, which would cause them to be priced as such.
By this logic all money is inherently worthless too, and every time you buy a sandwich at the local corner shop you're just passing off that worthless piece of paper to the next schmuck.
In reality, things have value because people believe they have value. That doesn't mean every company that doesn't pay dividends is a speculative tulip bubble.
> The underlying intrinsic value of a stock can only be materialized if the company liquidates and you receive a share of the sell off of its assets.
This is wildly incorrect. A profitable company can decide to begin paying out dividends, which can eventually return > 100% of the investor's purchase price. A company can issue more stock or bonds to raise cash to pay investors. A company can spin off assets to raise cash to pay investors.
Your framing is very much like a short-term PE investor, and if you look to their playbooks you can see there are many ways for intrinsic value to be realized while leaving an operating business behind. There are any number of stories where PE investors make big profits and then turn around and resell the company for more than they paid.
Things don't have any inherent value. It is priced at a level that a buyer thinks it is worth.
A gallon of oil can be $3 or $6 depending on whether someone is willing to pay. It can also be $10 but only if people are willing to buy it at $10 if not "prices will come down to match the demand" - another way of saying it would be $9..$8...$7...$6 until it matches a buyer at which point gas is $6.
This is what I am trying to express. There is no "inherent price" or "inherent value" there is only the real value that it is bought at (in terms of money). There can be other values (non money) like if someone is willing to swap something for it etc.
There is no underlying value. It is only how much other people are willing to exchange for it.
So stock marked is always meaningless except considering it is so large and consequanetial and so many people have access to it that it will be rational automagically. This is more of a belief that seems to be fairly correct than a rational line of thinking. This is similar to Democracy in a way
You seem to be operating on the assumption that stock values are just totally and completely random and the fact that Google is worth $4T is just as much of a possibility as Hertz Rental Car being worth $1.5B
If you disagree with the above framing, your reasoning will have to concede the existence of underlying value. Yes, obviously the price of a share is the result of the bid and the ask price in the order book. But those prices are based on something, they are not randomly generated. They are based on conceptions of value. The fact that companies with increasing free cash flow over long periods of time always see increasing share prices over time is not random coincidence.
That example is a bit extreme but I can give two more normal examples.
Google/Nvidia and Apple/Nvidia. I don't think there is a world where nvidia will make more money than google or apple or keep making more money than them.
Also another one is Tesla. In my opinion, there is absolutely no world where tesla is worth the current stock price if you compare it to chineese companies or some company like Toyota.
Ofc at this point it depends on if you believe the stock market is absolutely correct or if it is correct in these specific examples. We can agree that it is correct in pricing Google higher than a car rental company but it is more complicated.
The prices are based on something but that something is so obscure and complicated that I don't see a way to make a calculation out of it outside of American ideology of stock market/capitalism.
> The fact that companies with increasing free cash flow over long periods of time always see increasing share prices over time is not random coincidence
This is just trivially related imo there is no real calculation between these things . And this relation it is breaking more and more lately as far as I can understand. This might mean stock market ideology is starting to diverge from the real world which is scary
how about this: there has been a fairly short-lived, one-time event that boosted NV's revenue and allowed them extraordinary margins. nothing like that is goosing Goog or AAPL.
yes, I'm claiming that the NV-AI hype bubble will pop (which almost everyone expects to one degree or other).
The price of a growing business should go up because it has more options to create returns for shareholders.
Use Aldi (revenue ~$120B) as an example. Do you think a person would be a shmuck to buy a slice of it now versus when revenue was $1 million? If not, why not? Your answer will help understand why stock has value even without voting control or dividends.
Google and Meta have a reasonably similar corporate structure. Most of the voting power is concetrated in the hands of a few. They have both done very well since their IPOs. Do you exclude these companies from your portfolio?
Among the oldest value models, the Dividend Discount Model, says that the value of a company's stock is based on the present value of its future dividend payments.
Even if a company doesn't currently pay dividends, it will eventually do so or be purchased by a company that does. That's the theory at least.
As someone who has been looking at equity "value models" for more than 15 years, I can confidently say it is all bullshit. None of them can explain ("predict") price to earnings ratio or price to book value ratio. Sentiment matters much more in equities than any analyst will admit.
There are lots of US companies that pay dividends. Another commentor lists some tech companies that do, and there are lots of other types of businesses that do. A quick internet search will give you a list.
You are correct that stock buybacks are another way that companies reward their shareholders.
Not really, the company reinvests the dividends, increasing the value of the company/stock.
The big difference is you pay taxes of dividends - you don't pay taxes on the stock going up year over year. Unrealized gains compound much faster than realized ones.
Circular financing at its finest. And Self-dealing between the hyperscalers, openai, and anthropic.
google invests in anthropic and spacex - and shows appreciated values as earnings. Then it turns around and rents tpus to anthropic to show it as revenues. The main buyers and sellers for all of this are the hyperscalers, openai and anthropic.
It is a game of musical chairs while the party is still on.
TSLA has a forward PE of ~200x. That is probably the most logical comparison with SpaceX. Proof that the market can stay irrational for quite a long time.
It fills me with a bit of dread about the future of the market. I am 10 years out from retirement, have a bit over 1M sitting in that market, and I wonder if it will implode in the meantime. I am fairly committed to the "invest like a dead man" (i.e. index funds, no touch), but the world we live in today makes me have real doubts that the next few decades will look anything like the last few.
there's no such thing. He's talking about L/S funds. The market neutral funds survive by capitalizing edge cases but during real market turmoil the whole thing blows up.
About 10 years out as well. I’ve concluded I just invest a very balanced set of index funds and bonds and GICs across a handful of institutions, and then invest in my home because even if the housing market collapses I get to enjoy my nice home.
Other than that I’m just not over investing for retirement and instead making sure the money is spent today on family growth and experience.
I eventually just got tired of everyone with an opinion on what doing it right looks like or how to predict the market.
Eh, Tesla had a relatively normal growth company valuation for a while when they were growing strongly. The problem is the stock still hasn't compressed the multiple back down as growth stagnated... because the market swapped out "valuation based growth" for "call option on robotaxi success" at the blink of an eye.
The truly terrifying thing is that someone could short the Musk companies, and with one bullet can cause them to drop 50-90% right away (thanks to meme-ness). And they are valued so high that such a person could make billions overnight, maybe 10s of billions. Terrifying to be Must or anyone that shares a car or plane with him.
Start gradually converting your equity to bonds is the standard advice on that timeframe. If you're dreading equity drawdowns, that's what fixed income is for.
This is absolutely terrible advice and is out of touch with modern financial understanding. Bonds feel psychologically safer, but lead to failure more often than total market equity portfolios, even when you account for market crashes.
I always thought the psychological safety was exactly part of the point, since 100% equity portfolios do better in theory than practice, because people are more likely to panic sell.
I agree with everything in the video you linked (which is not surprising, given it's Ben Felix). That includes the parts about equities being less risky than bonds in very important ways, but also the parts about behavioral loss tolerance and risk capacity, and how they can indicate higher bond allocation.
So I disagree that "If you're dreading equity drawdowns, that's what fixed income is for" is absolutely terrible advice.
I feel like I should go learn some more. I'm not in a pure index fund, I'm really in VFORX (almost completely, I'm not too original nor sophisticated financially and don't try to pick my own stock picks these days except with my "lunch money" just for fun). Do you think something like VFORX is a bad option? It's actively managed, so the fees will be a little higher than a pure index fund, but it's Vanguard and the fees are still really low. And it has total market components in addition to bonds.
Active management in general is a poor idea. You'll get better risk adjusted returns by investing in total world equities (like VT). Check out Bogleheads to learn the basics. If you want to get more advanced, you can learn about factor investing as well, but VT is enough for the vast majority.
If you want to get intuition for why this works, this is a really fun and interesting video: https://youtu.be/TQuxVz52w2w
It is precisely what the video says. Ben has discussed this multiple times as well, not just in this video. If you have better behavioral tolerance for volatility (as in you're not the type to panic sell), total market equities will outperform and lead to less failure in retirement.
While partially true, that "If you have better behavioral tolerance for volatility" is HUGE. Most people can not do this. Once they see their net worth go from $x to $x/2 or worse, they panic sell. People are emotional beings and it's very very hard to not let your emotions dictate what's going on.
If you haven't lived through a market panic and crash(last one in the US was 2008/2009), then chances are you shouldn't count yourself as being able to do it.
Also, their 100% equity time frames are measured in many lifetimes, not in a single lifetime.
If the goal is to have the biggest $ balance, then sure 100% equities for the win, but if the goal is to survive your retirement with little worry, 100% equities is a terrible idea.
Bonds provide stable cash flow. Equities provide growth/return. Use both in the appropriate amounts for your situation.
Bonds are no longer recommended. Current research indicates 100% equities to be the best composition leading up to, and past, retirement.
To point, the economic uncertainties around geopolitics, AI, and war, plus irresponsible debt spending by governments and the prospect of QE (and higher inflation), is pushing long term rates steadily higher. There’s a reasonable chance that 30y treasuries are nearing 6% by the end of next year. Remember that rates and bond prices are inversely related. Anyone who holds bonds in this market will likely lose money. Holding to maturity won’t help much either because if inflation continues to rise, as is a major concern, most or all of that 5% yield gets eaten.
It depends on the goal / priority. In most financial / retirement advice they are focused on average middle class Americans. They tend to have too little savings, and not a lot of options.
If you have more than enough saved to meet your basic needs, it does (IMO) make sense to give up some total income for lower variance.
I sleep on certainty. I feel bad for the people based their futures entirely on a trajectory from a time we'll look back on as "utterly unsustainable".
Bonds only give you certainty to the extent that inflation remains certain.
Stocks generally rise with inflation, whereas bonds continue paying out the same nominal amount, which buys you less over time.
As a retiree I'm 50/45/5 in stocks/bonds/cash, having opted for a conservative portfolio. The stocks are the only reason I haven't lost buying power. But the bonds have performed so poorly that I've barely kept up with inflation despite the amazing bull run in stocks.
Are we talking about bonds or government bonds here? The former will beat inflations assuming you don't just buy AAA rated ones. Investment grade perpetual bonds in US dollars yield over 6.5% on a Yield-to-call basis.
> Bonds are no longer recommended. Current research indicates 100% equities to be the best composition leading up to, and past, retirement.
Are you referring to Anarkulova et al? Might be worth mentioning that the fixed income part is replaced with international equity, not more domestic equity.
That’s been something I’ve started doing. The nice part of the bond chunk of my investment portfolio is the current income aspect of it, with monthly dividends that give an annualized return of a touch under 4% on top of the capital growth.
For most people, $VT (or VWRA) is optimal. You should have a U.S. tilt because most growth is coming out of the U.S. $VT will naturally rebalance into international equities on that growth. If you already have a U.S. heavy portfolio and want more international exposure, $VXUS.
Their definition of long run and your definition of long run are probably different.
Also, it should be noted, just because it's the optimal to have the most $'s that shouldn't be the goal. The goal should be to survive your retirement with "enough".
And it should also be mentioned, most people can't stomach holding 100% equities, for a very good reason. When the 40-60% market crash happens, people get emotional and make emotional decisions. Sure there are the lucky few that can hold out, but most can't. Are you going to be one of the few lucky ones? If you haven't yet been through it once(last one in the USA was 2008/9), how do you know for sure?
Bonds will give you poor (probably negative) real returns, but if you're 10-20 years away from dying you're more concerned with wealth preservation than growing your wealth.
People have forgotten this but equities are an infinite duration asset that are prone to periodic, significant, often violent crashes.
(Edit: often at a time when everyone is absolutely convinced they're the best asset class...)
You can keep some equity exposure but you don't want 1929 or 2008 to happen the day after you retire when you might live for another 30 years
The theory I have seen when they say we should convert into bounds near retirement is that you don't really get to decide when to sell, that's money you need to live. And if you are unlucky enough to need money when there is a market crash, you are screwed.
Bounds are not as volatile, so even if you lose some money from inflation, you are less likely to lose a lot of money, money you need to live, from the whims of the market. You want to protect your capital, yields don't matter as much if you near the end of your life.
If you are younger, and you make reasonable investments and not gambles, you can expect that your value will go up (more so than with bounds) within a decade or two, and because you have income, you don't need that money and you can wait for the market to recover before selling.
I'm technically not really in pure index funds, I just wanted to avoid trying to complicate my thoughts. Nearly all of my investments are in VFORX or Schwab's equivalent, and have been for a long time. So they are really composed of total market funds, bonds, etc, and Vanguard changes the ratio a bit as 2036 approaches. So while not really an index fund, from my perspective as a lay investor I treat it like that and consider myself an honorary Boglehead. I just put money in and forget about it.
It looks excellent for your needs, and have an incredibly low expensive ratio of 8bps(!). Currently, it is 75% stocks, and 25% bonds. Don't worry about a bubble in the stock market.
EDIT (after reading many, many more negative comments below):
The problem with discussing your investments online, there are a million negative replies. No one ever says: "Yeah, looks pretty good. Leave it alone." I'm here to be that guy.
As others have pointed out, bonds are barely (or not) keeping up with inflation. I would like to suggest a third alternative to stock index and bonds: stable dividend stocks. They should increase in value along with inflation but still pay out a steady dividend as long as the company is strong.
One of the lessons from 2008 is that even the contrary position gets obliterated when the whole damn system implodes.
So, the optimists all swim in the cash while your contrary position fails to keep pace with the bull market; and then the bear market hits and you all get obliterated equally.
You absolutely need to get inflation adjusted bonds. Otherwise you’ll get wiped out. I am in the krugman, stiglitz monetary camp; so not prone to constant fear of hyperinflation but what the government is doing makes inflation certain and the only way out a fairly painful recession either of will be hard on equity and bonds.
The market of a good leader is a lack of chaos. We are seeing the effects of a chaotic mind untethered from an accurate view of reality. Buckle up
In a similar situation: I basically have just 2 funds in my retirement portfolio: SnP500 index fund (75%) AND Berkshire Hathaway B shares (25%)
from my research I know that in years where SnP500 drops too much (recessionary periods), BRK-B would soften the blow as Value stocks tend to do well in such times. And usually that works for me.
For those unaware (myself included), VT is the Vanguard Total World Stock Index Fund ETF which "tracks the FTSE Global All Cap Index, covering roughly 9,000 stocks across more than 40 developed and emerging markets."
I see this argument a lot online: "You need more diversity." First, you didn't provide any reason or evidence about why this is a good idea. Second, "more diversity" isn't always better.
The S&P 500 has crushed VT since inception (June 2008). Most people will be surprised to learn that adding smaller cap (domestic) stocks, or international developed country stocks, or emerging market stocks will probably reduce your returns. As an example, you can compare the returns of S&P 500 vs Russell 2000 since 2005 [1]. It is not even close -- S&P 500 crushes again. Also, the vol in S&P 500 was lower than Russell 2000.
My investment philosophy comes directly from Warren Buffett: "Never bet against America". Of the three largest economic zones in the world with free markets (United States, Europe, and Japan), the United States is by far the most dynamic. Ask yourself: In the next 30 years (or more), which of those three regions will grow the most? In my view: Absolutely the United States.
Finally, to people who say that you need international stocks in your portfolio else you are "missing out". You don't. Why? The S&P 500 already has 30% of revenues from countries outside the United States. [2]
> The 10 biggest companies in the S&P 500 make up almost 40% of the index, and if Anthropic, OpenAI and SpaceX are added later this year, the concentration could approach 50%, see chart below. The bottom line is that the S&P 500 basically doesn’t offer much diversification anymore.
> My investment philosophy comes directly from Warren Buffett: "Never bet against America". Of the three largest economic zones in the world with free markets (United States, Europe, and Japan), the United States is by far the most dynamic. Ask yourself: In the next 30 years (or more), which of those three regions will grow the most? In my view: Absolutely the United States.
The next 30 years will not look like the last 30 years, and to be frank, this administration impaired any thesis of the US being at the center of the economic world globally for at least the next decade or two. The ultimate strength of the US economy was that global trade centered around the US. That trade is already reconfiguring around the US, and will continue to do so to de-risk and decouple. How is the US supposed to grow with restricted immigration? 21 states already have more deaths than births and this will continue to all 50 states eventually. India and Africa are the last parts of the world where any growth will be found, everywhere else is in terminal population decline.
So! VT reduces your concentration risk from the AI bubble (versus the SP500) while still keeping you exposed to a risk asset class (total world equities) to capture higher returns than you’d get with bonds.
Your backtesting is of no value in this context, the world has changed permanently due to the actions of this administration. Portfolio composition decisions made today are for the future, not the past. Past performance is no guarantee of future results.
https://www.morningstar.com/stocks/you-might-think-industry-... (We see the same results looking at the more recent period of July 1963 to September 2024. US stocks returned 10.64% annually, high-tech stocks returned 11.35%, healthcare stocks returned 11.99%, and both were outperformed by beer, which returned 12.18%, smokes, which returned 14.56%, and guns (defense), which returned 12.77%. Even shops (wholesale, retail, and some services such as laundries and repair shops) outperformed, returning 11.88%)
I do not understand how you can talk about US, EU and Japan but not mention China. Because I'd bet China is in a similar league and has better prospects than any of the three.
This is incorrect. There are lots of ETFs that now directly hold China A shares. CSI 300 index is the equiv of S&P 500 in mainland China. Also, via HK Stock Exchange, you can buy China A shares via "northbound connect". A broker like Interactive Brokers supports this type of trading and the bizarre/special currency (CNH) required for it. That said, I excluded China because it is not developed and has awful transparency.
PE of 380 against deteriorating margins & profit. This story doesn't end well. But to your point, it's likely a cult of personality that can stay upright until Musk leaves the company.
8% decline YOY, Tesla shut down production of Model S & X. Eventually, they will become a pure speculation as a service stock, with zero production. But its cheaper to produce than bitcoin, no energy needs to be expended, runs on pure Musk energy!
They shut down production of S & X to make more capability for cars that they want to focus on and which sell way more, AND Cybercab.
Tesla grows in large steps. Next big step is Robotaxis, which is well on its way. After that, robots, for which they have the best real-world AI platform for.
You could say Tesla is a speculation stock as well when they had released the Roadster. Tesla shorters always lose.
It might be. It might not be. That's where the money is or isn't.
I think the mature part of their business is 3/Y, energy storage, and maybe cybertruck, although I also think it's too early to call it because it depends on lower cost cell in house cell production and they only started that recently.
In the near term, the growth part is Semi, cybercab, FSD, lithium cell production, and maybe cybertruck.
In the long term, it's potentially Optimus, more general autonomy, and gigafactories.
That doesn't mean they can't make a mess of things all by themselves. But comparing their infra investments/growth strategy to snake oil when they've gone from nothing to $100 billion/year in 15+ years might be short sighted.
Semi is DoA, FSD has been 1 year away for 10 years now give or take, cybercab is flailing, cybertruck same, and China is eating everyone's lunch on lithium cells.
They might might fail, but I wouldn't bet on it. Also cybercab isn't out yet, so any discussion is premature at best.
Cybertruck has been disappointing, but I think a big part of that is cost. They started in house dry 4680 cell/pack production a couple months ago, so we'll see how that goes over the next few years.
Even with China subsidizing cell production and being dominant in the world market, Tesla is still at 150gwh/year compared to 200gwh/year from BYD.
The big question is how the dry cell 4680 packs will perform and how well they can scale production if performance is adequate.
FSD is always a year away, but that's generally OK as long as it keeps improving and there isn't a comparable product in their cost bracket. If someone leapfrogs them, they're done. If not, they might be able to roll everything up all the way through Optimus.
Stocks, bonds, etc are effectively NFTs of "you own a monkey image". That monkey image can go poof on a 'market correction' aka 95% of investors lose everything.
With precious metals, you own the material. And silver, gold, platinum, palladium, rhodium and others have innate usage for a variety of industrial and jewelery uses. Their prices may change, but catalytics arent just going to bottom out.
We still have stocks, cause 401k's. But we also have a sizable metal buffer now.
> It's going to be very painful when the valuation normalizes.
Painful for everyone except the grifters who are engineering this and can get out early enough with their stolen millions and billions. Musk's companies are just a giant pyramid scheme.
I love this clip (this is the other guy that predicted the 2008 crash, played by Steve Carell in The Big Short). Cult Stock is a great way to think about it.
My only consolation is that this is so obvious that it's not going to lead to a disaster. Things like the housing crisis happened because long-established institutions like credit ratings and mortgage lenders didnt do their jobs.
It's the swiss cheese model, hidden behind curtains.
This is like a giant sign saying you can buy $2 for a $1.
This is exactly how the dot com crash happened. People point out this like pets.com, but that wasn’t the issue. It was the musical chairs the played with the fiber telecoms. Today it’s data centers.
I feel like your analysis is correct and it’s overvalued but employees and insiders have already been selling shares (eg on platforms like Forge) for around the $130-135 IPO price. So there are buyers, question is if there is enough to consume the liquidity of a $75B IPO.
They won't, SpaceX will weigh less then 1% in most indexes, since they're mostly float adjusted, only NASDAQ will overweight them, but FTSE/MSCI/CRSP/SP will not.
It's still quite some money but it won't crush the market by itself.
You mean the company with such a bad reputation that it had to aggressively rebrand? I take it you've never had the displeasure of doing business with them.
That said it wouldn't surprise me in the slightest to learn that it was one of the most profitable ISPs for investors. That would fit quite well with the general theme of prioritizing the interests of investors over all else.
Comcast is a successful business in spite of their customer satisfaction. You don’t need to please your customers when when you can involuntarily extract their money anyway.
This isn’t hypothetical. SpaceX is increasing Starlink revenue by like 50% per year. And their current Starlink constellation, about 10,000 satellites, has been launched entirely by Falcon 9. They’ve been waiting to launch much larger satellites on starship (in fact they had versions of these ready for several years now, and recently did suborbital tests of some of them on recent starship flights). Starship is about 5-10 times the capacity of Falcon 9, is fully reusable, & has larger diameter allowing much larger satellites. They asked for approval for roughly 40,000 of these larger satellites (~3 times the size of current ones, each about 10 times the bandwidth… and half of the 10,000 are even older designs), and they may eventually do about 100,000 of them & further increase the size and reduce latency (by operating at lower altitude). It’s not an exaggeration to say SpaceX intends to increase bandwidth by at least 100x, maybe a lot more. They intend to use a lot of this extra capacity to expand into mobile coverage as well. They are leveraging their platform for incredibly important national defense capabilities as well, and they operate as their own backhaul using on-board laser links. They can service anywhere in the world that will let them, including lucrative sectors like aviation. I do think it makes sense to value SpaceX as a rapidly growing business, not as a dividend-giving, plateaued ISP like Comcast.
This is all before even mentioning the idea of orbital datacenters.
Many people think their claimed TAM is total fiction, and attempting an actual realistic TAM relies far more heavily on starlink. From morningstar:
> Our base-case forecast entails $56 billion in revenue for Starlink in these niche and growth areas by 2035, representing about 45% of the identifiable market we’ve sized
> Many people think their claimed TAM is total fiction, and attempting an actual realistic TAM relies far more heavily on starlink.
Then either the TAM for Starlink is ~20x bigger than reported by SpaceX (I doubt they would downplay themselves in such a way) or the whole SpaceX TAM is ~5x smaller (much more realistic, if not more than that)
That had to be 20 years ago? Not that anyone likes the cable company.
As a comcast customer, their core internet service seems really solid. It comes in through some sketchy 1980s cables installed by some company who got bought by some company who got bought by Comcast. So occasionally a router in the back of a gas station blows up, the cable system wasn't exactly built to AT&T standards.
If you ignore data caps the core service itself does seem to be much better these days than it was 10 let alone 25 years ago. But then again my sample set consists exclusively of locations where they have one or two FttH offerings as competition so it's not as though they could have remained in such markets without upgrading.
Somewhat tangentially I find it surprising how fast MoCA is when you consider the cables it runs on top of.
Yes, yes it is. (going to be painful) If the IPO gets fully subscribed. For a long time I've pointed out that after the dot com crash the 'unicorns' were mostly on private markets and when they washed out only the 'qualified' investors got hurt (and of course their employees needed to find new jobs). The retail investors were protected because the SEC made sure you couldn't lie to them without penalties.
Once the SEC got defanged, retail investors once again became the primary target.
Profit … to be seen. Compute is not a high margin business and Colossus was idle for enough of its depreciation timeline to put a question on profit. In any case none of this is a better investment than Nvdida because that’s where all the money is going
> To say SpaceX is overvalued is to even beginning to convey the magnitude of the situation. It's going to be very painful when the valuation normalizes.
The scale of corruption in trying to use Index-Funds and Retail investors as the exit liquidity to bail out the VCs who were pumping the AI hype is unheard of.
It's become so damn brazen! I'm surprised Musk's image hasn't crumbled in front of his fan-bois.
Not to mention all the IPO rules changes that all but guarantee SPCX will be swept into 401ks and index funds in very short order.
They seem to believe the over valuation can be hidden if the shares get picked up by the public quickly enough or that the it can be a quick exit that leaves the public holding the bag.
This is a masterful piece of financial engineering by Google and SpaceX.
Google purchased 10% of SpaceX over a decade ago. After dilution they probably own around 5%.
SpaceX is valued at a whopping 94x revenue. This deal increases SpaceX's revenue by $11 billion per year. If SpaceX maintains this revenue multiplier, then this single deal boosts SpaceX's valuation by 94 x 11 billion = $1 trillion dollars. Google owns 5% of SpaceX, so they make 50 billion dollars. Google spends 10 billion and makes 50 billion, $40 billion profit.
The even better part is that because of this deal, SpaceX is now profitable. The S&P requires companies to demonstrate 12 months of profits before they can enter the S&P 500 index. SpaceX lobbied to have this profitability requirement removed, but S&P said no and refused to rewrite the rules.
Now with this incredible deal, SpaceX is now GAAP profitable under the existing rules, and they get to join the index next year without a rule change.
> SpaceX is trading at a whopping 94x revenue. This deal increases SpaceX's revenue by $11 billion per year. If SpaceX maintains this revenue multiplier, then the single deal boosts SpaceX's valuation by 94 x 11 billion = $1 trillion dollars.
That final number doesn't make sense: if you're trading shares at $X revenue, increasing the revenue by $Y multiplier doesn't increase the share price by the same multiplier.
I rreally dislike how big corp figured out that the can sell stuff to each other without actually moving some good. Looking at you, Nvidia... I have a feeling that the ordinary people will again pay for that.
I mean, we all understand that this is some sort of circular financial play, but at the end of the day Google is paying SpaceX $1 billion for compute. This is no different from AWS or Azure.
Yes, if it's done with an intent to defraud the general population, which could be the case here. Effects and intent really matter when deciding actions.
Except the regulators first outlawed what is generally considered to have caused the great depression (savings banks allowed to invest, which translates to very, very rich people being allowed to take massive risks with poor people's money) ... then re-legalized it.
So not only are the regulators not going to allow things that cause another great depression, they're allowing the things that caused the first great depression too. They must want a rerun.
(Because if you don't allow this you're effectively demanding the extremely rich make good investments to stay rich ... and not even France, otherwise pretty socialist, dares to go that far)
The problem described isn't companies buying goods and services. It's buying from an entity they partially own and then profiting as that entity becomes more valuable because of the purchase.
If the parent comment is true, it seems the problematic aspect is the leverage created by the P/E ratio more than the percentage of ownership. What a weird situation.
It all was many years ago after the great depression, and similar. Then people kept voting in republicans who's life mission is to gut the SEC and all related regulation keeping them from doing things like this.
As an ignoramus to these things.... there are only just so many Googles though. Having made a significant jump, are they really expected to continue that growth?
The bet is that demand for AI tokens will continue to grow exponentially. And that SpaceX will be able to deploy and rent out GPUs to serve those tokens faster than anyone else.
The wrinkle is that they are planning to deploy those GPUs in space. That’s what people are most skeptical about, I think!
Space data centers need years of time to design, build, and deploy, 5-10 at least, and that's after they solve their multiple very difficult or impossible problems. How will they cool them? There are just simple ideas like giant structures to radiate the heat away, but you say you need to put lots of mass in orbit?
Well yes it will be hard, and hence maybe not economical, and that’s why many people are skeptical of the business case (myself included btw).
But satellite cooling already exists (Starlink v2 satellites dissipate heat at over a kilowatt I believe), so that’s why other people find it plausible.
They also need Starship at minimum, which is now a 10+ year old project still exploding regularly.
Starship is at minimum a 2030 project at this point.
And even producing the volume of chips needed for the type of growth space data centers would need to have to justify this would be another decade if construction started now on those fabs.
SpaceX already has 10,000 satellites on orbit that are basically preview versions of space data centers. They've already paid 5 years of that 5-10 year timeline you outlined.
the math doesn't work. a starlink satellite has ~10kw power consumption. A single ai optimized server rack (GB300) is 140kw. Starlink works because you get a massive benefit from putting networking in space for rural users. no one has made a convincing case as to why putting a data center in space is a benefit that can come anywhere near the drawbacks (inability to service, launch cost, cooling etc)
Even permitting isn't a clear win. You are changing from land permitting (where you can pick the location to be wherever you want) to launch permitting (where you have to coordinate with the federal government for airspace and water closures). Not to mention that with the current regulatory status, a rocket explosion can easily lead to a multi-month mandatory safety review that blocks all new launches.
> changing from land permitting (where you can pick the location to be wherever you want) to launch permitting (where you have to coordinate with the federal government for airspace and water closures)
One of these is orders of magnitudes longer and more complicated than the other. Land permitting always involves multiple layers of government. And most of them are causing months- to yearslong delays. (Power hook-up is another source of delay.) Launch permits are predictably issued by, essentially, a single regulator.
> a rocket explosion can easily lead to a multi-month mandatory safety review that blocks all new launches
Which is equivalent to a regular permiting delay.
The tradeoff is between the cost to launch radiator mass and the delays local and state governments cause in permiting. The first is mediated through launch costs. The latter through interest rates. And right now, the former is going down and the latter going up.
Plenty of world to jurisdiction shop beyond the US, most of which also has cheap land and plenty of sun, and for better and worse much of that world is less regulated than launch (and FCC spectrum licensing if you want your data back) and easier to skip the queue with comparatively small amounts of money. Hell, if you like your unit economics to be dependent on solving physics problems most of the earth's surface doesn't need permits at all...
Cooling in space does not seem like a hard problem to me. You absorb a certain amount of energy in a given time in the form of solar energy, you should be able to emit that. On top of that, in LEO you are only in solar orbit roughly 50% of the time
It is in fact very hard, and LEO is not "solar orbit". You want your datacenters in sunlight 100% of the time, to not need heavy batteries, which is possible, but cooling is in fact very hard
Google and friends continue to see increased demand for their wares. The bet is probably that SpaceX is one of the best-placed companies to deliver incremental compute. They've shown they can build data centers fast.
SpaceX's S-1 says they're going to make more than $320bn by 2030 at a 74% expected profit margin. That implies they're going to succeed at selling high-value AI services, not compute, which is a competive business with typical profit margins at or below 30%.
A cynic might wonder given Musk's implausible trajectory and questionable associations whether the X project is primarily a grift and/or money laundering project that happens to do high-profile tech, and the primary aim is to pump the stock and hope some other opportunity to pump it further arrives in the future.
Otherwise a dump works too. There's plenty of money to be made from carefully timed shorting.
The entire AI field has been plagued by circular financing deals, so this is not new. But it's new in aerospace, and the market institutions appear complicit.
Otherwise, why is this IPO getting such unique treatment on such flimsy fundamentals?
Heres the way I understand it as a child could understand.
You are google. I am your friend who wants to sell lemonade.
You have invested in my stand and own a piece. You propose a deal, You'll buy $11 of lemonade from me every week.
Does my stand look like it sells way more lemonade, than it would in reality? And since you own a piece, your own piece has appreciated. You ran the numbers and that spending of yours helps appreciate it considerably more (feel free to plugin the actual spaces-google numbers here and change the analogy).
Are the people who invest in my business after you, on its new valuation, aware that you are the one buying most my lemonade? And are you going to keep buying or will stop buying soon (probably as soon as you can unload your investment on strangers). So the fraud and lie as you said, is the behavior is not as real as it looks.
Am I thinking this through wrong, what do you think?
Edit: my definition of fraud is simpler and different from yours. a "lie" need not be there. fraud is any intentional misrepresentation (i.e. misrepresenting income to the public).
Your time is better spent reading up and understanding the definition of fraud, rather than typing up hypothetical stories of what you imagine fraud is.
Fraud is:
* an intentional misrepresentation of fact, whether by words or conduct, by false or misleading allegations, or by concealment of what should have been disclosed;
* made by one person to another;
* with knowledge of its falsity;
* for the purpose of inducing the other person to act, and upon which the other person relies;
* resulting in injury or damage.
Neither the Google/SpaceX situation nor your story constitute fraud. RTFM.
Except for people who have pensions/investments in whole market class investments who become exposed to an over valued company with a propped up value.
If whole market means whole market, then such investments are exposed to companies who are fairly valued, companies who are massively overvalued, and companies who are massively undervalued, and the whole range in between.
If you want to start picking and choosing which companies are overvalued and which are undervalued, don’t invest in whole market funds. But most people are not good at that!
Also, there’s a long history of companies that people yell about being overvalued being the drivers of index returns, because one of the major drivers is growth rate, whereas retail investors tend to look mostly at current state.
Fun fact, both Enron and Lehman Brothers were in the S&P 500 when they went bankrupt. So yes, the whole market or even the market of the largest companies, includes some that may not be great companies. The beauty of the index is you don't have to know or care, since it'll take care of itself over time.
>The beauty of the index is you don't have to know or care, since it'll take care of itself over time
As long as there are active investors in the market conducting price discovery. Which there always will be, just pointing out that someone has to care, even if you don’t
Depends on what you consider passive, I think index funds specifically are only 20% but if you add other low cost ETFs it’s probably about half the market. I don’t think there’s any way to know for sure at what point passive funds become distortionary, but it should be self correcting to some degree. If active funds are able to provide a substantially better return than passive funds, even with management fees, people will migrate back to them.
At least until it doesn't. If this spacex venture succeeds because it got propped up by index funds, then that's a decent indicator that more will follow.
It stands to reason that active investing will be more valuable as a result
The Nasdaq 100 and FTSE Russell made a rule change that allows SpaceX to enter index without mormal time for price discovery. Most index funds have rebalance day just 5 days after IPO. S&P also made rule change for S&P Total Market Index and Dow Jones US Total Stock Market Index, but left SP500 intact.
Nothing wrong with SpaceX or Anthropic getting into indexes with fair rules, this rule change is pure creed+corruption.
I mean these rule changes have been a long time coming. SpaceX was just the straw that broke the camels back here. These major index's want to stay relevant and cutting out some of the biggest companies in the market just opens the way for a "true" NASDAQ 100 that is actually market cap weighted rather then some arbitrary rules cutting somethings out.
Yes. There are probably a dozen or more across the SP500 and Russel 2000 that will 10-100x in the next 5-10 years. The trick is to be able to identify them!
Laying the blame for the transparent financial manipulation we are observing at the feet of regular people (who are putting their savings into their pension funds, a system that we incentivize because of its pro social outcomes) and saying they should just opt out because they should know better, is at best callous, most people should not have to think about that issue at all.
The key there is "whole market." This is still a tiny sliver of the whole market and most people's exposure to it is minimal. Still a wealth extraction move ultimately, but like many other such moves, the few pull just a little from each of the many. Nobody individually goes broke, but the whole class gets slightly poorer. It takes a village to raise a billionaire!
> Somebody will be left holding the bag eventually.
I think so too. I also thought that about Facebook: IPO around 40, swiftly down to 20 - I was laughing about stupid retail getting wrecked. Now it's around 600...
Maybe you are right, maybe not.. However Facebook as an example seems entirely irrelevant, though? It was valued 15 P/S ratio at IPO and went down to 10 a year after the IPO. You'd have a point if Facebook IPO at $400 instead of $40. But it took it 10 years to reach that.
SpaceX IPO price already has many years of extremely high growth priced in. Comparing it to Facebook's or Google's IPOs is like apples to oranges.
Alternatively you may want to be a passive investor using the current rules for index inclusion, rather than having them altered to favor this loss-making trashcan on fire.
> SpaceX could rise to be a major winner that makes people a lot of money
Based on "sane"/traditional metrics that and much more is already priced in into the IPO valuation.
e.g. Google had a many times lower P/S ratio at their IPO and was actually profitable (and software companies usually have higher valuations than capital intensive ones like SpaceX anyway). SpaceX is already valued at more than Google was 10 years after its IPO while barely making a tiny fraction of its revenue.
Or you could mitigate the next dot-com style crash (which wiped out nearly 80% of the NASDAQ composite).
Back then, it was "day trading" that was one of the warning signs that a bubble was ensuing. There are certainly shades of the day-trading phenomenon in the "r/wallstreetbets" gambling, and wildly overvalued meme stocks like Tesla. And this mad rush to relax the guardrails for what appears to be wildly overvalued IPOs.
Bubbles, and their inevitable collapse, are generally not as big of a problem for younger passive investors, but they can be for older ones. (Hence why I've got a "bond tent", value tilt, and other diversification. I'm at the stage where "underperforming the market" is less of a concern than "mitigation". :) )
A company can have poor fundamentals compared to its stock price, and also have an enormous P/E multiple if it has committed investors. We've seen this with multiple meme stocks and Tesla. I have no doubt SpaceX will fly high for a while and people will make a lot of money, but I don't think the company is going to make $320bn/year in AI services (with 74% profit) by 2030 as the S-1 suggests. At some point the market price will coincide with real earnings.
For your math to make sense, Google would have to sell its stake this year
There may be more to it than buying compute but what you're saying does not make sense for Google. More likely Google wants a good relationship with SpaceX and possibly to buoy the stock, but it's a bad NPV trade
So masterful that a random guy on HN can see right through it.
Let’s just call it what it is. It’s just basic fraud. They created a very temporary revenue injection right around the time of the IPO to defraud investors as much as they possibly can. Some businesses do this kind of thing just before they die because…why not?
I don’t think your math is correct. Profit is revenues minus expenses. Unless Google’s purchase of compute brings SpaceX’s revenues into profit territory (such that their total revenues exceed their expenses), SpaceX still won’t be profitable. This is accounting 101.
Google’s investment in SpaceX is completely orthogonal to the analysis. Equity investments aren’t revenue for the issuer. (Gains on sale would be revenue to the investor, in which case, this would be Google, not SpaceX.)
SpaceX cannot report Google’s investment as revenue on its balance sheet. Full stop. Equity investments are reported as shareholder equity. If you don’t believe me, read FASB ASC 605-606, ask your friendly neighborhood CPA—or, perhaps so you’ll earn a valuable lesson about confidently spreading bullshit about subjects in which you are clearly uneducated (or, at best, superficially educated), try it yourself in a public company and go to jail.
You don’t know what you’re talking about and are way out of your lane. Stop now. In fact, you should retract your parent comment and apologize to the community for leading them astray.
Did you even try to ask even ChatGPT or Claude about this first?
> Under the terms of the deal, Google will pay SpaceX $920 million per month from October 2026 through June 2029 for access to “approximately 110,000 NVIDIA GPUs, CPUs, memory, and other related components.”
That part is not equity - that's revenue for services rendered. But a commitment for nearly $1B/mo in revenue will likely increase SpaceX's share price, and Google owns some of those shares, so their holdings will increase in value.
Additionally:
> In Comments
> Be kind. Don't be snarky. Converse curiously; don't cross-examine. Edit out swipes.
Yes, the appreciation will accrue to the investor, in this case, Google (and every other shareholder). But it is not revenue for SpaceX, which is the error OP made.
I’m aware of the guidelines. Another guideline should be “check yourself for accuracy before you reach for the keyboard”—especially since it’s easier than ever. Giving false information that, if practiced and not disclaimed, could land someone in jail is irresponsible.
But the OP very clearly did not write anything of that sort. Their claim was:
> This deal increases SpaceX's revenue by $11 billion per year.
And that is pretty obviously correct. This deal is Google is buying a service from SpaceX for $920M/month, not investing in SpaceX. And that is revenue for SpaceX. I don't know why you're so insistent it isn't.
The false—or at least highly questionable and unsubstantiated—claim is “Now with this incredible deal, SpaceX is now GAAP profitable under the existing rules” simply because Google bought $11B of compute from SpaceX. It depends on how much it costs SpaceX to provision and operate the compute, and it depends on what other expenses and revenues they have.
A quick peek at their S-1 filing shows a $5B annual loss last year. Unless SpaceX is selling compute to Google at a 50% margin (unlikely but possible), they’re not going to turn a profit because of this deal. Any profit that does result will be small.
Google’s equity investment and P/E multipliers are irrelevant and have no bearing on SpaceX’s profitability. It should also be noted that when there are no earnings (i.e. net profit), the P/E ratio is NaN. There are no “securitized profits” when there are no profits.
And I have no idea why the OP responded to my response about the math not making sense the way they did. I said “equity investments aren’t revenue”. The response strongly implied that they believed equity investments in a company are revenue. Perhaps I read that wrong, and if so, I owe OP an apology.
If there’s financial engineering going on with SpaceX, it’s not merely because they have customers who are also equity stakeholders in a company. This is as common as the day is long. The top level comment is just a red herring.
Oh, if that was your objection, why did you identify the issue as "But it is not revenue for SpaceX, which is the error OP made"?
> A quick peek at their S-1 filing shows a $5B annual loss last year. Unless SpaceX is selling compute to Google at a 50% margin (unlikely but possible), they’re not going to turn a profit because of this deal. Any profit that does result will be small.
The cost of AI data centers is almost entirely the capex (10% opex, 90% depreciation), so the costs aren't meaningfully affected by whether the DC is idle or operating at full load. They're renting their DCs to Anthropic and Google for a combined $25B/year. The loss of the AI division is about $2.5B/quarter. The math is pretty obvious.
> Google’s equity investment and P/E multipliers are irrelevant and have no bearing on SpaceX’s profitability.
> why did you identify the issue as "But it is not revenue for SpaceX, which is the error OP made"?
It was an error by implication. They responded with something that appeared to disagree when I responded that any profit SpaceX earns under GAAP solely depends on the revenues and expenses, and is not dependent on Google’s investment.
> The cost of AI data centers is almost entirely the capex (10% opex, 90% depreciation)
The operating costs might not vary much, but these boxes are not cheap to power, house, and cool. Not sure about the 10% opex claim, but am happy to see real world numbers.
I sincerely hope the market is not willing to value this sort of deal at a P/E ratio anywhere near 94.
Off the top of my head, there is a very well established business involving buying expensive things and leasing them to the companies that intend to operate them so they can sell services: aircraft leasing.
AER is the biggest player and they have a P/E ratio of, drumroll please, 6. And I expect that GPUs, despite currently looking like an appreciating asset, will actually depreciate faster than aircraft in the long run.
Comparing SpaceX to an aircraft leasing company seems more foolish to me than a 94x multiple.
I understand the gist here, but come on. This is a generational company. It’s the only relevant space launch business, and has its tentacles deep in AI infrastructure as well. Maybe the AI bet is foolish — I don’t know — you should short it!
I would short xAI but the market can remain irrational longer than I can remain solvent. Plus all the foolishness to prop it up with other businesses just seems like bad accounting.
I don't think you can short it before the IPO happens. Well, unless you've got a few millions and go to a bank and have them make a product for you specifically. But for normal people, for now, not happening.
I am comparing SpaceX’s datacenter-and-GPU leasing business to aircraft leasing.
It’s possible, and common, for one large company to have multiple business lines, each worthy of a very different P/E multiplier. In principle you end up with a weighted average of some sort.
edit: Matt Levine has some great articles about this phenomenon and how some companies try to juice it.
All of Musks business stuff highly depends on first mover advantage.
If people now selling it as a 'generational company' than it becomes even more stupid.
He didn't invent an unkown solution he is hiding to transform something into gold, he only put a lot of money into rockets.
And the rockets right now don't even have enough payload to have unlimited potential. If Space-X knows how to build a rocket very efficient, 10 years later other companies can do that too.
> All of Musks business stuff highly depends on first mover advantage.
Do they? Out of all of them, I think only one of them really depends on, or even benefits from, first mover advantages: Starlink.
Tesla famously gave away all their patents, and is also being overtaken by Chinese companies with cheaper batteries because batteries are the expensive bit; SpaceX rockets are theoretically well protected because national security regulations >> patent law, but even there lots of Chinese clones popping up; TBC and Neuralink and SolarCity are going nowhere fast; Grok wasn't even the first in its field; Twitter/X is not only in heavy decline but was also always trivially cloneable and the clones are now an open source ecosystem of semi-distributed alternatives; xAI has shown ability to make data centres while pissing off locals but the market for those data centres is other AI companies who also commission their own data centres but found themselves scaling much faster than xAI did.
(Starlink's first mover advantage is "this orbit already contains a satellite").
Tesla did not gave away its patents. It only says that if you want to use Tesla patents, we can use your patents.
Tesla won a lot of by being the first mass produced electric car.
Yeah the fact that China overtakes Tesla is a huge problem with Tesla and forces them to spread out. From all Musks hussles, only Tesla Cars and Space-X Starlink make money.
These two business are good running businesses, given. But these are not Trillion Dollar valuation companies.
Without the hype for these two things, nothing else would be possible.
Why "unwilling"? That's a weird wording. S&P Dow Jones Indices decided to not go through with their rule change after it became a political issue. Obviously they were willing, the proposed rule change originated from them!
Please provide some support that the rule changes were proposed from within. Given the fact they tried pulling this nonsense on 3 indices, it seems very unlikely the rules changes originated from within.
Quatsch. The indices will say whatever benefits their power the most, regardless of truth. The fact that they are bending now to pressure is proof enough for me.
We live in an age proving that valuation is just a manipulation.
This whole story is just like the BaM situation: the people with more money feel emboldened to pull every dastardly trick they can to tilt the table towards their pockets, away from the honest participants. SpaceX and the AI IPOs are just the latest and most grand scheme. I’m guessing you were surprised by the collapse of lehman brothers back in the day.
I don't know how I could? The indices have already provided their reasoning for these rule changes, but that's just summarily rejected by the conspiracy-minded.
To laymen this appears to be a grand conspiracy. Rules are being changed to accommodate big companies, that's usually bad.
To people in the financial industry, it's fait accompli. The indices exist to reflect the market, these IPOs are going to be big enough that the 90s-era rules will/would result in untenable divergence.
the explanation what i heard from some financial analytics is that small float with large valuation would create a dog pile/short squeeze type situation among the funds trying to reflect the SpaceX valuation vs. the whole index valuation - 1.8T vs 70T ratio would be 50B of float vs. 2T where is total of index funds is much larger than 2T, and that is even without accounting for retail investors and other, non-index funds, who will buy a part of float too thus reducing further the float available to the index funds. Such squeeze situation would lead to stock price rise leading to valuation rise, ....
>To people in the financial industry, it's fait accompli.
of course, they've engineered a new way of making even more money. The pile of passive money in ver low expenses index funds obviously have been a fat target for them.
>to reflect the market
the described above squeeze is hardly a way to reflect the market
>of course, they've engineered a new way of making even more money. The pile of passive money in ver low expenses index funds obviously have been a fat target for them.
Are you planning to substantiate this conspiracy theory in any way?
Where do you see a conspiracy theory? I've shown the numbers, it is simple arithmetics.
The situation is similar with mortgage CDS back then - no conspiracy theory/whatever, they just found a way to make AAA bonds out of junk. It was a simple arithmetics too. Everybody knew the arithmetics and was doing it.
Now is the same - they talked about that expected float/valuation squeeze even on NPR - this is where i heard it, i'm not that into finance markets to come up with it myself :)
You are presenting a theory that an unidentified group of people is engaged in a conspiracy to change the rules of the major indices for corrupt reasons.
That's a conspiracy theory. It might be true, but so far nobody can come up with any evidence in support of it.
The simplest possible explanation is that the indices are supposed to track the market, they can't do that if they exclude these IPOs.
The simplest possible explanation is basic statistics so the top 20% of those bonds supposed to fit AAA criteria. No conspiracy. No "unidentified group of people". No corrupt reasons, just legitimate profit seeking and extraction.
It just naturally happens that that legitimate profit seeking and extractions benefits from the actions like "the indices are supposed to track the market, they can't do that if they exclude these IPOs", and i described the natural simple arithmetics how it happens. No conspiracy. Just arithmetics. You can verify it.
No it isn’t. They put rules out for consultation and declined adopting them. Nobody was responding to political anything. If management had a say, they would have probably pushed to adopt the changes.
Then a bunch of influencers turned the whole thing into a conspiracy theory and a shocking number of smart people bought the pitch and churned their retirement accounts.
> It will absolutely be untenable to keep Anthropic , OpenAI and SpaceX off the S&P 500 with them also being the highest valued companies on the market.
Following the rules of passive indexes is the whole point.
Mēh! The passive indexes (biased to a momentum strategy, so not really passive - they are too big) may have had their day. The blatantly corrupt move to change the rules was clearly an attempt to game them, and even with out the rule change they will squeeze themselves through the rule gate with financial engineering
This will always be the trend in finance, the powerful manipulate the system to their benefit, the rest of us do what we can to survive....
>Following the rules of passive indexes is the whole point.
The whole point of these indices is to represent the market, the rules are unsustainable if they cause too big of a divergence from that goal.
> The blatantly corrupt move to change the rules
Why do you think nobody in the financial press is reporting on this blatant corruption? Is it because this conspiracy also includes all of the news media?
There’s too much anti AI/Elon emotion to have discussions around this issue at this point. HN is usually pretty good about rational discussions, but AI has really triggered people on both sides.
For example, yesterday I posted a link to the Nasdaq faq about the change, and my comment was flagged hah!
You use your back channels and good ole boys club connections to try getting the rules for inclusion changed. Maybe collude would be a better verb than design? Is that your objection?
Common sense and rationality says that you cant motivate rules changes simultaneously across 3 independent indices without outside pressure. Can you provide some reasoning why this wouldn’t be the obvious situation?
Passive investors and retirement accounts are heavily in on automatic indexing.
This deal has been pushed hard to be included prematurely in the indexes to the point that Nasdaq changed the rules.
The accusation is that these changes were made so that index funds will buy this stock automatically far earlier than they would have previously. Given the… uh… astronomical asking price, it looks like SPCEX is meant for Elon stans and institutional index investors to be the bag holders.
> retirement accounts are heavily in on automatic indexing
Majority are not. A minority are, mostly towards the S&P. Most assets remain actively managed, including in retirement assets (which covers 401(k)s, IRAs, pensions, et cetera).
Way outside of my area of expertise, but a quick search suggests that exact numbers probably depend on exactly how you define the question, but it would be broadly reasonable to say that the balance is about 50/50 +/-5%, and trending towards the passive side over time.
Yes. But I’d caution to not conflating passive investing with indexing to a popular index. They sound similar. But most passive assets index to one of a variety of indices, many of them built in-house by various asset managers. (Vanguard, for example, is famous for doing this.)
And just because yesterday's rules were "invest in S&P500" does not mean the governors of many (not all) funds cannot change the rules to dodge such blatant fraud
The managers of huge funds are not complete idiots- far from it- and they will do what they can, most of them, to fulfill their duties
> just because yesterday's rules were "invest in S&P500" does not mean the governors of many (not all) funds cannot change the rules to dodge such blatant fraud
There are no governors. The assets that automatically follow the S&P 500 are like individual IRAs. If a fund has a governing body, they're generally not indexing to a single narrow index like the S&P 500. They're going for a set of total-market funds, or they're building a custom benchmark.
For the assets that do follow the S&P 500, virtually nbody would be expected to react to these kinds of rule changes. If anything, you'd just create a higher-fee fund that anyone who is upset about this can switch into that equal weights or won't include SpaceX. This is what some RIAs I know in the Bay Area have done, and this entire shitshow has just been a moneymaker for them.
> managers of huge funds are not complete idiots
Zero hedge funds automatically follow the S&P 500, or any other public index, like that. That's sort of the point of being a hedge fund–you're delivering something different.
> Do you have any sources to share in support of this claim of malfeasance?
Not here, this is a casual discussion not a scientific seminar.
But use Occam's Razor and modern history
Point 1. Corruption has penetrated the highest echelons of USAnian politics. The president is unabashed in his corruption and has corrupted (is corrupting) the financial regulators (I follow Molly White who has been particularly good on this)
Point 2. Space-X is valuing itself at an astonishing value that is not anchored in its business activities. This has been covered a lot in comments here but also see Patrick Boyle's excellent commentary.
Point 3. The purveyors of these IPOs have been doing their best to get the rules changed (because reasons blah blah blah), the change will mean that managed funds, if they follow their usual practice, will feel compelled to buy in at the offer price - a massive inflow of capital that will make many people incredibly rich.
Putting all this together - a culture of corruption that has reached the pinnacles of the financial system, outrageous valuations and open conspiring to change the rules in favour of the whole scheme leads me to the conclusion that I am looking at the biggest (what is effectively the) fraud in history
I hedge my comments "effectively the" as I cannot be sure that this is conscious theft, or whether it is a confluence of powerful people facing juicy incentives who going with the flow are heading to a massive wealth transfer from working people (via pension funds) to elite capitalists
I do not think that this is not apparent to the governors of these huge pension funds. Those that have not tied themselves to an index following strategy will opt out I am sure - they are smart, studious and dutiful people by and large. So the people perpetuating this fraud may well be unable to pull it off.
But these are very worrying times. Especially for the USA.
>Point 1. Corruption has penetrated the highest echelons of USAnian politics. The president is unabashed in his corruption and has corrupted (is corrupting) the financial regulators (I follow Molly White who has been particularly good on this)
Sure, but indices are really not a heavily regulated space. The government doesn't have any obvious, direct influence here.
But uh, do you genuinely believe that the Trump admin would pull this off without the story leaking? It's an incredibly leaky administration, now supposed to be exerting influence over the most leaky industry in the world.
>Point 2. Space-X is valuing itself at an astonishing value that is not anchored in its business activities
If SpaceX is overvaluing itself, they'll look really silly at IPO! This is a very strange complaint.
>Point 3. The purveyors of these IPOs have been doing their best to get the rules changed (because reasons blah blah blah), the change will mean that managed funds, if they follow their usual practice, will feel compelled to buy in at the offer price - a massive inflow of capital that will make many people incredibly rich.
According to whom? The consensus in serious financial medias seems to be that indices are doing the rule changes to avoid divergence. I've tried to look, but I can't find any reporting suggesting that the "purveyors of these IPOs" had anything to do with this.
These companies are already among the 20 biggest in the US, it's genuinely going to be a big problem for e.g. the S&P500 to keep them out.
>But these are very worrying times. Especially for the USA.
I agree! However, not everything that happens in the USA is related to Trump.
Generally < 1 is low, between 1 and 3 is in the middle ground, and > 3 is high. However, that all depends on margins, which is why people generally use P/E or forward P/E rather than P/S to compare multiples. Issue here being that P/E is nonsensical for unprofitable companies or companies with very low margins. Spacex's P/E after Google pushed them into profitability by a slim margin would look absolutely stupid.
I would also like to point out, that on a forward P/E basis, AAPL is quite overvalued compared to historical norms, but basically every tech company is right now.
Number like this might appear when a company is expected to create a revolutionary thing that upends multiple markets. I would consider a number much larger than 3 in SpaceX’s case, but 94 feels, indeed, excessive.
It’s almost like the future we were promised in the 1960’s would immediately materialise the moment launch costs drop. Starship will be revolutionary if it pans out the way we expect (as the shuttle would have been, had it kept the low cost promise), but that’s not enough to warrant that 94 number.
SpaceX may well revolutionize multiple markets. But I really don’t see the sub-business of building large datacenters and leasing them out, hopefully at a profit, as revolutionizing anything. Also, SpaceX has no particular competitive advantages here — the list of competitors is huge.
Yeah, only a small portion of SpaceX's revenue actually comes from Space (payload delivery). At this point they are basically an ISP (Starlink) and a datacenter/leasing company.
It's not clear if Musk (SpaceX/X.ai) is really pursuing AI any more - I expect he hasn't necessarily given up on it, and he hasn't said he has, but it seems he's rented out almost all of his GPUs to Anthropic and Google, so that's not going to be much of a revenue generator, at least for time being.
It was in the news not too long ago that Musk was looking to use Samsung to fabricate "AI chips", presumably either for X.ai and/or Tesla, so perhaps he's basically put X.ai on hold until he can reboot his efforts with his own chips (& perhaps a new datacenter)?
I’m pretty sure he’s just trying to become the world’s first trillionaire at this point, these deals are obviously gimmicks to boost the SpaceX share price and his less-than-critical-thinking fanbase will happily oblige.
According to their IPO S-1 draft they are 93% an AI company and 4% a space company. Its the remaining 3% of the company that is profitable, the Starlink stuff.
As I recall isn't Starlink revenue at least 3x Space revenue, so not sure how they are characterizing that 3:1 ratio as 3% vs 4% !
The "93% AI company" is also a huge mischaracterization since this isn't AI business - it's datacenter/GPU leasing business which their 2 customers can pull the plug on with 90 days notice.
Yeah, Starlink is about 3.5x the space launch revenue but still only about 0.5x in terms of profit. Falcon 9 is as optimized as a rocket could be, and absolutely owns the market. Starlink is a mostly rural service with global consumer pricing where average monthly rates in poorer countries drag the average down. Starlink government and commercial business, however, is growing quickly and I expect that soon Starlink will be ahead of launch, in terms of income, probably by the end of this year.
For SpaceX it’s critical to maintain a steady cadence. If they don’t, they lose institutional knowledge. If the cadence drops below a point, their effectiveness at reusing rockets will also drop, defects will creep in, and they’ll have higher fleet churn.
Yes. Amount is actually irrelevant, since if they underprice it SpaceX loses launch revenue, and if they overprice it Starlink looks less profitable.
The more important takeaways are that SpaceX's near-monopoly launch business is profitable but not nearly as big as Starlink, and Starlink is a good business but not one to justify a trillion dollar valuation
That's in the IPO documents. Starlink had $11.4 billion in revenue and $4.4 billion in operating profit in 2025. Falcon9 had ~$4 billion in revenue, so they didn't cheat by subsidizing starlink with Falcon9.
The profit center, to the extent any division makes money, is Starlink, yes, but what we have always known as SpaceX is just a tiny side project in the combined company.
Maybe they'll become an AI company again after they've abused their privileged access as hardware providers to reverse-engineer Google and Anthropic's weights and operations.
> I sincerely hope the market is not willing to value this sort of deal at a P/E ratio anywhere near 94.
It will very likely be valued much, much higher. The SpaceX IPO is, in itself, a marvelous piece of financial engineering (requiring co-operation among multiple actors) which has been a long time in the works.
- Right out of the gate nearly all retail investment platforms have dramatically reduced requirements for purchasing an IPO, most notably Fidelity, which previously required $500,000 in your account to participate in an IPO reduced (on Friday) this amount to $2,000
- Retail investment, despite being quieter in the post-WSB era, is at all time highs.
- Reports are that the SpaceX IPO is already highly oversubscribed, meaning there are many more retail investors interested than there are shares available.
- SpaceX has a wildy low float of only ~4% which means price discovery will be much slower then normal, especially with aforementioned demand
- All of these retail platforms enforce some sort of "soft lock-in" whereby you're excluded from future IPOs if you sell your shares within 15-30 days. So if you want to get out you're not going to be able to participate in Anthropic/OpenAI IPOs in a few months.
- Coincidentally, most of the major indexes (thankfully excluding the S&P 500) have adjusted their rules to require only 15 days post-IPO before inclusion and have no profitability requirements. Many also adjusted the rules so that low float IPOs have their weight multiplied despite the low float.
- Many retirement accounts, in one way or another, are required to track these indexes and will be forced to buy these SpaceX shares at a very likely frenzied price and further drive the price up.
SpaceX will very likely open with far more retail demand than shares, the insiders (VCs, employees etc) will still be legally locked from selling, retail investors are penalized if they sell, and so the demand will be high and supply very low.
If they can keep this demand hyped for just 3 weeks, price will still be elevated when retirement accounts are forced to buy... roughly the same time retail investor start seeing the penalty for selling expiring (meaning it is not irrational at all to be in the IPO, but it is irrational to sell before being listed in an index).
Fun fact: the other fascinating thing about this IPO is the terms for insider lock-in. At first earnings (Jun 30) inside investors unlock and can therefor liquidate 20% of their shares... but if the stock performs well, they can unlock and additional 10%. There are additional rules for continued unlocking of more shares depending on performance as time goes on. So everyone on the inside has a very vested interest in a spike in stock prices: not only will their stocks be worth more, but they can realize that value faster.
I would be surprised if SpaceX price doesn't explode in the first few weeks because for everyone involved this would make sense. It's only in August that we'll start seeing the really interesting things start happening.
> Right out of the gate nearly all retail investment platforms have dramatically reduced requirements for purchasing an IPO, most notably Fidelity, which previously required $500,000 in your account to participate in an IPO reduced (on Friday) this amount to $2,000
Not at all surprising that the US in 2026 has degenerated to the point of turning the equity market itself into a bucket shop.
Strangely, these limitations don't seem to have been present on the European platforms. (Although I've never bought shares in an IPO myself, so I'm not certain about this.)
The minimum is 1 share (~$135), the FAQ on "when can I sell" says "Once trading begins in SpaceX, you can sell your shares at the current market price, which can be both higher and lower than the IPO price."
Except they’re paying $30b (the deal is signed for almost 3 years), there’s no reason to believe that SpaceX maintains revenue multiples and this deal creates a trillion in value, liquid cash is not the same as pre-IPO shares. And finally, the deal comes down to $11 per hour of h100 equivalent, which is pretty much within market which experiences a severe lack of supply.
> this single deal boosts SpaceX's valuation by 94 x 11 billion = $1 trillion dollars
That's not how valuations work. Also, it is not unlikely that SpaceX's valuation drops post-IPO (tech was 6.65% in the most recent trading session) due to its very rich valuation and a long tenured investor based that is probably looking to get liquid.
Google is renting compute from SpaceX because they need GPUs and SpaceX owns a huge supply of them and has excess capacity bc no one uses Grok. Google has stated that this is a temporary arrangement while they continue to build out their own capacity.
Utterly nauseating. Why would google help prop up this company and its figurehead? Maybe this is finally the straw that breaks the camel’s back for me and google.
It seems like Silicon Valley has decided on solidarity among tech billionaires and they're gonna take average Americans' wealth to keep themselves semi-relevant globally as China assumes global dominance. This is after insulting and demeaning the rest of the world, they plan to try to sell anemic services to other countries in whose politics they're also meddling. Circular agreements promising to purchase goods and services without the money in the bank, but you can show your promissory note to a guy with his own promissory note who then writes you a new promissory note based on your first one to take to another guy with his promissory notes, look at all the paper.
The company has been around since 2002, I'm sure plenty of insiders will cash out in the next calendar year to satisfy the minimum free float rule by the time they're eligible.
I don't think so, considering a substantial proportion of their comments on this site seems to be fanboying for SpaceX in particular and anything AI in general.
I wouldnt class 'masterful' as a positive adjective personally.
EDIT: Downvotes? Not sure why. I would say Darth Vader is masterful of the force, and even that Donald Trump is masterful at being provocative. Masterful is not definitively positive or negative, it just describes being very good at something.
> Anthropic is paying SpaceX $1.25 billion per month (approximately $15 billion annually) to use the computing infrastructure at the Colossus and Colossus II data center clusters in Memphis, Tennessee. This massive infrastructure deal gives Anthropic access to over 220,000 NVIDIA GPUs (mostly H100 and H200 chips) for large-scale AI inference.
> SpaceX is now GAAP profitable under the existing rules
We'll need to see audited financials, but if this part is true people are going to be upset. I wonder if all the people who have been acting like the S&P rules came down from the mountain with Moses will start lobbying to change them to keep SpaceX out?
And to be clear, I think SpaceX is way overvalued and I wouldn't buy it stand alone. But there are a lot of companies in the S&P 500 I wouldn't buy stand alone, yet I still own a a lot of an S&P 500 ETF. /shrug
Maybe they just need compute. Isn't that the more obvious reason. It's good that they own part of them and that's a bonus but the idea that the senior brass is orchestrating this to increase the paper value of something some division in google owns strikes me as wrong.
It only shows that Musk can't make xAI profitable and he needs to push numbers higher for the IPO which he needs for <i actually do not know> his ego? debt correction? Having enough money for Starship development?
The market should consider this a huge negative: SpaceX is renting out their compute because they have failed to make use of it themselves. This calls into question whether they have any talent in xAI at all.
>> I wouldn't call it brilliant. It's like cancer cells celebrating how fast they're growing.
> Isn’t that the entire point of a capitalist economy?
> What is the alternative?
If the point is to be cancer, then the alternative is to kill it.
Things are getting so out of hand, this former-libertarian is getting to the point were he'd support any market regulation that makes libertarians cry.
> SpaceX is valued at a whopping 94x revenue. This deal increases SpaceX's revenue by $11 billion per year. If SpaceX maintains this revenue multiplier, then this single deal boosts SpaceX's valuation by 94 x 11 billion = $1 trillion dollars.
This isn’t how valuations work. The PE ratio isn’t fixed. It doesn’t scale with revenue. It’s based on projected future growth. This kind of deal is expected, meaning this deal likely won’t move SpaceX’s market cap much. Certainly not by anywhere close to $1T. That’s +60% of the entire pre-IPO market cap.
Google is doing this because they need more compute and TSMC is booked out for years.
I think they're sacrificing short term terrestrial GPU advantage to fund their space GPU mega-advantage. It's a risky bet, but if it pays off then SpaceX will be one of the most powerful companies the earth has ever seen.
It's not that complicated, and the 'datacentres in space' is a myth.
They have rapidly depreciating assets in GPUs and they can't use them.
Because Grok is failing.
They are licensing out their unused capacity.
XAi is not strongly related to Space X - they were folded into one thing because XAi was losing money and failing (the Social Media part is worse).
XAi isn't really some kind of strategic advantage for Space X and even though revenues from the data centres may be positive - it's a 'stop gap' - it's probabaly not a 'net positive' thing to do.
The best thing for Space X would have been to never merge wht XAI.
The second best thing for Space X would have been to close XAi/Twitter lines of business a long time ago.
The 'Wrench in the Logic' is that by putting these things together, EM is able to dupe so many people into so many ridiculous concepts.
Data centres in space, 1M people on Mars, all sorts of crazy things.
It's a bit like Putin's and Steve Bannon's Media Strategy: 'Flood the Zone' with nonsense, and people speculate as to all kinds of things.
The Space X IPO is a 'retail push' meaning he needs to get all the Dentists in America and their Private Bankers to want to 'Hold the Bag' and then keep holding it for a long time.
Space X - at it's core - is a decent company, wrapped in layers and layers of hyperbolic nonsense.
All it takes is a bit of rational thinking to wade through what is plausible, and what is not, and we can see how overvalued this is.
Note: this is different than the other 2 AI IPOs which have some sketchy economics - but the premise is not far fetched, 'that people will want AI in large quantities'.
But Google loses $11 billion per year, and they gain $50 billion... in stock?
As far as I know they really will be paying $11 billion annually in liquid cash to SpaceX (not a small ask) starting this year, and all they get in return is more money on paper?
What incentive do they have to help SpaceX out like this at great cost, if they're not actually buying something valuable? Why are they incentivized to do this if it's just an empty deal and financial engineering? Genuine, good faith question: what are they getting out of this?
That's what I'm saying though. They must be getting something out of this deal, otherwise why would they be going through with it?
The explanation that this is just financial engineering (which to me, means neither Google nor SpaceX is getting anything out of this other than looking better on paper) doesn't make sense to me. How does this financial engineering benefit Google?
Even if they have an exit option, why is Google (a private, separate, self-interested firm) giving a single dollar to SpaceX if the deal isn't mutually beneficial?
That $5 return doesn't actually materialize the way you're framing it.
Even if your 94x multiple held perfectly (a big if), Google's "return" here is unrealized appreciation on an illiquid, minority stake. They can't spend it. And if they try to sell post-IPO, the act of selling a large block would push the price down, shrinking the very gains you're describing.
Meanwhile, the $11B/year in cash going out the door is very real and liquid and hits Google's income statement immediately. So the actual trade is: guaranteed cash expense now, in exchange for speculative paper gains later on a stake they can't easily exit. Even if you assume bad faith on Google's part here, no CFO in their right mind would see this situation as an easy 5:1 return.
The simpler explanation is the one Google gave: they need bridge compute capacity because Gemini Enterprise demand is outrunning their own datacenter buildout, and SpaceX has 110K GPUs available now.
They’re getting compute. There was a free for all period when xAI did one smart thing and that’s build like there’s no tomorrow. Because tomorrow is today, and today jurisdictions are racing to pause datacenter construction.
This deal can't just be financial engineering, since that wouldn't make sense. They must be getting something out of this, i.e. compute.
Google is buying compute because they need it. That explanation works a lot better to me than one where Google is doing this purely for unrealized future gains on a minority stake in SpaceX.
the ironic thing is if the parties involved were bullish on xAI winning or near term ODCs undercutting compute costs this deal wouldn't have been attractive. But as it is, Google probably only slightly overpays for boring ground-based datacenter space they actually need to hit internal goals, and it looks even better if IPO investors in a stock they hold pick up some of the the tab.
So you think Google is going to spend $11B in hopes it will boost the value of the SpaceX stock, while pretending to public investors it's a multi-year thing, and then after 1yr sell off their SpaceX stock after the value rises while also ending the contract early?
they're spending $11B on compute because they need the compute and that's the market rate for it. it's the same price Anthropic is paying to spacex for compute.
but if they boost the spacex stock for the right amount of time, they can get that compute for free instead of for $11B. Google's own announcement of the deal frames it as a short-term agreement while they scale up their own datacenter capacity.
The contract has an exit clause, either side can terminate the agreement with 90 days notice. I do not expect this contract to last the full 3-year term.
And this deal protects Google's investment. Google owns close to $100 billion of SpaceX stock. This deal increases SpaceX's revenue by 30%, and pushes SpaceX into profitability. With this deal, SpaceX is eligible for S&P inclusion. Assuming $6-7 trillion in S&P 500 tracked funds, and a 1% SpaceX weight after a year, this is $600-700 billion in demand for SpaceX stock. It means Google now has someone to unload its position off to. This play directly protects Google's investments.
SpaceX announced $26B/year in compute deals with Anthropic and Google in the past week. The margins on both deals are incredibly high, Google is paying around $11.75/hour per GPU. Infrastructure costs are far below that, SpaceX likely has 70-90% margins. These two deals are around $20B/year profit. In the preliminary S-1, SpaceX reported a $5B loss in 2025. Combining these numbers, that's a $15B profit, assuming losses are constant. Likely expenditures will increase, but even if losses double, that's a very healthy $10B profit.
Where did you get your costs and margins from? I have direct experience in this business and I can tell you they’re usually not that high. These machines are also not cheap to power, cool, and house.
As a comparison point, CoreWeave’s most recently reported operating margin was 16%.
They also get compute, which has real value. If you are going to spend 11B on new data centers or rental, better to spend with a a company you are about to ipo.
Either way, 500% return on the spend would be amazing
I feel like you are missing the difference between cash out the door and the market cap value of a business. One is a real tangible thing, the other is a function of the stock market.
I don’t think google would spend this money if they did not need this compute, and who know what will happen with SpaceX valuation over the course of a few yrs.
Most things like this are more straightforward than we want them to be - this feels like google paying market value for compute?
Who benefits from all this brilliant deal making who doesn’t already have plenty of money? If we are going to invent money out of paperwork maneuvers, you’d think we could invent a way to fund healthcare and schools.
The doubt you are expressing was very justified until this week. But on June 1st, Microsoft changed the pricing for business and enterprise Copilot, and people started paying real money for using AI. Until that day, Github Copilot was charging users 4 cents per request (if they exceeded their subscription's monthly limit). Now, they charge at the API rate. I monitor my usage, and it's easily 10 times more expensive than the 4 cents per request before, maybe 20 or even more. And guess what? Businesses are shocked about the changes, and thinking hard what to do, but most of them will just pay 10 or 20 times or more for AI than they used to pay until now.
We will hear projections soon, in a few months, but my guess is that the big 3 (Anthropic, OpenAI, Google) will get of the order of $10 billion per month in AI inference revenues. And it will only go up from there.
What makes you think “most of them will just pay 10 or 20 times more for AI”?
They can’t measure ROI, and it will start costing more than their staff. You might be right, but I can’t think why any competent C suit would agree to this..
Look at cloud spend - how many of your employers have measured the ROI of using cloud vs. self-hosting? At a certain point these things just become the cost of doing business I suppose.
Every single one minus Federal Gov. if you are in a leader position you absolutely should be assessing hosting options, trade offs, costs etc, and looking forward as things grow to make sure you aren’t just burning cash. Only my experience from Australia, the low interest environment could be different in the US, but I would expect this attitude to change if interest rates stay above 5%.
> but most of them will just pay 10 or 20 times or more for AI than they used to pay until now.
At my work, after the GitHub price hike, we all got the option of 1. Keep using Github, but with the same total spend as before. i.e, use 1/20th as much since the dollar cap isn't changing. Or option 2, use as much self hosted DeepSeek v4 Pro, Qwen 3.6, Gemma4 as you want since it's almost free. (to be fair, we already had the GPUs)
If the Chinese keep releasing open weight models that are "close enough" to the big 3, I expect many orgs to make the same choice. I think we will see VPs and higher start saying "you better have a good reason for using Opus 4.8 or GPT 5.5 Pro, do you have metrics showing ${cheaper_model} isn't good enough?"
Most businesses don't have the GPUs, or the knowledge necessary to do self-hosted inference. So, they'd have to rely on OpenRouter, or Ollama, or some other inference provider, but there are lots of problems with that. With Microsoft, people could get comfortable with the compliance side of the problem. They already use Outlook, and Office365. Copilot is just one more point where things can go wrong, but it's less scary than your emails being captured and held for ransom, and you already think Microsoft can take care of that. But with Ollama or OpenRouter, you have no idea what is happening with your data, and you also are not sure if they are serving the real models, or quantized versions.
To be sure, there will be plenty of people finding alternate solutions, but 80-90% of the businesses will just pay the higher price to Microsoft.
For sure not everyone can self host (though I suspect most tech and tech adjacent companies can).
But all the existing “safe/trusted” cloud providers will offer cheaper models. The choice won’t just be GitHub vs OpenRouter. It will be DeepSeek, qwen, Gemma on GitHub vs Opus on GitHub. I’m sure AWS, GCP, Azure, etc will be happy to sell open weight models. And those lower priced models will put a cap on how many people pay for higher priced models.
This is an active conversation going on at my day job right now (and I suspect many other peoples too)
Every developer (we have about 100) has Github Copilot, and interestingly some barely use it while others use it a lot (about 70% of usage comes from a handful of devs), and the dashboard shows you exactly who is using which models, and how much
I definitely don't think they will just go along with paying 10/20x more than before without seeing some sort of return on that investment
We've already had the we're spending all this money on AI, why aren't we shipping software faster conversation multiple times
My prediction is that those high users, costing the most money, will be watched carefully (one colleague even suggested half-jokingly that whoever tops the leaderboard should have to give everyone else a presentation on what they spent all those AI credits on)
The sweet spot is to have good competent developers who users AI when it actually makes sense, but aren't dependent on it
Google renting infra from xAI, I did not see that coming. My understanding of what computers are doing, what companies are doing and what governments are doing seems to be getting worse day by day.
The future needs more AI compute. No one has enough AI compute.
Memory chip vendors are betting hard on this being a temporary state of affairs that doesn't last, and doesn't warrant commissioning a shitton of new memory foundries.
Musk is betting hard on this staying that way, and is putting the next Colossus into the last place not corrupted by NIMBYs... SPACE!
> Google renting infra from xAI, I did not see that coming.
Actually that seems to be fairly logical? Hardware is what xAI has, and it's in great demand. So sell what makes you money. The real story here is that that xAI hardware is going to be running Gemini and not Grok. Which is to say: Grok basically failed as a frontier AI and they need to pivot to a business model which makes money.
Obviously not everything Musk did was wrong. xAI bought a ton of compute when it was possible to get it. But the product they were going to build with it failed and so now they're deciding to be a landlord.
This IPO is just insane. No way do you justify a $trillion+ valuation based on what amounts to a bunch of commoditized rent seeking endeavors. Datacenters are buildings and chips, and everyone can build those. Starlink is just an ISP with lots of competition at scale (they have the high bandwidth mobile market cornered, but that's a very small market!). Mars is at best a grift on public funding. Even satellite launch services are commoditized and competetive these days.
> Which is to say: Grok basically failed as a frontier AI and they need to pivot to a business model which makes money.
They can just run Grok as a local AI inside Tesla cars. It's actually really efficient as a compute platform because the Tesla cars are in motion at highway speeds, which gives you lots of free airflow for shedding waste heat via the car radiator. Way more efficient than trying to run AI on space satellites.
I am pretty sure the gov gets an uncensored /heretic version of the AI models instead of the nanny stuff we get so Grok really doesn’t have a “killer” feature. Even for multi model passes(I.e used purely as a contrarian gate) it’s not really that great due the high rate of hallucinations.
Anecdotally, Grok is mostly not that anti-woke. It is coasting off of its reputation from Elon's marketing. That said, it does have meaningfully fewer guardrails, which is a real benefit.
Teslas spend a tiny percentage of their life at highway speeds, and a major selling point of the platform is that their compute would be used to pilot the vehicle.
If they could train using Teslas they wouldn't have needed Dojo.
Who’s going to be paying for the energy? People have been floating using the cars as compute for years and it just doesn’t make any financial sense for anyone.
You make it sound like they’ve given up on Grok, which I don’t think is accurate. I think it’s been mentioned the Grok 5 1.5T model is currently training on Colossus 2. And their recent deal with cursor is part of being able to eventually compete with Anthropic for agentic coding.
Strongly agree with all of this, except that charging rent for the use of an asset you own is not what economic "rent-seeking" means. I blame the dumbass economists who named it this, forever polluting the discussion to be had about regulatory capture and legalized political bribery.
Keep in mind Google also rents GPUs via GCP, so they could be just reselling these to GCP customers?
Thing is though, Anthropic was really against the wall with lack of compute pre xAI deal. And tbh, Gemini reliability has been abysmal which probably points to real compute shortages.
And nearly _every_ major DC project is really up against it with massive delays, etc. Stargate UAE has been badly affected by the Iran conflict.
So maybe long term this isn't a great business, but _right now_ I'm not convinced it's all financial engineering. There is a enormous shortage of compute and xAI has a load of it _available now_.
> So maybe long term this isn't a great business, but _right now_
Exactly! "Maybe not a long term great business" is exactly the opposite of what you want to buy in an IPO.
This is a "private equity can squeeze out a ton of cash from this asset portfolio" situation, and very much not a "in a few years this will be a trillion dollar business competing with the biggest companies in the world" bet.
The whole of the space part of SpaceX is like 10% of the claimed business according to their S-1. And most of that is Starlink, not launches for third parties.
But building a Starlink competitor is essentially impossible without also building a space company, and the main competitor doing that just turned their only launchpad into a crater and is out of the game for a year or so.
Yes but 90% of the value is supposed to come from xAI, where you decidedly don't need to be a space company to compete. The space part of SpaceX literally doesn't matter, it's an AI company according to its financials. If you need to care about the space parts, the company is overvalued by an order of magnitude or more.
To be overvalued by an order of magnitude, it'd have to have a fair valuation of under $180 B.
At ~5 billion per year in profit, Starlink alone would justify a 100 B valuation at a P/E ratio of 20 (i.e. assuming a non-growth company). If you account for the fact that this is very much a growth company, the valuation of the space part alone is well above these $180B.
And they do happen to have the launch and AI businesses on top of it, which (as usual for growth companies) may not be obscenely profitable but aren't worthless.
If 90% of the value is from the AI business, it's grossly undervalued.
If you are asking for government and research needs rather than commercial then ISRO (Indian space research organization) beats SpaceX
That being said, ISRO focuses more on research and scientific world as compared to the commercial world but they were the least expensive option out there before SpaceX and the only differential which causes the pricing is actually re-usability aspect of SpaceX rockets/launchers and ISRO is actively working towards that too.
And another thing as brainwad said here but Space part of SpaceX is just 10% of the claimed business according to their S-1
Thanks for the comment but then commenting to the GP (@Hellojimbo) that sure Elon might hate Demis
But nobody denies a 920M$ per deal for an unprofitable company's like SpaceX at this point, last line to somehow become profitable after this deal.
The scale at this money & influence operates, although I feel like people project to the general public that they lean a particular side and sometimes they do but what they lean the most is towards money and whatever response is the most convenient for them at that time.
The original batch was probably Musks "AI will solve everything, i have a small dick, i want to buy all the hardware and be the first" which became "Ah shit Grok doesn't need all the compute, we can't sell it properly our IPO is coming soon we need better numbers.
And
"Shit why did we agree to buy so much hardware if i can't even use the current one fully?"
to
"Ah fuck it, who cares if i indirectly pivot to selling this compute. It brings money and my Fanboys probably think its some magic smartness and not just ignorance"
Because hardware depreciates quickly, datacenter rentals are a competitive business with much lower profit margins than the IPO prospectus requires (even if there is a temporary bottleneck now) and there's no real moat.
IIRC the large majority of their hardware (at least one tranche, they might have gotten more later) was Elon effectively stealing it from Tesla for xAI, saying “I’m personally doing Tesla a favor, since they can’t fully utilize it currently”, and is now renting that (stolen) compute to subsidize SpaceX.
You're acting like the landscape of law hasn't changed and been affected drastically by the purchased Supreme Court justices. That has literally happened. It's not a hypothetical or speculation.
A huge chunk of SoaceX value in their filing is attributed to their AI technology (aka Grok). I believe it’s 90% or more… Now, it seems they’re leasing the infrastructure required for Grok to scale to Anthropic and Google. I wonder how that math works…
But what is xAI? I thought that was the company that had the compute + Grok, the AI company? Since when does SpaceX (which I thought was a space company?) own AI-compute hardware and/or can do model hosting? Are all of Musks companies just one big thing now where the names no longer matter, or how is it supposed to work?
Edit: seems I'm just a bit behind: "xAI — now part of SpaceX ", seems really strange for a space company to buy an AI company, but I guess rather that, than the other way around.
Not really strange... if the goal is to go to mars, you probably need robots, those need intelligence -> ai. It fits pretty well, especially because you want to own all the core technologies as a company.
Why 4-5 companies instead of one then? I thought the goal of SpaceX was to get to Mars, why does xAI need to have that same goal? Or he didn't think xAI was suitable for that goal, then changed his mind so merged the companies?
You are overthinking this. The whole purpose of the SpaceX / xAI merger is for Musk to launder his failing companies to make them more palatable to the public. Not unlike the complex Mortgage Backed Securities of the GFC era which had a ton of low quality debt but yet were somehow assigned spotless credit ratings. Twitter is also being rolled up into SpaceX for the same reason.
The stated goal is to "go to mars", the real goal is to make money.
He sold his failing but hype business to his soon-to-IPO successful but kinda boring business.
It's a way of laundering the debt and dumping into investors as he pitted different indexes against each other to force his way into one of them, and have people's 401k buy into them. Its a ton of money.
I wouldn't be surprised if Tesla is bought into spaceX in the future.
Musk sold Twitter into xAI which he then sold into SpaceX as a financial engineering effort to lessen the impact of massive debts and cash burn. The IPO and some clever structuring is the final step in the process.
It has nothing to do with Grok, at least not the current iteration. SpaceX is the only company that can concievably launch large scale orbital compute.
I’m out of the loop, why is compute better /after/ being launched into space? Is the idea just to be co-located within the ISP to reduce round trip time to the LLMs?
There would be some benefits, assuming you could do it for a reasonable cost. For one, you have effectively uninterruptible power using solar panels in space. And it's free, too, once you have the hardware in place.
And you don't have to deal with any of the site selection stuff you have for terrestrial data centers. No NIMBYs. No politicians trying to extort bribes. No water problems.
In space there are no earthquakes, tornadoes, or floods.
I'm still skeptical. It's hard to believe it costs so much to build a data center on the ground that putting it into orbit is an economically viable alternative.
Yeah, launch costs alone make it infeasible, and power being "free" exacerbates the cost (gotta get all those panels up there). Cooling is also dramatically harder, plus shielding, and it makes repair/upgrade basically impossible.
I'm not going to assert that large scale space compute will never happen, but I feel confident saying it won't happen this decade or next.
Last time I did the math, launch costs were well balanced against permitting delays (mediated by interest rates). The break even rests almost entirely on radiator mass efficiency (which is, admittedly, a function of launch costs).
Like, if everyone’s terrestrial datacenter projects start getting blocked, and demand for AI continues, the price a rational buyer would pay for in-orbit compute could get ridiculous enough to break even on current kit. And current kit in launch vehicles, radiators and solar panels is advancing.
I don’t think the thesis is met yet. But it’s less ridiculous than I thought it was before I sat down with pen and paper.
Wouldn’t it be easier and cheaper simply to focus building your data centers in other poorer countries where your permits won’t be blocked? Why would the next most logical choice be “let’s put it in orbit”?
When they get the kinks out of Starship, launch costs will be dramatically lower than we're used to thinking. They'll probably be using it to launch Starlink sats in earnest next year, so I don't think that would be the long leg.
I used to think heat would be a problem, too, but I've come around. It's a consideration, but it's doable. Remember we already have some pretty high power sats up there, so it's not something we haven't already been working around.
IMO the big cash drain will end up being maintenance, as in, you can't do it. If you have a box or a power supply fail on the ground you can swap it out. Anything in orbit would have to be replaced.
Things to think about: the russian satellites currently already in orbit and being tested to jam global GPS signals: https://youtu.be/tz23G_UXCGA?si=Jkg7hYnwER39-FXf (Veritasium). In all these sci-fi space datacentre scenarios, has anybody considered that astrolaw is in no way currently equipped to deal with datacenters in space? Neither are international relations.
The agreement in question is quite short[1], and includes no penalties for failure to provide the required compute amount other than pro-rating things. There's nothing in this that you couldn't sign even if you had no GPUs to offer Google.
I'm not a lawyer, but it seems to me that this is like Google agreeing to buy a billion dollars of lemonade from Tim's lemonade stand, Inc, and Tim is 8 years old.
I don't see how this provides any cover to xAI/SpaceX as far as SEC rules go for getting into the top 100 stock index.
> $920 million per month from October 2026 through June 2029 for access to “approximately 110,000 NVIDIA GPUs, CPUs, memory, and other related components.
That's about $8,400/month per "component" is that in the ballpark at all with what a month of dedicated/exclusive access to an NVIDIA GPU would go for?
Yeah I was wondering about this too. It seems like way too much per GPU considering the purchase price of a B200 was around $40k last time I checked. So if we naively ignore the price of electricity and maintanence, it would only take 5 months before renting is a worse deal than buying outright.
It’s a supply and demand thing. Google would definitely be buying from nvidia and setting up themselves if nvidia had the capacity.
SpaceX/xAi/musk are currently in a good market for “happening to own 100k cards we have nothing to do with”, and are exercising that control as hard as they can.
That's roughly 11.66$ per hour per GPU, which is above the price that Google Cloud is reselling them at if you commit for 36 months: https://getdeploying.com/gpus/nvidia-b200
That's for standalone servers. xAI has something that nobody else has. The single largest interconnected cluster[1]. For inference it doesn't really matter, but for training that networking is crucial.
[1] Probably, there could be undisclosed clusters owned by other companies.
> compute from its Colossus 1 data center near Memphis, Tennessee, that xAI — now part of SpaceX — originally built for its own artificial intelligence efforts.
Is this the same Memphis data center notorious for burning jet fuel nonstop for power?
These sort of numbers are really easy to estimate and it sounds like you haven’t done.
For the sake of a reality check:
IPO is raising approx $75bn of new equity
SpaceX has negotiated substantially below market fee of 0.75%
Total fee pool = ~550mio USD
Fee pool will be split between 23 banks, so average of 23mio per bank, likely skewed heavily towards Goldman Sachs and Morgan Stanley as the lead bookrunners.
Clearly everyone has incentives for spaceX to go up, but important to keep in mind the order of magnitudes we are talking about, the monthly google compute spend in the headline totally eclipses the one off banking fees
Is there any data on whether Google, Amazon, Microsoft, Anthropic, OpenAI etc are most cost efficient in getting datacenter compute online and operating it?
I'd be interested in how large the range is here across company and region and specific data center and how it relates to companies like Hetzner if at all.
I’ve seen some numbers related to datacenters in Ireland and they would stress price per MW as a way to see where to build them. But then you have depreciation of equipment as well. Depreciation can be played with when filing taxes though.
> Is there any data on whether Google, Amazon, Microsoft, Anthropic, OpenAI etc are most cost efficient in getting datacenter compute online and operating it?
Well considering that ~80% of the price is hardware deprecation, I don't know why they'd be considerably worse than anyone else at negotiating hardware deals.
Typically when you buy in bulk, you have more sway.
Companies like Google also have in-house chips like TPUs that are substantially cheaper for inference for them to make than anyone else can get through Nvidia.
I don't think they are most efficient for small GPUs. I think they might only be the one which have capex and certainty required for multimillion dollar purchase of GB200 NVL72 or something of that scale.
Well, Elon seems to take the fastest path possible to these DCs. One can envision a future where these get shut down for the severity of the pollution, not to mention being built and operated illegally [0].
> As part of that deal, Anthropic agreed to pay SpaceX $1.25 billion per month through 2029 to rent all the available compute from its Colossus 1 data center near Memphis, Tennessee, that xAI — now part of SpaceX — originally built for its own artificial intelligence efforts.
I don't get why SpaceX is going public. But anyway, well played, the whole crypto mining that dried out GPUs back in the day seems tiny now.
Liquidity for investors. They raised everything they could from private markets, government contract, debt, the remaining source of financing is from the public
Why would you want to own your own giant datacenter? What would you do with it? Of course it's expensive to operate a datacenter that serves millions of people.
These deals are part of how the AI economy operates. Amodei has explained this in his recent Patel podcast.
1. Building datacenters takes time. Months, if not years. They take billions of investment.
2. AI revenue is highly unpredictable. Sure, you can make predictions, but maybe your competitor releases a better model 2 weeks after your release, maybe the new model you built isn't as much better, maybe the chinese models steal your show, etc.
3. AI revenue grows a lot. Anthropic's case is 10x per year.
4. So if you are off by just a year in terms of how much GPU you actually need, then that means a 90% of your compute capacity is wasted, and you go bankrupt.
As a solution, companies buy compute from each other! If one company's model did well, they can buy compute from the company whose model didn't do well (like in the case of grok). It's beneficial for both sides, so positive sum game. So deals like this aren't something bad in itself.
It's nothing new either. In SAAS deals, you often commit to a certain revenue and then pay extra if your revenue exceeds that amount. And power market is cut in two as well: longer term deals plus spot markets. Spot prices are way higher than the longer term deal prices.
Given it's SpaceX of course there is financial engineering involved: the GPUs aren't actually owned by SpaceX but a daughter company, and it's been financed via loans that are backed by pension funds. So it's already the case that pension funds back bear the risks associated with SpaceX's operations.
Right now, the bulk of the AI bubble sits in such debt statements and not in public markets.
> the GPUs aren't actually owned by SpaceX but a daughter company, and it's been financed via loans that are backed by pension funds. So it's already the case that pension funds back bear the risks associated with SpaceX's operations.
I think a more accurate phrasing of the Valor GPU deal would be something like this:
"SpaceX’s AI compute buildout relies in part on off-balance-sheet or lease-style financing vehicles. Valor-owned vehicles purchased Nvidia GPU infrastructure and leased it to xAI/SpaceX subsidiaries, with Apollo providing debt financing and SpaceX or subsidiaries guaranteeing some obligations. That creates indirect exposure for institutional and retirement capital, though not necessarily direct pension-fund ownership of SpaceX operational risk."
This is only a partial solution to a problem though. If x ai fails to build a good model they rent to Google. But that means all these companies are incentivised to build as much compute as possible. If they win their margins look great, if they lose they still make money. BUT at some point aggregate supply will outstrip aggregate demand and the bottom will fall out of the market.
> SpaceX said in the filing that if it fails to “deliver access to the committed amount of GPUs by September 30, 2026,” Google can immediately end the agreement, or accept the number of GPUs provided at a reduced fee after a one-month grace period.
> After this year, the agreement can be terminated by either party provided they give 90 days’ notice.
Circular financing at its peak for the IPO. There has to be some regulatory body to not allow such shady things
Circular financing would require SpaceX to buy a similar quantity of stuff from Google. (Or invest in Google.) We have no evidence of that. Instead this looks like Google taking advantage of SpaceX’s desire to print revenue today versus a month from now.
(If the agreement is terminated with no exchange of goods, it might be market manipulation. But still not circular financing.)
It's circular since Google owns part of SpaceX. According to [1] they own 7% of SpaceX, so a $1.75T IPO would value their stake at $120B. The target IPO price is >90x revenue, so if Google increases SpaceX's revenue by $11B, SpaceX's valuation could increase by $990B to maintain the same multiple, which would increase the value of Google's stake by $69B.
I'm not sure this is true for Google. Ignoring their equity in Anthropic, AI is generally a threat to Google, since it's the closest thing to upsetting their search monopoly. The best case for Google is if OpenAI and Anthropic are way out over their skis, and Google is the only major player left with their sturdier financial position. The worst case is if ChatGPT/Claude completely displace search and nobody wants to pay for gemini. I find it unlikely that all three go down for the same reason.
Not what circular financing means. Buying from a company you own stock in can be a conflict of interest, but it's only circular if you invest in the company and then they use those proceeds to buy your stuff. A past investor buying services from a company they are affiliated with is pretty par for the course in business.
More to the point, allegations of circular financing are about following cash. When NVIDIA invests in a company so they can buy NVIDIA chips, that raises a unique set of questions distinct from other types of conflict of interest. Affiliated parties doing business, as is the case between Google and SpaceX, has its own host of conflict-of-interest concerns. But they're distinct from those that arise in circular transactions.
Yeah, I just looked this up because my first thought was another circular financing deal (or not circular by definition but certainly backscratching). Looks like Google's SpaceX stake, diluted, based on a cursory search, at a $1.5T valuation is somewhere in the $80-$100B neighborhood (bought back in 2015 I think is what it said when SpaceX was valued in the low tens of billions if I'm remembering correctly). So you have Google sending $12B back to SpaceX annually in this deal, so maybe 12% or so of their equity stake at that valuation. I'm not sure how to feel about it other than a means of swaying people to buy into the IPO with the added benefit of actual compute value.
And seems silly to ignore that the Google founders and Elon are buddies, or were, based on which gossip rag you believe in, and there's zero chance these types of deals are being made independent of those guys talking (when are they ever, of course, but it's even more obvious in this case given the players and their histories).
I avoided adding too many details, made a base assumption that folks on this topic would already be aware of google's investment in spaceX, probably should have added that too
Google has code written for their Tensor processors (TPU). Will it run on the NVidia GPUs that xAI has? Because I'm thinking they're "not part of their core architecture" and it will thus be money wasted.
(I thought for sure the title was backwards - it's a strange world)
See also: "The Madness of Crowds"
On Wall Street,people think they are betting on the fin performance of Companies, when in fact you are betting on the crowd's perception of a company's performance.
The Facts: Tesla wasted billions for Cybertruck, hasn't had a new real model for years, promises Full Selfdriving without supervision for a decade and other companies are either on the same level or better.
xAI has such a shitty AI, that he makes more profit renting his Compute instead of making profit directly from it as the companies doing who have better AI then him.
Space-X is a limited business and he tries to make it unlimited by selling stories of Mars and dyson spheres (literaly), no one will ever finance or need as long as we have still desserts everywhere. In parallel his Starlink business gets competition left and right and despite this, he only has 10 Million customers AND increased prices for STarlink just last month or so.
And the payload, most payload increase is only Starlink. He has to sell us a story, that suddenly even with Starship, he can send so much payload up there to make Space-X this mega trillion company.
He can't even scale Starlink. Its expensive. The satelites work for 5 years and have limited capacity. He NEEDS Spaceship to be able to send up Starlink Server v3 and he hasn't even prooven he can get his ship back which he needs for the payload price.
Twitter/X? Yeah he tanked that one.
Optimus? When did you see the latest non faked demo? And while he works on it, we already have the market cornered here.
I'm just as dumbfounded about Tesla's stock value vs what it does in the market and will trash talk Elon all day long but SpaceX is a different beast. I know of whole industries that are just waiting for the ability to get more stuff into space for less. The company will succeed despite him once Starship is established.
Check out K2 Space. They are planning a large bus satellite that can ferry deliverables to different orbits. They are just one of many many companies just itching to send large mass objects into space at low cost.
They are doing the same marketing garbage as Space-X and to no surprise, were founded by ex Space-X people.
You need companies actually wanting to send stuff up there.
Musk and K2 Space are desperate for customers and the fact, that they talk about datacenter in space, which doesn't make sense (for at least the next 30-50? years), should tell you everything you need to know.
It is very easy to just lay down energy cables and fiber somewere and build a datacenter. This datacenter can get upgraded hardware without any further big investments, is running for years without issues, can be maintenanced and the origianl infrastructure gets cheaper every single year.
Someone said Space-X is a generational company. Like wtf? Every normal datacenter on earth will always be cheaper on the ground than in space. The only advantage you have in space is solar energy efficency and these prices are still dropping on earth and you don't need to send these panels up in space. And batteries will have a fast RoT.
In space, you have to first even build and solve fundamental issues like "how do i cool reliable a lot of energy", "how do i send big payloads reliable to space", "How can i build datacenter hardware/rebuild datacenter hardware to be space stable".
And why are they doing this because they have to not because its more cost efficient.
Leo orbit is a lot better than what we had before with 30km but your mobile phone can't suddenly do realtime and low latency internet just because starlink sells it like this. The current starlink mobile phone service is still slow and they need to even prove they can do it. For this they need starship because the starlink v3 satelites, they need, are to heavy for falcon 9.
And it doesn't make it better for Space-X if they already have other companies who also want to do this as it lowers their margin and they need to recup their R&D.
Space-X Starlink satelites are the main driver of payload increase in the last few years. Starlink itself!
Ok, you might be right about all of that. None of that changes the actual fact on the ground that the IPO valuation is currently being set at nearly 100x sales, and for god-knows-what-reason, enough people appear to be willing to actually pay it in order to justify that valuation.
Go argue with the entire market. I'm just the messenger.
While you’re not wrong at all in the concept of your post, I wouldn’t call AOL a particularly innovative company. They basically innovated once and then went straight into lazy rent-seeking for the rest of their existence.
I don’t know if I would put Cisco or Nortel in that category, either. They were like gold rush pickaxe companies. The pickaxes themselves weren’t particularly innovative in their case.
A lot of the innovative companies from the dot com era are still around.
I think in the case of supply-constrained GPUs, you can get the opposite of a volume discount. Google has the most capacity of anyone, the fact they’re paying so much per month to spacex is pretty remarkable
You could also read it the other way. That there is a lot of stranded gpu-capacity which is not being allocated correctly. And buyers would rather rent - than build out themselves.
More like incredibly lucky that the global hardware market dried up for compute capacity even as his AI product flopped. Right place at the right time.
I just dislike that it is now harder to avoid giving Musk money directly or indirectly.
It’s not “black magic” to sell excess GPU capacity to third parties to make a profit. This is a legitimate business venture. It’s just not the business that people naturally expect a business with a name of Space Exploration Technologies to be making the most revenue from.
They’re in good company, competing with Amazon, CoreWeave, Google, Microsoft, Nebius, and many other players for the same business. They just invested (through the X.ai acquisition) in more capacity than they could take advantage of to get there.
Even if they manage to make a profit selling this capacity to Google, Anthropic, and others, it might not be enough to push them into profitability as a whole. That remains to be seen, and you keep asserting without evidence that it is true.
Profitability of space flight has a hard maximum. It’s not anywhere close to what their valuation would suggest.
There’s a reason Elon keeps trying to get investors to believe his “data centers in space” lunacy, because you need that sort of magic pixie dust to justify why any of this valuation makes sense, let alone have anywhere to go but down.
Starlink terminals are popular, they put them on drones to avoid jamming (Starling jamming exists but not that easy for now). It might be their sales are inflated due to its use at war.
That's only about 35% more than the main telecom operator here in Belgium (Proximus: $7.2B revenue in 2025, $2.5B market cap, positive earnings for 15+ years).
Obviously Starlink can and will growth. I'm just pointing out how insane the market cap is, when compared to similar scale "connectivity" businesses.
Their satellite internet business is the only thing which makes them money, which is enabled by their orbital launch business which is as of right now not profitable and I have no idea of if it ever will be but without it they would not be able to launch enough satellites.
Their stupidity with AI and buying X mostly seems to be about scamming investors to make Musk even richer. Like this particular deal is just them doing what CoreWeave does at a SpaceX valuation.
Sorry, I was unclear. With that I did not talk about this particular deal. This particular deal seems sane. XAI built more compute that they can use themselves since Grok is not very successful so to not just have the hardware standing there they rent it out to competitors. Makes total sense.
It is other things Musk has gone with Twitter and SpaceX which are shady.
Launch isn't profitable simply because ongoing Starship R&D is eating into it. A lot of opex, capex, and pre-revenue.
If they start running Starship anywhere near the way they do Falcon 9, it'll flip into profits. A lot of big bets SpaceX made ride on Starship coming online. I'm honestly surprised Starlink is already so profitable without it.
One of their big named bets includes: orbital datacenters. Which puts this specific deal into perspective.
80% of the space launch business is putting starlink satellites into orbit, so it's all internal funny money. They could very well be letting the space launch business take losses to make the satellite internet business look better (only profitable part of the whole thing).
Wasn't starship supposed to be funded by the NASA contract?
Well it would be a lot easier if those companies wanted to build them in uninhabited areas in the middle of nowhere with no infrastructure. Somehow they don't want to do that...
“If we fail to deliver access to the committed amount of GPUs by September 30, 2026, then following a one-month grace period, Google may immediately terminate the agreement or accept the number of GPUs provided, with a corresponding pro rata reduction in the monthly fees. After December 31, 2026, the agreement may be terminated by either party upon 90 days' notice.”
Didn't Anthropic pull the same in both ways? you pull me up I pull you up kind of deal? Sounds like SpaceX bought themselves some time up to Q4, which is not the case of Anthropic and even worse for OpenAI. Not counting that none of them got their S&P500 fast-track ticket.
All companies are now AI companies.
Just like a while ago all companies were suddenly Ads companies.
The entire tech sector is one big FOMO - once you reach certain scale you do exactly the same thing as everyone else.
I get what you mean but SpaceX owns xAI, which is objectively a company that trains models and has massive distribution by owning X.
I don’t think their models are competitive with Google, and Google obviously has the best distribution imaginable, but they definitely are a competitor.
If you look at the IPO filings you’ll see that Spacex as we know it is just a small part of the expected revenue generator. It is supposedly Grok and AI, hence Google competitor.
SpaceX has recently started pitching itself as an orbital datacenter company.
If you buy into that business model (or pretend to), it makes sense for SpaceX to start selling compute early. Their "earthside compute" clients of today are "skyside compute" clients of tomorrow.
A part of Musk's old pitch for Starlink was: space-based solar makes perfect sense for powering space assets, and no sense whatsoever for powering Earth assets. So you have to find a way to use that power in space to do something economically useful. Comms were the only scalable way to do that, so Starlink it was.
I can see how space-based datacenters would follow the same logic. If SpaceX can make them economical, that is. There's no guarantees of that - but if anyone at all can make space-based datacenters economical, it's SpaceX.
Evaporative cooling is the way it happens down on earth - and that shuttles h2o molecules from dense useful clumps like aquifers and rivers to a less useful form spread out in the air. But evaporating h2o isn’t an option in space afaik - since there’s a shortage of air to take up the h2o. In fact I think radiative cooling is the only actual option in space.
That's the neat thing: you don't, or at least not in the megawatt range. A kilowatt can be done with radiative cooling but doesn't get you far with a hypothetical datacenter satellite.
No; if you try to do this you don't launch in the first place because the amount of servers required to be useful can't be cooled within your payload budget.
Radiative cooling. When something gets hot, it begins to radiate that heat away - black body radiation.
Fucking hell - do you all think ISS is cooled by hopes and prayers?
Starlink V3 sats have to dump ~20kW of pure waste heat just to exist. Going from that to the stated 100kW is an engineering task, not some sort of impossible arcane rite.
My job is mostly worrying about cooling paths, maintenance, power, heat transfer, lifetime of GPUs, and high performance networks. NVIDIA partner. I can drive to the datacenter. This stuff BARELY works here on Earth. Especially thermal issues.
Looking forward to watching spacex defeat physics.
Starlink V3 bus already has to dispose of ~20kW of waste heat from the electronics - because RF amps aren't that great at what they do. That's a ~2020 server rack, in SPACE.
Going from that to a 2026 server rack is engineering, not magic.
The data link between earth and space has so much bandwidth.
There are sensors in space that send data to earth it gets processed and then the data is sent back to space then to the end user back on earth. If you do the compute in space you save the space-earth transfer time twice. Latency and availability of bandwidth are both factors.
There may be limited utility for this outside of military.
There are no NIMBYs in space. No government permitting on land use. And solar power is plentiful. It's like having a dollar store Dyson sphere.
Making use of that is predicated entirely on being able to put a lot of hardware into space cheaply. SpaceX is the undisputed best at that, no one comes close. The question is whether their "best" is good enough to make space datacenters economical.
There are many Not In My Orbit people on this very page. Many current national politicians would be happy to vote AI out of orbit today. Space is not an escape from earthly politics.
I am surprised how many people say that there is no reason to put data centers in orbit, when, at the same time, data centers are becoming the hated thing du jour all over the US and politicians left and right (but mostly left-of-center) are touting bans and restrictions to their electorates.
It is definitely to escape most political pressures on Earth. They will never be able to sidestep the US feds, but aside from an open war with China or Russia, all other authorities are out of the game when it comes to space.
People don't want to live near data centers. But companies find it logistically cheaper and easier to keep proposing to build them near existing towns and infrastructure, and then deal with regulatory fights rather then picking an isolated area and running an extension of high voltage lines out to them.
Which tells you something about why space data centers makes no sense.
"rather then picking an isolated area and running an extension of high voltage lines out to them."
Does not this usually mean extending/upgrading roads and other infrastructure as well?
IDK how this works in the US, but in most of Europe, a "linear" project like this, which crosses multiple jurisdictions, usually runs into more resistance, not less. The multitude of people and special interests along the line compounds.
In some places, special legislation has been enacted that exempts such linear projects from detailed review and opposition, otherwise pipelines, grid upgrades etc. would stall for decades in courts.
When I hear space I think "that's the perfect location for a data center", since data centers are lightweight, small, require little power, don't need human intervention, have lifetimes measured in decades and don't have to reject heat. Since space easily satisfies these requirements, space is an ideal deployment location for data centers.
Isn't the Vegas Loop just a car tunnel? As far as I know, there aren't any actual hyperloops[1] involved, just a narrow highway, even if they deceivingly brand it "Loop".
It seems off at first glance but actually appears to work out if you do the math. You can model a solar panel as a flat, opaque rectangle. You can calculate power generation and equilibrium temperature for it based on surface area. If you require additional radiative surface area to achieve the desired equilibrium temperature you can place a flat triangle orthogonal to and behind the solar panel in its shadow.
Compute is "free" at that point because waste heat is coming out of the total energy flux which was already accounted for (because we modeled it as opaque).
Of course swapping out the equipment poses a bit of a challenge. The "helping hands" rate is entirely unaffordable and wait until you see this new DC's physical access policies. 0/10 would not rack with them again.
... what? Data centers are literally the original form of computer facility. How are they different from the computer rooms mainframes, etc were housed in?
There are asteroids with concentrations of precious metals more valuable than earth's entire economy. Why don't we just send up spaceships to mine them and send the haul back to earth? What country would say no to free money?
After all, it's just an engineering challenge, not impossible.
The numbers on that are at least somewhat questionable. Even ignoring that you'd crash the market (thus it's not actually worth what it first appears to be) what is the total fuel cost to adjust the orbit of the target asteroid to land the entire thing back on the earth? Because that's what you're doing bit by bit as you shuttle loads of ore back.
Now if you have space based manufacturing or fuel production on the other hand ...
That's the point. Basic rule of thumb: anytime someone is arguing that the military will fund something, they're wrong.
Its not a real argument it's just used because to most people the military is a big mysterious thing they don't understand which they think has an infinite budget for things.
Can anyone explain how the thermals will work? One of the biggest challenges on Earth is cooling the data center, and it's at least as challenging in space.
The earthbound equivalent would be strapping each chassis to the back of a dedicated solar panel and having the panel double as a giant heat sink. The problem is that doesn't work on the surface due to (at least) rain, the day/night cycle, and the cost of real estate.
But it doesn't matter since in this scenario each chassis is powered exclusively by the respective panel. How hot does a black panel sitting in the midday sun get? That's your equilibrium temperature. As long as it's within the operational limit of the device there's no problem.
The reason earthbound DCs are difficult to cool is because of density. When you match up panels to devices and shelter in their shadow you no longer have anywhere near the same power density.
What isn't right? I pointed out that if you adhere to the same power density then cooling is no longer a challenge on earth (in reply to the observation that cooling a DC on earth is one of the biggest challenges).
For the record the equilibrium temperature in earth orbit is above freezing but below room temperature. Cooling won't be a problem at all unless you bring along a self contained power source. Heat distribution however might be - you will need an efficient yet lightweight construction to spread the heat generated in the chassis across the entire solar panel.
The idea that passive radiators don't work on the ground isn't right. I wrote it badly, the core of your argument is really fine.
The reason we don't use them is because the other options are cheaper. But passive radiators on the ground are orders of magnitude cheaper than on space because they can use convection and conduction.
> The reason we don't use them is because the other options are cheaper.
Yes, that is literally what I have been saying from the beginning. Are you sure you didn't misread my original comment?
> passive radiators on the ground are orders of magnitude cheaper than on space because they can use convection and conduction.
That statement is technically correct when comparing designs to radiate an equivalent amount of heat in the two environments.
However in context (ie solar powered computing in outer space in the vicinity of the earth) it is entirely missing the point that the problem is not a lack of surface area but rather efficient heat distribution across the already existing surface area. I have no idea how much that costs in materials and workmanship but when you're boosting things into orbit I don't think the material cost of a rudimentary heat spreader is likely to be of much concern. The weight certainly will be, but you can also get away with some incredibly flimsy designs when operating in zero g.
It won’t. It’s not supposed to work, it’s a mirage to raise dumb money. It’s way, way more challenging to cool something a vacuum. The only option is radiative cooling, which is far from being performant. The idea is as realistic as Musk previous grifts such as his digging company and there hyperloop, both absurd and supposed to revolutionize transport, both created as grifting devices and ensure public transport doesn’t develop in the US
Musk is a snake oil salesman (that’s been clear since the self-driving car promises) but he also has made a lot of people a lot of money and that’s all anybody really cares about.
None of his companies have a traditionally reasonable valuation. Is there any reason to think that’s going to change soon?
> if anyone at all can make space-based datacenters economical, it's SpaceX
Let's hope burning ten thousand tons of toxic e-waste annually in upper atmoshphere never becomes economical. Or mankind gets to senses and bans externalizing your e-waste problem by burning in atmosphere...
> ...burning ten thousand tons of toxic e-waste annually...
Expressing water usage in gallons makes it seem really large, too. NASA says[0]:
Scientists estimate that about 48.5 tons (44 tonnes or 44,000 kilograms) of meteoritic material falls on Earth each day.
If we assume that they're all the heavier v2 units, the total mass of the orbital portion of Starlink is ten point four tons. [1] If we assumed that they lasted one year (instead of the five that they're reported to last[1]), then over the course of a year, Starlink would dump six hours worth of asteroid collisions into the atmosphere.
I think we'll be fine. Pour all that frustrated energy you have into substantially reducing the amount of incredibly hazardous d-waste [3] big commercial operators burn up into our atmosphere, instead.
I think you missed a factor of 1000 somewhere in there: Each satellite weighs about 1 ton, there are about 10,000 of them. That is 10,000 tons in orbit for the constellation, not 10. Assuming a 5 year decay, that's 10000/5/365 ~= 5 tons / day. Still about 10% of the natural incoming material, but considerably more than your "six hours worth per year".
> I think you missed a factor of 1000 somewhere in there... there are about 10,000 of them. That is 10,000 tons in orbit for the constellation, not 10.
I did. what. the. hell? Maybe my swiss-cheese brain read the "," in 10,413 as a decimal separator? I guess that's what I get for posting while old. Thanks for the correction and supporting arithmetic.
Though, I still stand by my "please for the love of everything, get to complaining about CO2 because this thing you're complaining about is a damn nothingburger" conclusion. (I am sufficiently aware to notice that that you're not OP, so the "you" in that pseudoquote is not directed at you.)
You think the toxity and dangers of materials are defined by the atoms the materials are made of rather than the molecules? Swimming in a ocean of Hydrogen-Oxygen salted by Sodium Chloride must feel dangerous..
Also the toxic fumes from burning batteries don't really come from the lithium but everything else the batteries are made of.
This is all just the typical Elon hate. What's desperate about getting paid $920,000,000 per month? If that's desperation, I'd love to start groveling more!
Given extreme supply constraints, it's very unlikely that Google or Anthropic will just suddenly cancel right after the IPO unless their own demand collapses. And even if this were true, what value would that provide Musk? Could you imagine if your newly public company suddenly received termination notices from your two largest compute customers? Disaster.
I have no love or hate for Elon Musk. I wish him luck with his space endeavours.
What's desperate is announcing a temporary (allegedly) doubling of revenues days before an IPO that has been criticised for being overpriced at 93 times sales.
These data centers were supposed to serve xAI. Now suddenly they get rented out to others. Why the sudden change of plans?
It's either an emergency accounting gimmick or the effective shutdown or repurposing of xAI.
It’s a repurposing of xAI to be a commodity service provider during a crunch for that commodity. It would be dumb if xAI had any quality or market traction, but they have neither, so it’s actually a rational fallback. But it writes off any high margin future in favor of low margin scale.
And once the compute crunch is over, they’ll have a lot of overprovisioned data centers with no business to soak up the capacity.
Which means more Grok degradation, more severe throttling, etc.
I can't understand why xAI charges 50% more per month for Grok over competitors when it doesn't even gracefully downgrade to a cheaper model when paid subscribers hit the limit.
Probably because it has all but zero filters on the input and output. It took widespread media outrage about "grok show me her in a bikini" to at least create a filter that bans such things.
I've used/use it. For a while it had one of the best lightweight coding LLM's, which actually lead to a #1 spot on openrouter usage ranking although they've fallen off the top 10 used now. It's also provided some good reasoning models, which perform better when dealing with non-PC topics.
Also, although I've never used it for this, I believe some of the paid models produce some of the best "adult" content, and I know there are even subreddits which do nothing but praise Grok and "content" produces who use it.
Grok is pretty good. It really excels when the results can be improved by deep online search. It tends to be more aggressive in looking things up than competitors. I use it in certain situations.
They already make it required to have a premium X account
Claude has tons of throttling already. Chat GPT is not as accurate at computational problems despite less throttling. Gemini has fewest restrictions but worse quality. Always a tradeoff.
> can't understand why xAI charges 50% more per month for Grok over competitors
One potential read is xAI knows Grok isn't going to be a Tier 1 model. So while SpaceX focusses on infrastructure, Grok bets its users like its model enough that they'll pay a premium for it, even if this curtails growth prospects.
Is this admission that google’s proprietary chips etc. are not cutting it? Why would you need a bunch of nvidia GPUs if you have your own silicon? (AFAIK they have their own for both inference and training do they not?)
Kinda; while it does show that overall Google's proprietary chips etc. are not cutting it, it doesn't say if the problem is the hardware itself or the factories to make more of the hardware. Without more information, it could be that Google's hardware is 100x the energy efficiency per token, but they can only make enough hardware for 1% of the tokens there's currently demand for: 1% of your product being 0.01% of your costs isn't nothing, but it leaves the other 99% at full price.
How do you come to this conclusion? All it means is that spacex has compute and google does not.
Suppose tpus were theoretically a million times better, but cannot be produced due to supply chain constraints, this action would still be rational.
My personal take is that this really shows how bottlenecked the entire supply chain is. For such an important commodity there are shockingly few players ready for scale.
3 years is quite a short horizon when it comes to semiconductor fabs. Also this article is a dupe, when it was previously discussed it surfaced that after some time either party can cancel with only 90 days notice.
Or alternatively there is simply a huge demand for compute and this is helping them fill a short-term need. Keep in mind if you saw in the article there is a 90-day cancellation clause. This is a nothing burger.
I don't think so. It provides some nice optionality for Google and I am guessing this opportunity only exists because Grok is not popular and xAI does not really have any other use atm.
Supply and demand? Bubblists seem to think there's an infinite supply of chips, power, and water to make as many chat bots as possible; physics, as usual, dictates limits.
Its because none of the promised Data Center and NVIDIA hardware deployments described in NVDA earnings calls have actually happened. Once more Ed Zitron has the goods: https://youtu.be/zbKDmkJPVvI?t=482
I am really wondering if Google is just subleasing Anthropic capacity. The terms are suspiciously the same as Anthropic's and Anthropic was supposed to have leased out all of Colossus 1.
Maybe with the corp token spending limits and the rise of codex, Anthropic saw steep deceleration in usuage?
All important technologic revolution can turn into an infrastructure revolution => the railroads, electricity etc … so the technology can be a transformation while the capital cycle becomes in excess
Tangent alert: a couple of questions for folks who know far more than I do about compute capacity and Google these days...
Lately, like the past few months, I've noticed Google services (search, gmail, drive, maps) running very slowly to the point where, at the moment it happens, I always think it has to be my connection and not Google, but sure enough every time I check a couple of speed tests and they're... fine. And then I don't seem to be having the same latency from other sites/apps. Is there any chance that the commingling of the AI snippet and then directing users into the AI funnel through the text box is actually causing material performance impacts in other Google properties? Probably a dumb question because I can't imagine they would allow performance for broader properties to suffer for AI prompts/chats, but then again all this talk of compute starts making me think otherwise, like the prolific amount of prompting and chatting is causing massive across-the-board performance issues.
Somewhat related, but does anyone use Gemini and end up with the experience where you have a chat and it's obvious, to yourself and to Gemini, that you're trying to find a product to purchase, but Gemini doesn't even link you to what you would think would be the obvious place to purchase the product? This happens daily where I interact with it, it suggests some products, but won't even provide a link to that product or, if it does provide a link, it's to some no name site that wouldn't come up as a highly-ranked paid or organic result through regular Google search. Keeps making me think this is a Google performance problem where they have not figured out how to take the entire AI chat and engineer it back into a simple short keyword phrase to get an acceptable search result.
Btw, if anyone's thinking "why are you using Gemini because it's the worst?" I think that's fair and right. I have... reasons, but they're not super sensible ones.
I'm probably 50/50 with search in particular logged in vs. out and I do think I notice on both, but I'm not entirely sure. Just saying the search and maps algorithm is wading through so much of my history that it can't help but choke trying to deliver the "right" results?
No, but I was thinking it might be possible that your account is specifically afflicted by some storage problem. For example, it could be homed in the wrong part of the world, compared to where your browser is hitting frontend applications. Or a million other possibilities. When logged out those wouldn't be factors.
Maybe agentic PRs made it to production and performance cratered.
On a serious note I feel the same. Google is slow these days and the slowest and least reliable service of them all is Gemini. Sometimes I don't even know if it hang already (no error messages) or if it's still "thinking".
Yes. When I plug my phone into the car it used to use google assistant to process voice commands and it was pretty fast. Now for some reason it has switched to Gemini and it takes twice as long to play a song or send a text. Sometimes Gemini forgets it even has the ability to play songs. Gemini is better at answering random questions that the kids ask though.
Yesterday the Gmail virus scanner stopped working. For a while I couldn't download my attachments. A few minutes later it said the virus scanner was offline and download at your own risk.
Meet audio seems to be having a particularly bad week. It just doesn't work with headphones. Their testing tool indicated everything was fine. It's worked after I logged off and on. Audio quality issues are getting more common as well.
Makes a lot of sense that Musk should do the parts of the AI stack that look more like manufacturing/regulatory bottlenecks, and rent out the compute to research-focused AI labs. Does anyone know the full accounting of how much it cost to build Colossus (plus ongoing opex) vs. the revenue it's generating now?
Does this mean that SpaceX are the only company that really did build some datacenters to put all the million of GPU/TPU/whatever they all talk about everyday?
I mean, Google, Amazon, Meta and Microsoft told investors they spent more than $1B per day last year in CapEx... why on Earth do they (well, Google and Anthropic at least) need to rent compute to SpaceX, of all companies?
Yes but someone will be along shortly to defuse what sounds like giving the bad mars man credit where it’s due. Like everything else he does that works out, it was just luck, timing, actually a mistake that worked out, or someone else behind the scenes that he got lucky in hiring at the right time (by accident).
If your dad had owned an emerald mine I am sure you could also have been that dumb.
But to be more serious: It is impossible to say if this is good or bad for XAI without more numbers. What if they bought their compute way over market price and sell it at a loss?
Short memory. When musk was buying all of this capacity it was billed as xai is going to take over the world. Instead grok is a flop and now he has extra capacity. If xai was a data center he’d be smart. But it is a failed Ai venture.
It’s like training your dog not to jump on the sofa. But then you fail to train to stay off and then brag about how you trained it to stay ON the sofa.
Huh? That's just basic history of xAI. At no point was xAI being sold as a Coreweave-like middleman leasing out data centers to hyperscalars. That's a boring, regular business. The pitch was that xAI would develop groundbreaking AI models for Grok which would attract actual users and generate revenue.
That evidently did not work out, otherwise these deals wouldn't be happening. OpenAI and Anthropic aren't leasing out their datacenters, if they did it would be obvious something was grossly wrong with their projected growth.
No, CoreWeave for example also rent compute to the big AI companies. This likely just means Grok has few users so they need to rent their extra capacity to their competitors.
Other companies built data centers but also built products that soak up their data center capacity.
xAI built data centers, and products that are mostly good for nonconsensual porn and confirming a small group’s biases. So they have a lot of excess capacity, and might as well rent it to the adults.
the GPU builds are very high stakes games of depreciation: if the mission life is e.g. 4 years you win, if a disrupting ASIC for the transformer comes in you lose.
As of today the gamblers seem to win, demand even for A100s, H100s is high prices are even rising.
It's not an AI company. It is a datacenter company. While all frontier AI labs are fighting for compute SpaceX is give up compute, instead of reserving it for their own models. That tells you all we need to know
Musk made big investments in building AI data centers starting in 2024, continuing through the present. SpaceX got those assets from xAI, spun off from X, via an acquisition. More details:
SpaceX valuation and ultimate success depends on two things:
1. AI demand continues to grow.
2. SpaceX's orbital data centers are profitable.
If both of those are true, then their current valuation is absolutely justified. I'm confident #1 will happen.
#2 is the big bet, and IMHO this is just an engineering/execution problem. All they need is (a) Starship to work reliably, and (b) a manufacturing line that can build a data center satellite at low cost.[1]
(a) is the harder of the two, IMHO, but they are well on their way. Once they successfully recover and refly a Starship upper-stage, they will iterate step-by-step until launch costs drop to the level they need.
Now assume that SpaceX succeeds. What if AI demand continues to grow and SpaceX orbital data centers are profitable? Think of their moat: they spent 10 years and billions of dollars developing a fully reusable rocket that happens to also be the largest rocket in the world, and that costs 1/10th of what other rockets cost (per kilo to orbit). Plus, they have an assembly line that can build data center satellites cheaply, and they start fabbing their own AI chips.
How is anyone going to compete with that? There are a bunch of data-center-in-space startups, but none have their own rocket--they're going to have to pay SpaceX to launch them. Blue Origin is developing a rocket as large as Starship, but it's not fully reusable--they will never get the cost down to Starship levels.
What's interesting is that all the AI companies, OpenAI, Anthropic, and even Microsoft and Google, are mostly leasing their data centers from someone else. They think compute is a commodity and the value is the trained model. But if SpaceX has the cheapest data center with the most capacity, they will be able to extract profits from the AI companies or (why not) compete against them with their own model (Grok).
In 10 years we'll see whether SpaceX succeeds or fails. If they fail at this, they will retrench back to a launch company (assuming they are still in business). But if they succeed, they will be a massive company, and the synergy between their businesses will be so obvious that everyone will say, "of course they succeeded!"
----------------
[1] Don't be distracted by claims that "cooling in space is hard" or "radiation is a deal-breaker". Neither of those are insurmountable problems--they are just engineering problems. Crucially, they are problems that are easily solved by getting mass to space. If you can get mass to space cheap enough, those two problems are trivial to solve.
Even if I do accept your claims that cooling in space is not insurmountable, you still would grant that launching and cooling (and shielding??) a data center in space still cost more dollars than building a data center on earth right? What is the use case that people will spend money to rent servers in space? I think nations have a strong enough grip on the internet now that the customer use case of "evading my country's laws" won't generate that much revenue.
Is the hope that power will be cheaper because solar panels have direct and continuous exposure to the sun?
There is no physical reason why it can't be cheaper. For starters, solar power is 4x better in space, so you need 1/4th the area of panels. But also, data center costs are skewed by things like permits, environmental reviews, and (increasingly) lawsuits.
Terrestrial data center costs are only going up, while space tech costs keep going down. It is plausible (but not guaranteed) that they will intersect at some point.
Yeah sure the technical problems are solvable if you throw money at them. I'm sure we could have had a colony on Mars by this point as well if NASA/etc. continuously spent insane massive amounts of money on every year since the 70s.
So what?
Why on earth would you want an AI datacenter in space? Like what would you gain by doing that at an absurdly higher cost than you could build on them earth?
"Free" energy? lol.. just build nuclear powerplants or loads of solar, wind and batteries on earth. Its still going to be cheaper...
> How is anyone going to compete with that? There are a bunch of data-center-in-space startups
A better question is why would anyone even try?
> are mostly leasing their data centers from someone else
It's really not. Building your own datacentres is very expensive and more importantly takes a lot of time. They need compute now, so it makes perfect sense to rent it from failing AI companies like xAI which bought a lot of chips but don't have anything to do with them since their models are just not very good.
> But if SpaceX has the cheapest data center with the most capacity, they will be able to extract profits
Well.. that would be a first one, since no similar industry works that way. Compute is a commodity so unless your literally run out of space on earth to build datacenters or Nvidia/etc. stop selling to anyone but SpaceX that can't really happen, can it?
This feels actually like a pretty safe bet for Google, they secure the compute in case it works (I doubt that the described volume will be available in the near future), while if SpaceX doesn’t manage to provide there is not much loss.
I see it more as another way of blowing up SpaceX valuation on paper…
So Google AI will now be running partly on xAI data centers which run primarily on natural gas burned on site next to poor neighborhoods in Tennessee and Mississippi causing massive air pollution to these families and children. Is anyone else disgusted by this? I’m imagining all the people there developing lung and other issues because of this. Greed and power on full display over doing the right thing.
I’ll be switching off the Gemini model at work (Composer’s been off since their xAI deal). This is the final straw for me to move completely off Google services.
So space data centers are absolutely possible then. I heard a lot of skepticism about the feasibility but it looks like Google and Anthropic looked at SpaceX and trusted them to deliver on the promise and even signed deals worth billions.
They have unused capacity in their Tennessee datacenter. We don't know everything but the backend of Grok probably runs in the TN datacenter. Grok is not as popular as hoped, so the TN datacenter has unused capacity.
There are other companies besides Google and Anthropic that are considering renting capacity in xaispacex's datacenters.
Global capacity for GPU hosting is tight at the moment. That TN DC is the only one not totally 110 percent already allocated for five years in the world .
Cloud companies were made to sell others compute. Now, one is buying billions of compute from SpaceX, a rocket company. That sounds so backwards lol.
Great work by Musk and his companies to be in a position to sell billions to cloud vendors. I'd have probably missed that opportunity while trying to build great rockets or AI models.
Google is getting in bed with some folks even more unsavory than themselves. The thing I noted most from I/O was how prominent and proud the are of partnering with Palantir. "Do no evil" has become "Let's do evil"
I thought it was notable that in Google's press release yesterday regarding their new facilities near Amarillo they seemed to go out of their way to point out that the applications are not AI, listing "Search, Gmail, Maps, Cloud, online banking, and 911 systems" instead. I wonder if they find it more convenient to rent an existing one rather than face public scrutiny for building another "AI data center".
Perhaps. It also seems to insulate Google from the risk that air quality regulators will be unexpectedly reinvigorated, while still providing to Google the benefits of xAI's lawlessness.
> How did Elon get so much NVIDIA hardware before everyone else?
He’s the richest man on the planet and doesn’t have a track record of not paying for shit he buys. If you want to reliably offload your chips, he’s safer than e.g. OpenAI who might or might not have the money when the bill comes due.
> He’s the richest man on the planet and doesn’t have a track record of not paying for shit he buys.
My impression was the other way around. The shenanigans he pulled around the Twitter acquisition were just farcical, and at Twitter he repeatedly refused to pay owed rent, etc. (I assume as a ploy to renegotiate terms).
From Google's spokesperson, quoted in the article: "This is a short-term, timely agreement to ensure we have bridge capacity to meet surging customer demand for our agent platform, Gemini Enterprise, which has been even higher than we expected."
Google wants a lot of compute sooner rather than later, and they're willing to pay a premium for speedy delivery of that compute. SpaceX has the capacity already built and ready to go. Hence the high price.
On the one hand, yes, this is really embarrassing for Grok. On the other hand, everyone except a couple Twitter randos already thinks Grok is worthless junk: there's no reputation left for it to to lose. And Elon is crying all the way to the bank with an extra $11bn in annual revenue.
Not an easy thing to gauge. X/Twitter stopped publishing MAUs after the acquisition.
External estimates vary, some point to growth, some to stagnation. We know that revenue suffered. LOTS of partisan and emotional opinions for either.
Google trends does paint a bleak picture for X but I am also questioning how much google itself can gauge that after LLMs exploded in popularity.
Anecdotally I did notice that references and embeds to X are way less prominent and common than before. My usual news used to be filled with them. My consumption of the platform also plummeted after not being able to read threads when not logged, its much harder for me to get drawn into it.
Still without data, I would be surprised if the changes to verification and logged out access did not massively hurt new adoption. With tiktoks prevalence amongst a new generation I would bet its a matter of time before X gets grouped to tumbler/facebook, not dead, but way past its peak and cultural relevance. If that has not already happened.
Anecdata: Mastodon now has witty, un-earnest comments semi-regularly. And I have learned of maybe ten percent of breaking news things in the last three months on Mastodon via links that weren’t just to twitter.
Impact in the zeitgeist. Twitter was everywhere. Regularly referenced on live news television statins. Was considered a major news source. Shows had segments dedicated to it. Everyone and every brand had a Twitter. That is not the case today. Not by a long shot.
Is this another circular investment to help pump up the stock valuation? Why would Google need to rent that much compute?
> Google parent Alphabet has made a windfall from backing SpaceX, which was worth $12 billion at the time of its 2015 investment, and is looking to go public at a valuation of over $1.75 trillion
Since the S-1 filing, xAI has taken over and is likely the largest share of revenue. I would estimate that ~95%+ of xAI revenue, and 100% of its profit, is from renting their datacenters.
This is a datacenter REIT bolted onto a social media company bolted onto launch business bolted onto a niche ISP. The expected price to sales is ~100x. The best datacenter REITs trade at ~10x and pay a dividend, which SpaceX does not. Meta trades at ~7x sales. Comcast is one of the best-run ISPs, and it pays a 5.5% dividend on a stock trading at < 1x sales.
To say SpaceX is overvalued is to even beginning to convey the magnitude of the situation. It's going to be very painful when the valuation normalizes.
Do companies like Uber, Tesla, etc ever intend to pay dividends? If a stock never intends to pay dividends, the value of the stock is simply the price the next shumck is willing to pay.
Excellent question. They may not intend, today, to pay dividends. However, the same question could have been asked about the successful tech companies of the '00s. Companies don't like to start paying dividends until they are fairly certain of their future profit stream and therefore ability to continue paying (and increasing) the dividends in the future.
Apple, Oracle, Nvidia, Cisco, Alphabet, Meta, Salesforce, and Qualcomm all pay dividends now. It's not unreasonable to expect Uber and Tesla to pay in the future. However, the median time after IPO for similar companies to pay a dividend is close to 20 years. So we could expect Uber to perhaps wfstart paying sometime around 2039. Tesla...is Tesla so who knows?
The value of the stock is your share in the underlying business. Because underlying business changes over time (hopefully for the better) you are not simply hoping another shmuck pays you more, like with tulips, whose underlying value does not change with time. You own a portion of a concern that is improving its own fortunes.
Furthermore, dividends are approved by the board once per quarter or once per year. A dividend on a stock is not a contractual guarantee like it is on a bond. Therefore, it cannot be a basis of value.
With your logic, Berkshire Hathaway is a long-running greater-fool tulip bubble whose shares are only bidded up by finding more shmucks.
Well, the value of the stock for people who essentially do not have any meaningful control of the business must essentially be tied to the expectation of some liquidity event down the line -- future cash flows. So this could come in the form of dividends, sale of the stock, bankruptcy proceedings, or a purchase of the business.
If I knew for certain (big if) that a business would never have a liquidity event and I couldn't transfer my ownership then it's dead capital for all intents and purposes and you could consider its value essentially $0, right?
But you can transfer your ownership.
And you can sell your tulip. But if the mania stopped and you suddenly _couldn’t_ find another person to sell it to, would you now be upset you paid $5000 for a tulip? What’s the value at which you wouldn’t be upset? Ok, that’s the intrinsic value of a tulip to you.
The thing about a profitable business that is different from a tulip is that it can at any point decide to issue a one-time or ongoing dividend. It can sell off parts to create cash. It has lots of optionality. Public companies have even more liquidity, which creates more optionality.
Even if you don't have immediate liquidity, it would obviously be worth something to have a slice of e.g. Rolex SA. That's obviously different than owning a tulip.
Berkshire Hathaway doesn't pay a dividend yet the business has steadily grown more valuable
Because dividends are stupid and Berkshire is smart. Share buybacks are the optimal way to do "dividends".
The only reason to do a dividend is because people like the feels of getting a cash payout.
I disagree with the last statement. The reason why most companies in the US have at least a nominal (one penny per share) dividend is that many pension funds have a requirement to only hold shares that issue dividends. Pension funds are all tax sheltered, so they don't need to worry about paying taxes on dividends. For retail investors, dividends are mostly worse that share buy backs. Why? Dividends are taxed, and the money needs to be reinvested.
Dividends are also one way of income in retirement, much more predictably than selling stock. The yields are worse than bonds, but they can be considered to be mostly to rise with inflation, albeit on a year or two delay. Dividends also act as a discipline to keep management focused on the business, since you need to pay real money to shareholders, instead of just doing whatever good idea you have, regardless of whether it is a net benefit to the company.
> The only reason to do a dividend is because people like the feels of getting a cash payout.
Not really, when capital entities came up, the initial goal was to deliver return on invested capital,i.e. something "you get out of the business/back".
Or do you think back in 14th wenn Dutch East India Company was created, that you could by shares and sell them later to a higher bidder after the mission was accomplished? :-)
That’s the story, but it’s bullshit. The underlying intrinsic value of a stock can only be materialized if the company liquidates and you receive a share of the sell off of its assets. How many publicly traded companies abruptly decide they’re tired of the business, stop in their tracks, and liquidate their assets? This only really happens if the company is acquired or if it goes bankrupt. Acquisition is the closest the story comes to truth, but it’s also just forced sale to a greater shmuck. If a company goes bankrupt, a tiny fraction of the current stock price would be realized into cash for common investors because of all the privileged investors and lenders ahead of them, not to mention that the actual value of capital assets etc probably doesn’t cover all the losses (the company’s going bankrupt after all). The value of the underlying capital assets are essentially never returned to the common investors, and the idea that you own a portion of them is in practical terms a lie.
It's not purely the liquidation value, it's the idea that the liquidation value will continue to increase, or profits will be paid out to owners.
Yes, the profits it pays out are the one thing that actually makes sense, but the premise of the grandparent post was to ask what a share is worth _without_ dividends. And the answer is that shares are intrinsically worth very little. Liquidation value (actual liquidation - bankruptcy or going out of business or an exchange closure) is rarely ever practically realized for common investors. Even if you’re trading on the discounted expectation of a larger liquidation pie, nearly 0% is still nearly 0%.
Voting rights are also not valuable by themselves - they are only useful to steer the company towards greater future payouts, which means you are appealing to some other entitlement to value.
If you zoom out, a company is a temporary arrangement of people and things that makes more money than it spends _over time_. They are not really designed to accumulate and store value in and of themselves. The machines the employees use to do the work is a small fraction of the overall utility of a living breathing business. The valuable part is the capacity of this techno-social organism to reliably and continuously make profit, which is far greater than the sum of its parts. So if the profit that’s being earned is never paid out to stakeholders, then there’s no point in being a stakeholder. If the profit is redirected to make the organism bigger, then you are trading now-dollars for future-dollars which must be appropriately discounted. If everyone expects a company to do this forever, then the correct price is what the expected liquidation share should be, and that number is basically zero.
Yet, stocks that do not pay dividends exist at high valuations. What that tells you is that modern day stock trading is tulips: the lion’s share of the value derives from a temporarily stable, shared, _correct_ perception that someone else will buy it back from you.
The reality is that general investors are the greater fools in this arrangement. The prevalence of preferred stock is a tell that there are owners and there are “owners”. What we should do is recognize this and admit that the big initial investors and employees themselves are the owners, because they are the group small enough to actually realize liquidation value (should it ever be necessary). The public investors have no realistic claim on that value, so their shares should be more clearly labeled as dividend rights, which would cause them to be priced as such.
By this logic all money is inherently worthless too, and every time you buy a sandwich at the local corner shop you're just passing off that worthless piece of paper to the next schmuck.
In reality, things have value because people believe they have value. That doesn't mean every company that doesn't pay dividends is a speculative tulip bubble.
> The underlying intrinsic value of a stock can only be materialized if the company liquidates and you receive a share of the sell off of its assets.
This is wildly incorrect. A profitable company can decide to begin paying out dividends, which can eventually return > 100% of the investor's purchase price. A company can issue more stock or bonds to raise cash to pay investors. A company can spin off assets to raise cash to pay investors.
Your framing is very much like a short-term PE investor, and if you look to their playbooks you can see there are many ways for intrinsic value to be realized while leaving an operating business behind. There are any number of stories where PE investors make big profits and then turn around and resell the company for more than they paid.
This makes no sense. Why doesn’t the “underlying value” of tulips change?
“Underlying value” is a meaningless word btw
Things don't have any inherent value. It is priced at a level that a buyer thinks it is worth.
A gallon of oil can be $3 or $6 depending on whether someone is willing to pay. It can also be $10 but only if people are willing to buy it at $10 if not "prices will come down to match the demand" - another way of saying it would be $9..$8...$7...$6 until it matches a buyer at which point gas is $6.
This is what I am trying to express. There is no "inherent price" or "inherent value" there is only the real value that it is bought at (in terms of money). There can be other values (non money) like if someone is willing to swap something for it etc.
The underlying value of a tulip is the same as it was in 2000 and 2026. The underlying value of Google is much different in that same time frame.
There is no underlying value. It is only how much other people are willing to exchange for it.
So stock marked is always meaningless except considering it is so large and consequanetial and so many people have access to it that it will be rational automagically. This is more of a belief that seems to be fairly correct than a rational line of thinking. This is similar to Democracy in a way
You seem to be operating on the assumption that stock values are just totally and completely random and the fact that Google is worth $4T is just as much of a possibility as Hertz Rental Car being worth $1.5B
If you disagree with the above framing, your reasoning will have to concede the existence of underlying value. Yes, obviously the price of a share is the result of the bid and the ask price in the order book. But those prices are based on something, they are not randomly generated. They are based on conceptions of value. The fact that companies with increasing free cash flow over long periods of time always see increasing share prices over time is not random coincidence.
That example is a bit extreme but I can give two more normal examples.
Google/Nvidia and Apple/Nvidia. I don't think there is a world where nvidia will make more money than google or apple or keep making more money than them.
Also another one is Tesla. In my opinion, there is absolutely no world where tesla is worth the current stock price if you compare it to chineese companies or some company like Toyota.
Ofc at this point it depends on if you believe the stock market is absolutely correct or if it is correct in these specific examples. We can agree that it is correct in pricing Google higher than a car rental company but it is more complicated.
The prices are based on something but that something is so obscure and complicated that I don't see a way to make a calculation out of it outside of American ideology of stock market/capitalism.
> The fact that companies with increasing free cash flow over long periods of time always see increasing share prices over time is not random coincidence
This is just trivially related imo there is no real calculation between these things . And this relation it is breaking more and more lately as far as I can understand. This might mean stock market ideology is starting to diverge from the real world which is scary
It might pay you to look at the numbers.
Last quarter:
Goog: $109B revenue, $62B in profit.
NVIDIA: $81B revenue, $58B in profit.
NVIDIA is growing faster.
I agree about Telsa though.
how about this: there has been a fairly short-lived, one-time event that boosted NV's revenue and allowed them extraordinary margins. nothing like that is goosing Goog or AAPL.
yes, I'm claiming that the NV-AI hype bubble will pop (which almost everyone expects to one degree or other).
In the long term all is dust.
NVIDIA has at least 2 years of solid revenue growth ahead of it.
Beyond that people are dreaming about doing predictions anyway.
> The value of the stock is your share in the underlying business.
Which for most investors with Class C/D shares is... the square root of zero.
They assert no control over the business, the only way to benefit from the stock is to find another shmuck to buy it at a higher price.
The price of a growing business should go up because it has more options to create returns for shareholders.
Use Aldi (revenue ~$120B) as an example. Do you think a person would be a shmuck to buy a slice of it now versus when revenue was $1 million? If not, why not? Your answer will help understand why stock has value even without voting control or dividends.
It depends. What if Aldi bled a trillion dollars for this revenue of $120B? Would it be a desirable purchase?
Google and Meta have a reasonably similar corporate structure. Most of the voting power is concetrated in the hands of a few. They have both done very well since their IPOs. Do you exclude these companies from your portfolio?
Among the oldest value models, the Dividend Discount Model, says that the value of a company's stock is based on the present value of its future dividend payments.
Even if a company doesn't currently pay dividends, it will eventually do so or be purchased by a company that does. That's the theory at least.
As someone who has been looking at equity "value models" for more than 15 years, I can confidently say it is all bullshit. None of them can explain ("predict") price to earnings ratio or price to book value ratio. Sentiment matters much more in equities than any analyst will admit.
US companies normally do stock buy-backs instead.
It is a way to distribute the money to the investors, that their tax system favors.
There are lots of US companies that pay dividends. Another commentor lists some tech companies that do, and there are lots of other types of businesses that do. A quick internet search will give you a list.
You are correct that stock buybacks are another way that companies reward their shareholders.
Good call. I should have said that most of those companies also do buybacks as part of their capital return strategies.
And, as an investor I absolutely prefer buybacks so I can control my tax liability.
Not really, the company reinvests the dividends, increasing the value of the company/stock.
The big difference is you pay taxes of dividends - you don't pay taxes on the stock going up year over year. Unrealized gains compound much faster than realized ones.
Circular financing at its finest. And Self-dealing between the hyperscalers, openai, and anthropic.
google invests in anthropic and spacex - and shows appreciated values as earnings. Then it turns around and rents tpus to anthropic to show it as revenues. The main buyers and sellers for all of this are the hyperscalers, openai and anthropic.
It is a game of musical chairs while the party is still on.
They're all betting ignorant retail investors will be the final bagholders. It's a license to steal from retirement accounts.
I think the measurable term for this is “Velocity of Money”.
TSLA has a forward PE of ~200x. That is probably the most logical comparison with SpaceX. Proof that the market can stay irrational for quite a long time.
It fills me with a bit of dread about the future of the market. I am 10 years out from retirement, have a bit over 1M sitting in that market, and I wonder if it will implode in the meantime. I am fairly committed to the "invest like a dead man" (i.e. index funds, no touch), but the world we live in today makes me have real doubts that the next few decades will look anything like the last few.
Plenty of hedged equity funds out there. Trade some performance for peace of mind.
What is a "hedged equity fund"? Can you provide an example?
there's no such thing. He's talking about L/S funds. The market neutral funds survive by capitalizing edge cases but during real market turmoil the whole thing blows up.
About 10 years out as well. I’ve concluded I just invest a very balanced set of index funds and bonds and GICs across a handful of institutions, and then invest in my home because even if the housing market collapses I get to enjoy my nice home.
Other than that I’m just not over investing for retirement and instead making sure the money is spent today on family growth and experience.
I eventually just got tired of everyone with an opinion on what doing it right looks like or how to predict the market.
would you invest in vending machines
Eh, Tesla had a relatively normal growth company valuation for a while when they were growing strongly. The problem is the stock still hasn't compressed the multiple back down as growth stagnated... because the market swapped out "valuation based growth" for "call option on robotaxi success" at the blink of an eye.
Robotaxi failed so now it's Optimus bots.
Failed? When? It's not doing too bad last I checked. While the competition flounders.
Robotaxi is the next great growth thing. After that, it's Optimus.
The truly terrifying thing is that someone could short the Musk companies, and with one bullet can cause them to drop 50-90% right away (thanks to meme-ness). And they are valued so high that such a person could make billions overnight, maybe 10s of billions. Terrifying to be Must or anyone that shares a car or plane with him.
Add that to the litany of reasons why shorting should be illegal. There is some value to shorting, but it doesn't justify the consequences.
Start gradually converting your equity to bonds is the standard advice on that timeframe. If you're dreading equity drawdowns, that's what fixed income is for.
This is absolutely terrible advice and is out of touch with modern financial understanding. Bonds feel psychologically safer, but lead to failure more often than total market equity portfolios, even when you account for market crashes.
https://youtu.be/p25PPBgMiEk
I always thought the psychological safety was exactly part of the point, since 100% equity portfolios do better in theory than practice, because people are more likely to panic sell.
I agree with everything in the video you linked (which is not surprising, given it's Ben Felix). That includes the parts about equities being less risky than bonds in very important ways, but also the parts about behavioral loss tolerance and risk capacity, and how they can indicate higher bond allocation.
So I disagree that "If you're dreading equity drawdowns, that's what fixed income is for" is absolutely terrible advice.
I feel like I should go learn some more. I'm not in a pure index fund, I'm really in VFORX (almost completely, I'm not too original nor sophisticated financially and don't try to pick my own stock picks these days except with my "lunch money" just for fun). Do you think something like VFORX is a bad option? It's actively managed, so the fees will be a little higher than a pure index fund, but it's Vanguard and the fees are still really low. And it has total market components in addition to bonds.
Active management in general is a poor idea. You'll get better risk adjusted returns by investing in total world equities (like VT). Check out Bogleheads to learn the basics. If you want to get more advanced, you can learn about factor investing as well, but VT is enough for the vast majority.
If you want to get intuition for why this works, this is a really fun and interesting video: https://youtu.be/TQuxVz52w2w
For VFOROX, the expense ratio is 0.08% which is pretty low. Also VT is 45% of it. VFOROX looks well balanced to me, with 3:1 equity to bond ratio.
https://investor.vanguard.com/investment-products/mutual-fun...
The boglehead approach has worked fantastically for ~40 years, but now that everyone is doing it, it may no longer be the case going forwards.
Normally with these things when absolutely everyone is crowded on one side of the boat, you want to be on the other side
What you said is not what the linked video says, so at best this is terrible advice piling onto terrible advice.
It is precisely what the video says. Ben has discussed this multiple times as well, not just in this video. If you have better behavioral tolerance for volatility (as in you're not the type to panic sell), total market equities will outperform and lead to less failure in retirement.
While partially true, that "If you have better behavioral tolerance for volatility" is HUGE. Most people can not do this. Once they see their net worth go from $x to $x/2 or worse, they panic sell. People are emotional beings and it's very very hard to not let your emotions dictate what's going on.
If you haven't lived through a market panic and crash(last one in the US was 2008/2009), then chances are you shouldn't count yourself as being able to do it.
Also, their 100% equity time frames are measured in many lifetimes, not in a single lifetime.
If the goal is to have the biggest $ balance, then sure 100% equities for the win, but if the goal is to survive your retirement with little worry, 100% equities is a terrible idea.
Bonds provide stable cash flow. Equities provide growth/return. Use both in the appropriate amounts for your situation.
Bonds are no longer recommended. Current research indicates 100% equities to be the best composition leading up to, and past, retirement.
To point, the economic uncertainties around geopolitics, AI, and war, plus irresponsible debt spending by governments and the prospect of QE (and higher inflation), is pushing long term rates steadily higher. There’s a reasonable chance that 30y treasuries are nearing 6% by the end of next year. Remember that rates and bond prices are inversely related. Anyone who holds bonds in this market will likely lose money. Holding to maturity won’t help much either because if inflation continues to rise, as is a major concern, most or all of that 5% yield gets eaten.
> Anyone who holds bonds in this market will likely lose money.
Yes, you lose money (or more precisely you lose opportunity) but you gain certainty. Which is what you want for retirement
That’s pretty much the definition of risk premium.
It depends on the goal / priority. In most financial / retirement advice they are focused on average middle class Americans. They tend to have too little savings, and not a lot of options.
If you have more than enough saved to meet your basic needs, it does (IMO) make sense to give up some total income for lower variance.
I sleep on certainty. I feel bad for the people based their futures entirely on a trajectory from a time we'll look back on as "utterly unsustainable".
If you don’t have hope when you have little else, you don’t have anything. The behavior is understandable, even if wildly irrational.
Bonds only give you certainty to the extent that inflation remains certain.
Stocks generally rise with inflation, whereas bonds continue paying out the same nominal amount, which buys you less over time.
As a retiree I'm 50/45/5 in stocks/bonds/cash, having opted for a conservative portfolio. The stocks are the only reason I haven't lost buying power. But the bonds have performed so poorly that I've barely kept up with inflation despite the amazing bull run in stocks.
Are we talking about bonds or government bonds here? The former will beat inflations assuming you don't just buy AAA rated ones. Investment grade perpetual bonds in US dollars yield over 6.5% on a Yield-to-call basis.
Which perpetual bonds yield 6.5% on a UTC basis?
You may not have heard of TIPS (Treasury Inflation-Protected Securities) but they give you certainty even if inflation is uncertain.
Currently you get 2.75% yield in real terms for the 30 year maturity: https://www.cnbc.com/quotes/US30YTIP
That's why you buy inflation linked bonds
> Bonds are no longer recommended. Current research indicates 100% equities to be the best composition leading up to, and past, retirement.
Are you referring to Anarkulova et al? Might be worth mentioning that the fixed income part is replaced with international equity, not more domestic equity.
That’s been something I’ve started doing. The nice part of the bond chunk of my investment portfolio is the current income aspect of it, with monthly dividends that give an annualized return of a touch under 4% on top of the capital growth.
4% on top of the capital growth? Please ELI5.
What would you recommend to increase international equity exposure? Index funds ETF like VWRA?
For most people, $VT (or VWRA) is optimal. You should have a U.S. tilt because most growth is coming out of the U.S. $VT will naturally rebalance into international equities on that growth. If you already have a U.S. heavy portfolio and want more international exposure, $VXUS.
Stocks for the Long Run makes the pretty compelling case that over longer holding periods stocks are less risky than bonds.
Yes, and “I’m nearing retirement” is the opposite of the long run.
Their definition of long run and your definition of long run are probably different.
Also, it should be noted, just because it's the optimal to have the most $'s that shouldn't be the goal. The goal should be to survive your retirement with "enough".
And it should also be mentioned, most people can't stomach holding 100% equities, for a very good reason. When the 40-60% market crash happens, people get emotional and make emotional decisions. Sure there are the lucky few that can hold out, but most can't. Are you going to be one of the few lucky ones? If you haven't yet been through it once(last one in the USA was 2008/9), how do you know for sure?
TIPS are yielding 2.1-2.75% _real_ across the curve from 10 to 30 years out.
Worth noting the cost of dealing with Treasury's absolute dumpster fire of a website, though.
There’s TIPS ETFs
I bonds have to be bought from that website but tips can be bought from dealers.
Bonds will give you poor (probably negative) real returns, but if you're 10-20 years away from dying you're more concerned with wealth preservation than growing your wealth.
People have forgotten this but equities are an infinite duration asset that are prone to periodic, significant, often violent crashes.
(Edit: often at a time when everyone is absolutely convinced they're the best asset class...)
You can keep some equity exposure but you don't want 1929 or 2008 to happen the day after you retire when you might live for another 30 years
> Remember that rates and bond prices are inversely related. Anyone who holds bonds in this market will likely lose money.
That's assuming you sell the bonds before their end.
"Current research" Citation needed. Multiple, given the extraordinary claim.
Could you please link to the research?
The theory I have seen when they say we should convert into bounds near retirement is that you don't really get to decide when to sell, that's money you need to live. And if you are unlucky enough to need money when there is a market crash, you are screwed.
Bounds are not as volatile, so even if you lose some money from inflation, you are less likely to lose a lot of money, money you need to live, from the whims of the market. You want to protect your capital, yields don't matter as much if you near the end of your life.
If you are younger, and you make reasonable investments and not gambles, you can expect that your value will go up (more so than with bounds) within a decade or two, and because you have income, you don't need that money and you can wait for the market to recover before selling.
I'm technically not really in pure index funds, I just wanted to avoid trying to complicate my thoughts. Nearly all of my investments are in VFORX or Schwab's equivalent, and have been for a long time. So they are really composed of total market funds, bonds, etc, and Vanguard changes the ratio a bit as 2036 approaches. So while not really an index fund, from my perspective as a lay investor I treat it like that and consider myself an honorary Boglehead. I just put money in and forget about it.
I looked at the fund (VFORX) here: https://investor.vanguard.com/investment-products/mutual-fun...
It looks excellent for your needs, and have an incredibly low expensive ratio of 8bps(!). Currently, it is 75% stocks, and 25% bonds. Don't worry about a bubble in the stock market.
EDIT (after reading many, many more negative comments below):
The problem with discussing your investments online, there are a million negative replies. No one ever says: "Yeah, looks pretty good. Leave it alone." I'm here to be that guy.
As others have pointed out, bonds are barely (or not) keeping up with inflation. I would like to suggest a third alternative to stock index and bonds: stable dividend stocks. They should increase in value along with inflation but still pay out a steady dividend as long as the company is strong.
Buy inflation linked bonds? They won't yield much above inflation but if you have >1M that's enough to last through retirement.
With the big caveat that strong dividend yields can be an indicator that the market is considering the company to do poorly in the future.
Very different risk profiles.
Bonds are about steady cash flow, not about total return. "stable" dividend stocks are almost never really stable when the financial world crashes.
One of the lessons from 2008 is that even the contrary position gets obliterated when the whole damn system implodes.
So, the optimists all swim in the cash while your contrary position fails to keep pace with the bull market; and then the bear market hits and you all get obliterated equally.
You absolutely need to get inflation adjusted bonds. Otherwise you’ll get wiped out. I am in the krugman, stiglitz monetary camp; so not prone to constant fear of hyperinflation but what the government is doing makes inflation certain and the only way out a fairly painful recession either of will be hard on equity and bonds.
The market of a good leader is a lack of chaos. We are seeing the effects of a chaotic mind untethered from an accurate view of reality. Buckle up
In a similar situation: I basically have just 2 funds in my retirement portfolio: SnP500 index fund (75%) AND Berkshire Hathaway B shares (25%)
from my research I know that in years where SnP500 drops too much (recessionary periods), BRK-B would soften the blow as Value stocks tend to do well in such times. And usually that works for me.
What about swapping the SP500 for VT (total world equities)?
For those unaware (myself included), VT is the Vanguard Total World Stock Index Fund ETF which "tracks the FTSE Global All Cap Index, covering roughly 9,000 stocks across more than 40 developed and emerging markets."
I see this argument a lot online: "You need more diversity." First, you didn't provide any reason or evidence about why this is a good idea. Second, "more diversity" isn't always better.
The S&P 500 has crushed VT since inception (June 2008). Most people will be surprised to learn that adding smaller cap (domestic) stocks, or international developed country stocks, or emerging market stocks will probably reduce your returns. As an example, you can compare the returns of S&P 500 vs Russell 2000 since 2005 [1]. It is not even close -- S&P 500 crushes again. Also, the vol in S&P 500 was lower than Russell 2000.
My investment philosophy comes directly from Warren Buffett: "Never bet against America". Of the three largest economic zones in the world with free markets (United States, Europe, and Japan), the United States is by far the most dynamic. Ask yourself: In the next 30 years (or more), which of those three regions will grow the most? In my view: Absolutely the United States.
Finally, to people who say that you need international stocks in your portfolio else you are "missing out". You don't. Why? The S&P 500 already has 30% of revenues from countries outside the United States. [2]
[1] https://curvo.eu/backtest/en/compare-indexes/russell-2000-vs...
[2] https://www.spglobal.com/spdji/en/documents/research/researc...
https://www.apolloacademy.com/sp-500-concentration-approachi...
> The 10 biggest companies in the S&P 500 make up almost 40% of the index, and if Anthropic, OpenAI and SpaceX are added later this year, the concentration could approach 50%, see chart below. The bottom line is that the S&P 500 basically doesn’t offer much diversification anymore.
> My investment philosophy comes directly from Warren Buffett: "Never bet against America". Of the three largest economic zones in the world with free markets (United States, Europe, and Japan), the United States is by far the most dynamic. Ask yourself: In the next 30 years (or more), which of those three regions will grow the most? In my view: Absolutely the United States.
The next 30 years will not look like the last 30 years, and to be frank, this administration impaired any thesis of the US being at the center of the economic world globally for at least the next decade or two. The ultimate strength of the US economy was that global trade centered around the US. That trade is already reconfiguring around the US, and will continue to do so to de-risk and decouple. How is the US supposed to grow with restricted immigration? 21 states already have more deaths than births and this will continue to all 50 states eventually. India and Africa are the last parts of the world where any growth will be found, everywhere else is in terminal population decline.
https://www.visualcapitalist.com/fertility-rate-of-world-pop...
So! VT reduces your concentration risk from the AI bubble (versus the SP500) while still keeping you exposed to a risk asset class (total world equities) to capture higher returns than you’d get with bonds.
Your backtesting is of no value in this context, the world has changed permanently due to the actions of this administration. Portfolio composition decisions made today are for the future, not the past. Past performance is no guarantee of future results.
Citations:
https://web.archive.org/web/20210104201135/https://advisors....
https://www.morningstar.com/portfolios/experts-forecast-stoc...
https://www.aqr.com/Insights/Perspectives/The-Long-Run-Is-Ly... (click through to the full version, the last decade+ of US out performance was mostly just the US getting more expensive, not US companies being much better than foreign companies)
https://www.morningstar.com/stocks/you-might-think-industry-... (We see the same results looking at the more recent period of July 1963 to September 2024. US stocks returned 10.64% annually, high-tech stocks returned 11.35%, healthcare stocks returned 11.99%, and both were outperformed by beer, which returned 12.18%, smokes, which returned 14.56%, and guns (defense), which returned 12.77%. Even shops (wholesale, retail, and some services such as laundries and repair shops) outperformed, returning 11.88%)
I do not understand how you can talk about US, EU and Japan but not mention China. Because I'd bet China is in a similar league and has better prospects than any of the three.
China's equities aren't really tradable. If they were it would be nice.
This is incorrect. There are lots of ETFs that now directly hold China A shares. CSI 300 index is the equiv of S&P 500 in mainland China. Also, via HK Stock Exchange, you can buy China A shares via "northbound connect". A broker like Interactive Brokers supports this type of trading and the bizarre/special currency (CNH) required for it. That said, I excluded China because it is not developed and has awful transparency.
PE of 380 against deteriorating margins & profit. This story doesn't end well. But to your point, it's likely a cult of personality that can stay upright until Musk leaves the company.
Watch a lot of Ben Felix. Tons of good advice for you.
PE isn't a great way to value a company in their growth phase.
Amazon's PE in 2013 was 3000+, but you'd still be up almost 20x if you purchased their stock back then.
https://www.theglobeandmail.com/investing/markets/markets-ne...
That doesn't mean Tesla or SpaceX are good buys though. Maybe they are, maybe they aren't.
Bus Tesla isn’t in anything looking like a growth phase
2024 total deliveries: 1,789,226
2025 total deliveries: 1,636,129
8% decline YOY, Tesla shut down production of Model S & X. Eventually, they will become a pure speculation as a service stock, with zero production. But its cheaper to produce than bitcoin, no energy needs to be expended, runs on pure Musk energy!
They shut down production of S & X to make more capability for cars that they want to focus on and which sell way more, AND Cybercab.
Tesla grows in large steps. Next big step is Robotaxis, which is well on its way. After that, robots, for which they have the best real-world AI platform for.
You could say Tesla is a speculation stock as well when they had released the Roadster. Tesla shorters always lose.
It is in the shrinking stage with robot dreams.
It might be. It might not be. That's where the money is or isn't.
I think the mature part of their business is 3/Y, energy storage, and maybe cybertruck, although I also think it's too early to call it because it depends on lower cost cell in house cell production and they only started that recently.
In the near term, the growth part is Semi, cybercab, FSD, lithium cell production, and maybe cybertruck.
In the long term, it's potentially Optimus, more general autonomy, and gigafactories.
The growth part of Tesla is the increasingly large promises of snake oil Elon can spin.
That's what many said when they were ramping the S/X, the 3/Y, and energy storage.
https://www.wired.com/2009/10/audi-etron/
That doesn't mean they can't make a mess of things all by themselves. But comparing their infra investments/growth strategy to snake oil when they've gone from nothing to $100 billion/year in 15+ years might be short sighted.
Semi is DoA, FSD has been 1 year away for 10 years now give or take, cybercab is flailing, cybertruck same, and China is eating everyone's lunch on lithium cells.
What you're saying about Semi and cybercab is what everyone said about S/X and 3/Y.
https://www.wired.com/2009/10/audi-etron/
They might might fail, but I wouldn't bet on it. Also cybercab isn't out yet, so any discussion is premature at best.
Cybertruck has been disappointing, but I think a big part of that is cost. They started in house dry 4680 cell/pack production a couple months ago, so we'll see how that goes over the next few years.
Even with China subsidizing cell production and being dominant in the world market, Tesla is still at 150gwh/year compared to 200gwh/year from BYD.
The big question is how the dry cell 4680 packs will perform and how well they can scale production if performance is adequate.
FSD is always a year away, but that's generally OK as long as it keeps improving and there isn't a comparable product in their cost bracket. If someone leapfrogs them, they're done. If not, they might be able to roll everything up all the way through Optimus.
Inflation is covering all the inflated valuations eventually.
We've been diversifying with physical metals.
Stocks, bonds, etc are effectively NFTs of "you own a monkey image". That monkey image can go poof on a 'market correction' aka 95% of investors lose everything.
With precious metals, you own the material. And silver, gold, platinum, palladium, rhodium and others have innate usage for a variety of industrial and jewelery uses. Their prices may change, but catalytics arent just going to bottom out.
We still have stocks, cause 401k's. But we also have a sizable metal buffer now.
> It's going to be very painful when the valuation normalizes.
Painful for everyone except the grifters who are engineering this and can get out early enough with their stolen millions and billions. Musk's companies are just a giant pyramid scheme.
I love this clip (this is the other guy that predicted the 2008 crash, played by Steve Carell in The Big Short). Cult Stock is a great way to think about it.
https://x.com/i/status/2061808563979251857
My only consolation is that this is so obvious that it's not going to lead to a disaster. Things like the housing crisis happened because long-established institutions like credit ratings and mortgage lenders didnt do their jobs.
It's the swiss cheese model, hidden behind curtains.
This is like a giant sign saying you can buy $2 for a $1.
This is exactly how the dot com crash happened. People point out this like pets.com, but that wasn’t the issue. It was the musical chairs the played with the fiber telecoms. Today it’s data centers.
I feel like your analysis is correct and it’s overvalued but employees and insiders have already been selling shares (eg on platforms like Forge) for around the $130-135 IPO price. So there are buyers, question is if there is enough to consume the liquidity of a $75B IPO.
I think there will be plenty of demand. Most of which is not bothered by price at all.
When the indexes get in -- watch out!
They will have to buy so much SpaceX, that it will force them to sell everything else.
They won't, SpaceX will weigh less then 1% in most indexes, since they're mostly float adjusted, only NASDAQ will overweight them, but FTSE/MSCI/CRSP/SP will not.
It's still quite some money but it won't crush the market by itself.
> Comcast is one of the best-run ISPs
You mean the company with such a bad reputation that it had to aggressively rebrand? I take it you've never had the displeasure of doing business with them.
That said it wouldn't surprise me in the slightest to learn that it was one of the most profitable ISPs for investors. That would fit quite well with the general theme of prioritizing the interests of investors over all else.
Comcast is a successful business in spite of their customer satisfaction. You don’t need to please your customers when when you can involuntarily extract their money anyway.
Comcast is not a rapidly growing company, though.
This isn’t hypothetical. SpaceX is increasing Starlink revenue by like 50% per year. And their current Starlink constellation, about 10,000 satellites, has been launched entirely by Falcon 9. They’ve been waiting to launch much larger satellites on starship (in fact they had versions of these ready for several years now, and recently did suborbital tests of some of them on recent starship flights). Starship is about 5-10 times the capacity of Falcon 9, is fully reusable, & has larger diameter allowing much larger satellites. They asked for approval for roughly 40,000 of these larger satellites (~3 times the size of current ones, each about 10 times the bandwidth… and half of the 10,000 are even older designs), and they may eventually do about 100,000 of them & further increase the size and reduce latency (by operating at lower altitude). It’s not an exaggeration to say SpaceX intends to increase bandwidth by at least 100x, maybe a lot more. They intend to use a lot of this extra capacity to expand into mobile coverage as well. They are leveraging their platform for incredibly important national defense capabilities as well, and they operate as their own backhaul using on-board laser links. They can service anywhere in the world that will let them, including lucrative sectors like aviation. I do think it makes sense to value SpaceX as a rapidly growing business, not as a dividend-giving, plateaued ISP like Comcast.
This is all before even mentioning the idea of orbital datacenters.
You're trying to justify SpaceX's valuation using Starlink, but it's clear from the S-1 that it makes up only for ~5% of SpaceX estimated TAM.
Many people think their claimed TAM is total fiction, and attempting an actual realistic TAM relies far more heavily on starlink. From morningstar:
> Our base-case forecast entails $56 billion in revenue for Starlink in these niche and growth areas by 2035, representing about 45% of the identifiable market we’ve sized
source: https://www.morningstar.com/stocks/spacex-what-investors-nee...
> Many people think their claimed TAM is total fiction, and attempting an actual realistic TAM relies far more heavily on starlink.
Then either the TAM for Starlink is ~20x bigger than reported by SpaceX (I doubt they would downplay themselves in such a way) or the whole SpaceX TAM is ~5x smaller (much more realistic, if not more than that)
> That would fit quite well with the general theme of prioritizing the interests of investors over all else.
It's not a "general theme", it's right there in the name of the economic system.
> aggressively rebrand
That had to be 20 years ago? Not that anyone likes the cable company.
As a comcast customer, their core internet service seems really solid. It comes in through some sketchy 1980s cables installed by some company who got bought by some company who got bought by Comcast. So occasionally a router in the back of a gas station blows up, the cable system wasn't exactly built to AT&T standards.
> their core internet service seems really solid
If you ignore data caps the core service itself does seem to be much better these days than it was 10 let alone 25 years ago. But then again my sample set consists exclusively of locations where they have one or two FttH offerings as competition so it's not as though they could have remained in such markets without upgrading.
Somewhat tangentially I find it surprising how fast MoCA is when you consider the cables it runs on top of.
Datacenter REITs do not directly own all those scarce wired up and powered Nvidia chips.
If they did, they'd be less valuable. Unlike real estate, those chips will be obsolete in a few years.
Yes, yes it is. (going to be painful) If the IPO gets fully subscribed. For a long time I've pointed out that after the dot com crash the 'unicorns' were mostly on private markets and when they washed out only the 'qualified' investors got hurt (and of course their employees needed to find new jobs). The retail investors were protected because the SEC made sure you couldn't lie to them without penalties.
Once the SEC got defanged, retail investors once again became the primary target.
Profit … to be seen. Compute is not a high margin business and Colossus was idle for enough of its depreciation timeline to put a question on profit. In any case none of this is a better investment than Nvdida because that’s where all the money is going
> To say SpaceX is overvalued is to even beginning to convey the magnitude of the situation. It's going to be very painful when the valuation normalizes.
The scale of corruption in trying to use Index-Funds and Retail investors as the exit liquidity to bail out the VCs who were pumping the AI hype is unheard of.
It's become so damn brazen! I'm surprised Musk's image hasn't crumbled in front of his fan-bois.
Not to mention all the IPO rules changes that all but guarantee SPCX will be swept into 401ks and index funds in very short order.
They seem to believe the over valuation can be hidden if the shares get picked up by the public quickly enough or that the it can be a quick exit that leaves the public holding the bag.
This is like BMW bragging about their thriving auto business while renting all their car factories to Toyota.
This is a masterful piece of financial engineering by Google and SpaceX.
Google purchased 10% of SpaceX over a decade ago. After dilution they probably own around 5%.
SpaceX is valued at a whopping 94x revenue. This deal increases SpaceX's revenue by $11 billion per year. If SpaceX maintains this revenue multiplier, then this single deal boosts SpaceX's valuation by 94 x 11 billion = $1 trillion dollars. Google owns 5% of SpaceX, so they make 50 billion dollars. Google spends 10 billion and makes 50 billion, $40 billion profit.
The even better part is that because of this deal, SpaceX is now profitable. The S&P requires companies to demonstrate 12 months of profits before they can enter the S&P 500 index. SpaceX lobbied to have this profitability requirement removed, but S&P said no and refused to rewrite the rules.
Now with this incredible deal, SpaceX is now GAAP profitable under the existing rules, and they get to join the index next year without a rule change.
Truly a brilliant deal for everyone involved.
> SpaceX is trading at a whopping 94x revenue. This deal increases SpaceX's revenue by $11 billion per year. If SpaceX maintains this revenue multiplier, then the single deal boosts SpaceX's valuation by 94 x 11 billion = $1 trillion dollars.
That final number doesn't make sense: if you're trading shares at $X revenue, increasing the revenue by $Y multiplier doesn't increase the share price by the same multiplier.
You're right. Share price isn't based purely on a multiplier of current revenue.
But they did need to shore up that p/e ratio. Got to assuage our inner Ben Graham.
Sure it might not stay at 94x. But as long as SpaceX trades above 20x revenue, Google makes money from this deal.
And the bigger play is this deal pushes SpaceX over the finish line for S&P 500 inclusion. That's worth tens of billions for everyone involved.
I rreally dislike how big corp figured out that the can sell stuff to each other without actually moving some good. Looking at you, Nvidia... I have a feeling that the ordinary people will again pay for that.
This sounds exactly like the kind of thing that will be outlawed in thirty years after tracing back the root cause of the second great depression.
That would require regulators to actually pay attention, something they haven’t done actively since a long, long time
First step would be to prevent the regulators from profiting to begin with.
In my experience, if we don't (meaningfully) root out corruption and ineptitude, we will continue to be governed+leveraged by one/both.
Outlaw what? Prevent companies from selling goods and services to each other?
I think SpaceX should be valued on rockets n space n stuff, not how many magical calculator dollars they bring in.
Surely Google can "make compute go" for $1b/month. Nice way to avoid holding the bag, maybe?
The market seems to value both rockets and magical calculators.
I mean, we all understand that this is some sort of circular financial play, but at the end of the day Google is paying SpaceX $1 billion for compute. This is no different from AWS or Azure.
Yes, if it's done with an intent to defraud the general population, which could be the case here. Effects and intent really matter when deciding actions.
Except the regulators first outlawed what is generally considered to have caused the great depression (savings banks allowed to invest, which translates to very, very rich people being allowed to take massive risks with poor people's money) ... then re-legalized it.
So not only are the regulators not going to allow things that cause another great depression, they're allowing the things that caused the first great depression too. They must want a rerun.
(Because if you don't allow this you're effectively demanding the extremely rich make good investments to stay rich ... and not even France, otherwise pretty socialist, dares to go that far)
it's not about that. it's about how it gets reported in their financials.
The problem described isn't companies buying goods and services. It's buying from an entity they partially own and then profiting as that entity becomes more valuable because of the purchase.
It’s still very tenuous you can’t prevent companies that own 5% of other companies from buying services from the that company
We can prevent anything we want. If there's a major AI crash analogous to the Depression, we'll probably institute a lot of new regulations.
If the parent comment is true, it seems the problematic aspect is the leverage created by the P/E ratio more than the percentage of ownership. What a weird situation.
Oh yeah, these are definitely circular financial games but you have to be wary about putting in insane regulations that will break growth.
My preferred fix is "corporations can't buy stock, their own or others".
Why was it not outlawed post dotcom crash? This was exactly the thing that led to the dotcom crash.
Maybe there wasn't enough damage, either economical, financial or societal?
It all was many years ago after the great depression, and similar. Then people kept voting in republicans who's life mission is to gut the SEC and all related regulation keeping them from doing things like this.
Perhaps but the AI drone based WW3 might put nvidia in the black before that.
SpaceX is valued at that revenue multiple because of its expected revenue growth rate.
This deal is part of that revenue growth. So the new revenue would be already partially or even fully priced-in.
Perhaps it reduces uncertainty around the growth rate, but expectations were already sky-high, as shown by the multiple!
As an ignoramus to these things.... there are only just so many Googles though. Having made a significant jump, are they really expected to continue that growth?
The bet is that demand for AI tokens will continue to grow exponentially. And that SpaceX will be able to deploy and rent out GPUs to serve those tokens faster than anyone else.
The wrinkle is that they are planning to deploy those GPUs in space. That’s what people are most skeptical about, I think!
Space data centers need years of time to design, build, and deploy, 5-10 at least, and that's after they solve their multiple very difficult or impossible problems. How will they cool them? There are just simple ideas like giant structures to radiate the heat away, but you say you need to put lots of mass in orbit?
Like fsd, will take decades to figure things out.
Well yes it will be hard, and hence maybe not economical, and that’s why many people are skeptical of the business case (myself included btw).
But satellite cooling already exists (Starlink v2 satellites dissipate heat at over a kilowatt I believe), so that’s why other people find it plausible.
They also need Starship at minimum, which is now a 10+ year old project still exploding regularly.
Starship is at minimum a 2030 project at this point.
And even producing the volume of chips needed for the type of growth space data centers would need to have to justify this would be another decade if construction started now on those fabs.
A minimum of 2030? That seems excessively pessimistic.
SpaceX already has 10,000 satellites on orbit that are basically preview versions of space data centers. They've already paid 5 years of that 5-10 year timeline you outlined.
the math doesn't work. a starlink satellite has ~10kw power consumption. A single ai optimized server rack (GB300) is 140kw. Starlink works because you get a massive benefit from putting networking in space for rural users. no one has made a convincing case as to why putting a data center in space is a benefit that can come anywhere near the drawbacks (inability to service, launch cost, cooling etc)
> no one has made a convincing case as to why putting a data center in space is a benefit that can come anywhere near the drawbacks
Permitting. And the main drawback is cooling. If you want to sell a company to SpaceX, build a better radiator.
I’m not saying the math maths. But it isn’t fundamentally fucked in the way a lot of armchair commentary has been making it out to be.
Even permitting isn't a clear win. You are changing from land permitting (where you can pick the location to be wherever you want) to launch permitting (where you have to coordinate with the federal government for airspace and water closures). Not to mention that with the current regulatory status, a rocket explosion can easily lead to a multi-month mandatory safety review that blocks all new launches.
> changing from land permitting (where you can pick the location to be wherever you want) to launch permitting (where you have to coordinate with the federal government for airspace and water closures)
One of these is orders of magnitudes longer and more complicated than the other. Land permitting always involves multiple layers of government. And most of them are causing months- to yearslong delays. (Power hook-up is another source of delay.) Launch permits are predictably issued by, essentially, a single regulator.
> a rocket explosion can easily lead to a multi-month mandatory safety review that blocks all new launches
Which is equivalent to a regular permiting delay.
The tradeoff is between the cost to launch radiator mass and the delays local and state governments cause in permiting. The first is mediated through launch costs. The latter through interest rates. And right now, the former is going down and the latter going up.
Plenty of world to jurisdiction shop beyond the US, most of which also has cheap land and plenty of sun, and for better and worse much of that world is less regulated than launch (and FCC spectrum licensing if you want your data back) and easier to skip the queue with comparatively small amounts of money. Hell, if you like your unit economics to be dependent on solving physics problems most of the earth's surface doesn't need permits at all...
Cooling in space does not seem like a hard problem to me. You absorb a certain amount of energy in a given time in the form of solar energy, you should be able to emit that. On top of that, in LEO you are only in solar orbit roughly 50% of the time
It is in fact very hard, and LEO is not "solar orbit". You want your datacenters in sunlight 100% of the time, to not need heavy batteries, which is possible, but cooling is in fact very hard
Google and friends continue to see increased demand for their wares. The bet is probably that SpaceX is one of the best-placed companies to deliver incremental compute. They've shown they can build data centers fast.
SpaceX's S-1 says they're going to make more than $320bn by 2030 at a 74% expected profit margin. That implies they're going to succeed at selling high-value AI services, not compute, which is a competive business with typical profit margins at or below 30%.
EC2 may have higher margins than that.
But your point stands, ain't no way xAI competing in that game.
A cynic might wonder given Musk's implausible trajectory and questionable associations whether the X project is primarily a grift and/or money laundering project that happens to do high-profile tech, and the primary aim is to pump the stock and hope some other opportunity to pump it further arrives in the future.
Otherwise a dump works too. There's plenty of money to be made from carefully timed shorting.
The entire AI field has been plagued by circular financing deals, so this is not new. But it's new in aerospace, and the market institutions appear complicit.
Otherwise, why is this IPO getting such unique treatment on such flimsy fundamentals?
It's an opportunity to pay off early investors who are unhappy with him cratering Twitter, xAI, etc.
> Truly a brilliant deal for everyone involved.
Same thing they used to say about Lehman.
Do you really think its honest to call this Financial Engineering over Fraud?
No. The definition of fraud is "lying for financial gain". This doesn't qualify.
Heres the way I understand it as a child could understand.
You are google. I am your friend who wants to sell lemonade.
You have invested in my stand and own a piece. You propose a deal, You'll buy $11 of lemonade from me every week.
Does my stand look like it sells way more lemonade, than it would in reality? And since you own a piece, your own piece has appreciated. You ran the numbers and that spending of yours helps appreciate it considerably more (feel free to plugin the actual spaces-google numbers here and change the analogy).
Are the people who invest in my business after you, on its new valuation, aware that you are the one buying most my lemonade? And are you going to keep buying or will stop buying soon (probably as soon as you can unload your investment on strangers). So the fraud and lie as you said, is the behavior is not as real as it looks.
Am I thinking this through wrong, what do you think?
Edit: my definition of fraud is simpler and different from yours. a "lie" need not be there. fraud is any intentional misrepresentation (i.e. misrepresenting income to the public).
Your time is better spent reading up and understanding the definition of fraud, rather than typing up hypothetical stories of what you imagine fraud is.
Fraud is:
* an intentional misrepresentation of fact, whether by words or conduct, by false or misleading allegations, or by concealment of what should have been disclosed;
* made by one person to another;
* with knowledge of its falsity;
* for the purpose of inducing the other person to act, and upon which the other person relies;
* resulting in injury or damage.
Neither the Google/SpaceX situation nor your story constitute fraud. RTFM.
> Truly a brilliant deal for everyone involved.
Except for people who have pensions/investments in whole market class investments who become exposed to an over valued company with a propped up value.
If whole market means whole market, then such investments are exposed to companies who are fairly valued, companies who are massively overvalued, and companies who are massively undervalued, and the whole range in between.
If you want to start picking and choosing which companies are overvalued and which are undervalued, don’t invest in whole market funds. But most people are not good at that!
Also, there’s a long history of companies that people yell about being overvalued being the drivers of index returns, because one of the major drivers is growth rate, whereas retail investors tend to look mostly at current state.
I don't understand this logic. Does whole market mean scamming companies too?
Yes. That’s what passive investing is. You give money to the passive fund, the passive fund buys the market. No regard to price or any other metric.
Fun fact, both Enron and Lehman Brothers were in the S&P 500 when they went bankrupt. So yes, the whole market or even the market of the largest companies, includes some that may not be great companies. The beauty of the index is you don't have to know or care, since it'll take care of itself over time.
>The beauty of the index is you don't have to know or care, since it'll take care of itself over time
As long as there are active investors in the market conducting price discovery. Which there always will be, just pointing out that someone has to care, even if you don’t
> As long as there are active investors in the market conducting price discovery. Which there always will be,
Passive funds dominate ow, don't they?
Depends on what you consider passive, I think index funds specifically are only 20% but if you add other low cost ETFs it’s probably about half the market. I don’t think there’s any way to know for sure at what point passive funds become distortionary, but it should be self correcting to some degree. If active funds are able to provide a substantially better return than passive funds, even with management fees, people will migrate back to them.
> it'll take care of itself over time
At least until it doesn't. If this spacex venture succeeds because it got propped up by index funds, then that's a decent indicator that more will follow.
It stands to reason that active investing will be more valuable as a result
the problem:
The Nasdaq 100 and FTSE Russell made a rule change that allows SpaceX to enter index without mormal time for price discovery. Most index funds have rebalance day just 5 days after IPO. S&P also made rule change for S&P Total Market Index and Dow Jones US Total Stock Market Index, but left SP500 intact.
Nothing wrong with SpaceX or Anthropic getting into indexes with fair rules, this rule change is pure creed+corruption.
Those funds are not whole market funds.
But there are things to say about your point too. I’ve commented on that in other threads.
I mean these rule changes have been a long time coming. SpaceX was just the straw that broke the camels back here. These major index's want to stay relevant and cutting out some of the biggest companies in the market just opens the way for a "true" NASDAQ 100 that is actually market cap weighted rather then some arbitrary rules cutting somethings out.
Are there really 10-100x undervalued companies listed on indexes that haven’t been noticed?
Yes. There are probably a dozen or more across the SP500 and Russel 2000 that will 10-100x in the next 5-10 years. The trick is to be able to identify them!
There's a difference between "will go 10x in the next 10 years" vs "is 10x undervalued right now".
Laying the blame for the transparent financial manipulation we are observing at the feet of regular people (who are putting their savings into their pension funds, a system that we incentivize because of its pro social outcomes) and saying they should just opt out because they should know better, is at best callous, most people should not have to think about that issue at all.
You seem to have misunderstood my comment.
The key there is "whole market." This is still a tiny sliver of the whole market and most people's exposure to it is minimal. Still a wealth extraction move ultimately, but like many other such moves, the few pull just a little from each of the many. Nobody individually goes broke, but the whole class gets slightly poorer. It takes a village to raise a billionaire!
Trillionaire
If you want to play “active investor” and pick and choose what companies you invest in, don’t be surprised when you underperform the whole market.
SpaceX could rise to be a major winner that makes people a lot of money. And then what? You missed out and underperform the whole market.
OK, but SpaceX is not printing money out of thin air. And neither does the stock market. Somebody will be left holding the bag eventually.
> Somebody will be left holding the bag eventually.
I think so too. I also thought that about Facebook: IPO around 40, swiftly down to 20 - I was laughing about stupid retail getting wrecked. Now it's around 600...
Maybe you are right, maybe not.. However Facebook as an example seems entirely irrelevant, though? It was valued 15 P/S ratio at IPO and went down to 10 a year after the IPO. You'd have a point if Facebook IPO at $400 instead of $40. But it took it 10 years to reach that.
SpaceX IPO price already has many years of extremely high growth priced in. Comparing it to Facebook's or Google's IPOs is like apples to oranges.
> Maybe you are right, maybe not..
About what precisely?
Asteroid mining alone could be huge.
Alternatively you may want to be a passive investor using the current rules for index inclusion, rather than having them altered to favor this loss-making trashcan on fire.
> SpaceX could rise to be a major winner that makes people a lot of money
Based on "sane"/traditional metrics that and much more is already priced in into the IPO valuation.
e.g. Google had a many times lower P/S ratio at their IPO and was actually profitable (and software companies usually have higher valuations than capital intensive ones like SpaceX anyway). SpaceX is already valued at more than Google was 10 years after its IPO while barely making a tiny fraction of its revenue.
Or you could mitigate the next dot-com style crash (which wiped out nearly 80% of the NASDAQ composite).
Back then, it was "day trading" that was one of the warning signs that a bubble was ensuing. There are certainly shades of the day-trading phenomenon in the "r/wallstreetbets" gambling, and wildly overvalued meme stocks like Tesla. And this mad rush to relax the guardrails for what appears to be wildly overvalued IPOs.
Bubbles, and their inevitable collapse, are generally not as big of a problem for younger passive investors, but they can be for older ones. (Hence why I've got a "bond tent", value tilt, and other diversification. I'm at the stage where "underperforming the market" is less of a concern than "mitigation". :) )
So your contention is what? This will crash? Surely you'll be shorting the stock right?
A company can have poor fundamentals compared to its stock price, and also have an enormous P/E multiple if it has committed investors. We've seen this with multiple meme stocks and Tesla. I have no doubt SpaceX will fly high for a while and people will make a lot of money, but I don't think the company is going to make $320bn/year in AI services (with 74% profit) by 2030 as the S-1 suggests. At some point the market price will coincide with real earnings.
Isn’t the revenue modifier a result and not the cause?
Would you really expect a company to increase proportionally in value when they increase their revenue?
For your math to make sense, Google would have to sell its stake this year
There may be more to it than buying compute but what you're saying does not make sense for Google. More likely Google wants a good relationship with SpaceX and possibly to buoy the stock, but it's a bad NPV trade
On the other hand, google does not lose all the money in that deal. Computation is still expensive.
So at most they lose like 200M each month. Peanut compares to the potentially gain of the IPO.
So masterful that a random guy on HN can see right through it.
Let’s just call it what it is. It’s just basic fraud. They created a very temporary revenue injection right around the time of the IPO to defraud investors as much as they possibly can. Some businesses do this kind of thing just before they die because…why not?
No it is not. You are conflating the colloquial definition of fraud, with the legal definition of fraud. Fraud has a defined meaning.
Or SpaceX just has too many GPUs and nothing to do with them besides renting them out to someone since their AI products suck and nobody uses them?
I don’t think your math is correct. Profit is revenues minus expenses. Unless Google’s purchase of compute brings SpaceX’s revenues into profit territory (such that their total revenues exceed their expenses), SpaceX still won’t be profitable. This is accounting 101.
Google’s investment in SpaceX is completely orthogonal to the analysis. Equity investments aren’t revenue for the issuer. (Gains on sale would be revenue to the investor, in which case, this would be Google, not SpaceX.)
An equity interest in a company is a perpetual claim on future profits. Equity IS securitized profits.
Google's purchase sends cash to to SpaceX, which they report as revenue, and which they earn a profit from.
SpaceX cannot report Google’s investment as revenue on its balance sheet. Full stop. Equity investments are reported as shareholder equity. If you don’t believe me, read FASB ASC 605-606, ask your friendly neighborhood CPA—or, perhaps so you’ll earn a valuable lesson about confidently spreading bullshit about subjects in which you are clearly uneducated (or, at best, superficially educated), try it yourself in a public company and go to jail.
You don’t know what you’re talking about and are way out of your lane. Stop now. In fact, you should retract your parent comment and apologize to the community for leading them astray.
Did you even try to ask even ChatGPT or Claude about this first?
> Under the terms of the deal, Google will pay SpaceX $920 million per month from October 2026 through June 2029 for access to “approximately 110,000 NVIDIA GPUs, CPUs, memory, and other related components.”
That part is not equity - that's revenue for services rendered. But a commitment for nearly $1B/mo in revenue will likely increase SpaceX's share price, and Google owns some of those shares, so their holdings will increase in value.
Additionally:
> In Comments
> Be kind. Don't be snarky. Converse curiously; don't cross-examine. Edit out swipes.
https://news.ycombinator.com/newsguidelines.html
Yes, the appreciation will accrue to the investor, in this case, Google (and every other shareholder). But it is not revenue for SpaceX, which is the error OP made.
I’m aware of the guidelines. Another guideline should be “check yourself for accuracy before you reach for the keyboard”—especially since it’s easier than ever. Giving false information that, if practiced and not disclaimed, could land someone in jail is irresponsible.
But the OP very clearly did not write anything of that sort. Their claim was:
> This deal increases SpaceX's revenue by $11 billion per year.
And that is pretty obviously correct. This deal is Google is buying a service from SpaceX for $920M/month, not investing in SpaceX. And that is revenue for SpaceX. I don't know why you're so insistent it isn't.
The false—or at least highly questionable and unsubstantiated—claim is “Now with this incredible deal, SpaceX is now GAAP profitable under the existing rules” simply because Google bought $11B of compute from SpaceX. It depends on how much it costs SpaceX to provision and operate the compute, and it depends on what other expenses and revenues they have.
A quick peek at their S-1 filing shows a $5B annual loss last year. Unless SpaceX is selling compute to Google at a 50% margin (unlikely but possible), they’re not going to turn a profit because of this deal. Any profit that does result will be small.
Google’s equity investment and P/E multipliers are irrelevant and have no bearing on SpaceX’s profitability. It should also be noted that when there are no earnings (i.e. net profit), the P/E ratio is NaN. There are no “securitized profits” when there are no profits.
And I have no idea why the OP responded to my response about the math not making sense the way they did. I said “equity investments aren’t revenue”. The response strongly implied that they believed equity investments in a company are revenue. Perhaps I read that wrong, and if so, I owe OP an apology.
If there’s financial engineering going on with SpaceX, it’s not merely because they have customers who are also equity stakeholders in a company. This is as common as the day is long. The top level comment is just a red herring.
Oh, if that was your objection, why did you identify the issue as "But it is not revenue for SpaceX, which is the error OP made"?
> A quick peek at their S-1 filing shows a $5B annual loss last year. Unless SpaceX is selling compute to Google at a 50% margin (unlikely but possible), they’re not going to turn a profit because of this deal. Any profit that does result will be small.
The cost of AI data centers is almost entirely the capex (10% opex, 90% depreciation), so the costs aren't meaningfully affected by whether the DC is idle or operating at full load. They're renting their DCs to Anthropic and Google for a combined $25B/year. The loss of the AI division is about $2.5B/quarter. The math is pretty obvious.
> Google’s equity investment and P/E multipliers are irrelevant and have no bearing on SpaceX’s profitability.
Indeed. But the OP did not claim that either.
> why did you identify the issue as "But it is not revenue for SpaceX, which is the error OP made"?
It was an error by implication. They responded with something that appeared to disagree when I responded that any profit SpaceX earns under GAAP solely depends on the revenues and expenses, and is not dependent on Google’s investment.
> The cost of AI data centers is almost entirely the capex (10% opex, 90% depreciation)
The operating costs might not vary much, but these boxes are not cheap to power, house, and cool. Not sure about the 10% opex claim, but am happy to see real world numbers.
prompt engineering, harness engineering, agentic engineering, financial engineering
AI is really a pioneering engineering field
I sincerely hope the market is not willing to value this sort of deal at a P/E ratio anywhere near 94.
Off the top of my head, there is a very well established business involving buying expensive things and leasing them to the companies that intend to operate them so they can sell services: aircraft leasing.
AER is the biggest player and they have a P/E ratio of, drumroll please, 6. And I expect that GPUs, despite currently looking like an appreciating asset, will actually depreciate faster than aircraft in the long run.
Comparing SpaceX to an aircraft leasing company seems more foolish to me than a 94x multiple.
I understand the gist here, but come on. This is a generational company. It’s the only relevant space launch business, and has its tentacles deep in AI infrastructure as well. Maybe the AI bet is foolish — I don’t know — you should short it!
I would short xAI but the market can remain irrational longer than I can remain solvent. Plus all the foolishness to prop it up with other businesses just seems like bad accounting.
I don't think you can short it before the IPO happens. Well, unless you've got a few millions and go to a bank and have them make a product for you specifically. But for normal people, for now, not happening.
I am comparing SpaceX’s datacenter-and-GPU leasing business to aircraft leasing.
It’s possible, and common, for one large company to have multiple business lines, each worthy of a very different P/E multiplier. In principle you end up with a weighted average of some sort.
edit: Matt Levine has some great articles about this phenomenon and how some companies try to juice it.
He can’t do with rockets what he says SpaceX has to do to meet its goals, and he isn’t raising enough money to get the job done either.
It’s another misdirection.
'generational company'? Are you on drugs or so?
All of Musks business stuff highly depends on first mover advantage.
If people now selling it as a 'generational company' than it becomes even more stupid.
He didn't invent an unkown solution he is hiding to transform something into gold, he only put a lot of money into rockets.
And the rockets right now don't even have enough payload to have unlimited potential. If Space-X knows how to build a rocket very efficient, 10 years later other companies can do that too.
> All of Musks business stuff highly depends on first mover advantage.
Do they? Out of all of them, I think only one of them really depends on, or even benefits from, first mover advantages: Starlink.
Tesla famously gave away all their patents, and is also being overtaken by Chinese companies with cheaper batteries because batteries are the expensive bit; SpaceX rockets are theoretically well protected because national security regulations >> patent law, but even there lots of Chinese clones popping up; TBC and Neuralink and SolarCity are going nowhere fast; Grok wasn't even the first in its field; Twitter/X is not only in heavy decline but was also always trivially cloneable and the clones are now an open source ecosystem of semi-distributed alternatives; xAI has shown ability to make data centres while pissing off locals but the market for those data centres is other AI companies who also commission their own data centres but found themselves scaling much faster than xAI did.
(Starlink's first mover advantage is "this orbit already contains a satellite").
Tesla did not gave away its patents. It only says that if you want to use Tesla patents, we can use your patents.
Tesla won a lot of by being the first mass produced electric car.
Yeah the fact that China overtakes Tesla is a huge problem with Tesla and forces them to spread out. From all Musks hussles, only Tesla Cars and Space-X Starlink make money.
These two business are good running businesses, given. But these are not Trillion Dollar valuation companies.
Without the hype for these two things, nothing else would be possible.
P/E is price to earning. Price to revenue is P/S. AER's P/S is like 3, so the discrepancy is much worse than you think.
Sidenote: 3 is actually high. 94 is absolutely ridiculous.
The question on my mind is-is this IPO designed to rip off recreational passive investors and those of us that invest in retirement accounts?
With the Nasdaq rule changes, almost certainly.
Those rule changes aren't happening.
My understanding is that the s&p 500 were the only ones unwilling to change their rules.
Why "unwilling"? That's a weird wording. S&P Dow Jones Indices decided to not go through with their rule change after it became a political issue. Obviously they were willing, the proposed rule change originated from them!
Please provide some support that the rule changes were proposed from within. Given the fact they tried pulling this nonsense on 3 indices, it seems very unlikely the rules changes originated from within.
It is what S&P Dow Jones Indices themselves say, so the burden of proof to prove otherwise must fall on you.
And anyway, the rule change is truly the only reasonable way they can react to the current situation.
It will absolutely be untenable to keep Anthropic , OpenAI and SpaceX off the S&P 500 with them also being the highest valued companies on the market.
Quatsch. The indices will say whatever benefits their power the most, regardless of truth. The fact that they are bending now to pressure is proof enough for me.
We live in an age proving that valuation is just a manipulation.
This whole story is just like the BaM situation: the people with more money feel emboldened to pull every dastardly trick they can to tilt the table towards their pockets, away from the honest participants. SpaceX and the AI IPOs are just the latest and most grand scheme. I’m guessing you were surprised by the collapse of lehman brothers back in the day.
So you don't actually have any evidence to support your claim? This just seems like a matter of faith at this point, that's fine.
I don’t think you have either?
It’s and interesting point. I’ve done a bit of searching and am also empty handed.
>I don’t think you have either?
I don't know how I could? The indices have already provided their reasoning for these rule changes, but that's just summarily rejected by the conspiracy-minded.
To laymen this appears to be a grand conspiracy. Rules are being changed to accommodate big companies, that's usually bad.
To people in the financial industry, it's fait accompli. The indices exist to reflect the market, these IPOs are going to be big enough that the 90s-era rules will/would result in untenable divergence.
the explanation what i heard from some financial analytics is that small float with large valuation would create a dog pile/short squeeze type situation among the funds trying to reflect the SpaceX valuation vs. the whole index valuation - 1.8T vs 70T ratio would be 50B of float vs. 2T where is total of index funds is much larger than 2T, and that is even without accounting for retail investors and other, non-index funds, who will buy a part of float too thus reducing further the float available to the index funds. Such squeeze situation would lead to stock price rise leading to valuation rise, ....
>To people in the financial industry, it's fait accompli.
of course, they've engineered a new way of making even more money. The pile of passive money in ver low expenses index funds obviously have been a fat target for them.
>to reflect the market
the described above squeeze is hardly a way to reflect the market
>of course, they've engineered a new way of making even more money. The pile of passive money in ver low expenses index funds obviously have been a fat target for them.
Are you planning to substantiate this conspiracy theory in any way?
Where do you see a conspiracy theory? I've shown the numbers, it is simple arithmetics.
The situation is similar with mortgage CDS back then - no conspiracy theory/whatever, they just found a way to make AAA bonds out of junk. It was a simple arithmetics too. Everybody knew the arithmetics and was doing it.
Now is the same - they talked about that expected float/valuation squeeze even on NPR - this is where i heard it, i'm not that into finance markets to come up with it myself :)
> Where do you see a conspiracy theory?
You are presenting a theory that an unidentified group of people is engaged in a conspiracy to change the rules of the major indices for corrupt reasons.
That's a conspiracy theory. It might be true, but so far nobody can come up with any evidence in support of it.
The simplest possible explanation is that the indices are supposed to track the market, they can't do that if they exclude these IPOs.
The simplest possible explanation is basic statistics so the top 20% of those bonds supposed to fit AAA criteria. No conspiracy. No "unidentified group of people". No corrupt reasons, just legitimate profit seeking and extraction.
It just naturally happens that that legitimate profit seeking and extractions benefits from the actions like "the indices are supposed to track the market, they can't do that if they exclude these IPOs", and i described the natural simple arithmetics how it happens. No conspiracy. Just arithmetics. You can verify it.
> of course, they've engineered a new way of making even more money
You claim this to have been engineered somehow
Ok, use another word. "Came up with". Or whatever process was used which resulted in the new rule of inclusion of those IPOs into the indexes.
If I were the DJI I would have proposed the change, simply so that we could get some outrage flowing and shut it down.
Without the proposal, you'd have outrage out the other side that it wasn't included (especially if it shoots off like, well, a rocket).
But why? Won't that just make it far more awkward when they're inevitably forced to go through with very similar changes in the end?
Because now they can say "we considered it, there was strong opposition, and we didn't change the rules and what happened happened".
And if they miss out on part of a runup, and the companies later enter the index, what is the long term "harm" if any??
But if they're "right" it makes the competing indices look weak.
> It is what S&P Dow Jones Indices themselves say
No it isn’t. They put rules out for consultation and declined adopting them. Nobody was responding to political anything. If management had a say, they would have probably pushed to adopt the changes.
Then a bunch of influencers turned the whole thing into a conspiracy theory and a shocking number of smart people bought the pitch and churned their retirement accounts.
> It will absolutely be untenable to keep Anthropic , OpenAI and SpaceX off the S&P 500 with them also being the highest valued companies on the market.
Following the rules of passive indexes is the whole point.
Mēh! The passive indexes (biased to a momentum strategy, so not really passive - they are too big) may have had their day. The blatantly corrupt move to change the rules was clearly an attempt to game them, and even with out the rule change they will squeeze themselves through the rule gate with financial engineering
This will always be the trend in finance, the powerful manipulate the system to their benefit, the rest of us do what we can to survive....
>Following the rules of passive indexes is the whole point.
The whole point of these indices is to represent the market, the rules are unsustainable if they cause too big of a divergence from that goal.
> The blatantly corrupt move to change the rules
Why do you think nobody in the financial press is reporting on this blatant corruption? Is it because this conspiracy also includes all of the news media?
> Why do you think nobody in the financial press is reporting on this blatant corruption?
They are
Why is nobody able to link this reporting? Google doesn't find it either.
There’s too much anti AI/Elon emotion to have discussions around this issue at this point. HN is usually pretty good about rational discussions, but AI has really triggered people on both sides.
For example, yesterday I posted a link to the Nasdaq faq about the change, and my comment was flagged hah!
Yep, almost all of my comments questioning this conspiracy theory have been flagged, with many being set [dead] by them moderators.
They became effective last month.
How would you "design" an IPO to do that? What exactly is that even supposed to mean?
You use your back channels and good ole boys club connections to try getting the rules for inclusion changed. Maybe collude would be a better verb than design? Is that your objection?
Can you share any credible reporting substantiating this theory?
Common sense and rationality says that you cant motivate rules changes simultaneously across 3 independent indices without outside pressure. Can you provide some reasoning why this wouldn’t be the obvious situation?
Common sense and rationality go out the window in corrupt, unregulated environments with perverse incentives.
Passive investors and retirement accounts are heavily in on automatic indexing.
This deal has been pushed hard to be included prematurely in the indexes to the point that Nasdaq changed the rules.
The accusation is that these changes were made so that index funds will buy this stock automatically far earlier than they would have previously. Given the… uh… astronomical asking price, it looks like SPCEX is meant for Elon stans and institutional index investors to be the bag holders.
> retirement accounts are heavily in on automatic indexing
Majority are not. A minority are, mostly towards the S&P. Most assets remain actively managed, including in retirement assets (which covers 401(k)s, IRAs, pensions, et cetera).
Way outside of my area of expertise, but a quick search suggests that exact numbers probably depend on exactly how you define the question, but it would be broadly reasonable to say that the balance is about 50/50 +/-5%, and trending towards the passive side over time.
Would you agree with that?
Yes. But I’d caution to not conflating passive investing with indexing to a popular index. They sound similar. But most passive assets index to one of a variety of indices, many of them built in-house by various asset managers. (Vanguard, for example, is famous for doing this.)
Yes.
And just because yesterday's rules were "invest in S&P500" does not mean the governors of many (not all) funds cannot change the rules to dodge such blatant fraud
The managers of huge funds are not complete idiots- far from it- and they will do what they can, most of them, to fulfill their duties
> just because yesterday's rules were "invest in S&P500" does not mean the governors of many (not all) funds cannot change the rules to dodge such blatant fraud
There are no governors. The assets that automatically follow the S&P 500 are like individual IRAs. If a fund has a governing body, they're generally not indexing to a single narrow index like the S&P 500. They're going for a set of total-market funds, or they're building a custom benchmark.
For the assets that do follow the S&P 500, virtually nbody would be expected to react to these kinds of rule changes. If anything, you'd just create a higher-fee fund that anyone who is upset about this can switch into that equal weights or won't include SpaceX. This is what some RIAs I know in the Bay Area have done, and this entire shitshow has just been a moneymaker for them.
> managers of huge funds are not complete idiots
Zero hedge funds automatically follow the S&P 500, or any other public index, like that. That's sort of the point of being a hedge fund–you're delivering something different.
I said and I mean "huge", as in "very big"
Passive index investing was once the best strategy, perhaps is still. But in the face of such apparent malfeasance perhaps no longer
The big pension funds do have governors, they are mostly diligent and can change course
that will mitigate but not eliminate the downsides to this nonsense
> But in the face of such apparent malfeasance perhaps no longer
Do you have any sources to share in support of this claim of malfeasance?
> Do you have any sources to share in support of this claim of malfeasance?
Not here, this is a casual discussion not a scientific seminar.
But use Occam's Razor and modern history
Point 1. Corruption has penetrated the highest echelons of USAnian politics. The president is unabashed in his corruption and has corrupted (is corrupting) the financial regulators (I follow Molly White who has been particularly good on this)
Point 2. Space-X is valuing itself at an astonishing value that is not anchored in its business activities. This has been covered a lot in comments here but also see Patrick Boyle's excellent commentary.
Point 3. The purveyors of these IPOs have been doing their best to get the rules changed (because reasons blah blah blah), the change will mean that managed funds, if they follow their usual practice, will feel compelled to buy in at the offer price - a massive inflow of capital that will make many people incredibly rich.
Putting all this together - a culture of corruption that has reached the pinnacles of the financial system, outrageous valuations and open conspiring to change the rules in favour of the whole scheme leads me to the conclusion that I am looking at the biggest (what is effectively the) fraud in history
I hedge my comments "effectively the" as I cannot be sure that this is conscious theft, or whether it is a confluence of powerful people facing juicy incentives who going with the flow are heading to a massive wealth transfer from working people (via pension funds) to elite capitalists
I do not think that this is not apparent to the governors of these huge pension funds. Those that have not tied themselves to an index following strategy will opt out I am sure - they are smart, studious and dutiful people by and large. So the people perpetuating this fraud may well be unable to pull it off.
But these are very worrying times. Especially for the USA.
>Point 1. Corruption has penetrated the highest echelons of USAnian politics. The president is unabashed in his corruption and has corrupted (is corrupting) the financial regulators (I follow Molly White who has been particularly good on this)
Sure, but indices are really not a heavily regulated space. The government doesn't have any obvious, direct influence here.
But uh, do you genuinely believe that the Trump admin would pull this off without the story leaking? It's an incredibly leaky administration, now supposed to be exerting influence over the most leaky industry in the world.
>Point 2. Space-X is valuing itself at an astonishing value that is not anchored in its business activities
If SpaceX is overvaluing itself, they'll look really silly at IPO! This is a very strange complaint.
>Point 3. The purveyors of these IPOs have been doing their best to get the rules changed (because reasons blah blah blah), the change will mean that managed funds, if they follow their usual practice, will feel compelled to buy in at the offer price - a massive inflow of capital that will make many people incredibly rich.
According to whom? The consensus in serious financial medias seems to be that indices are doing the rule changes to avoid divergence. I've tried to look, but I can't find any reporting suggesting that the "purveyors of these IPOs" had anything to do with this.
These companies are already among the 20 biggest in the US, it's genuinely going to be a big problem for e.g. the S&P500 to keep them out.
>But these are very worrying times. Especially for the USA.
I agree! However, not everything that happens in the USA is related to Trump.
> Sidenote: 3 is actually high.
Do you mean low? AAPL has a ps of 10.
You're arguing with people who have no idea what they're talking about.
Who's arguing?
Generally < 1 is low, between 1 and 3 is in the middle ground, and > 3 is high. However, that all depends on margins, which is why people generally use P/E or forward P/E rather than P/S to compare multiples. Issue here being that P/E is nonsensical for unprofitable companies or companies with very low margins. Spacex's P/E after Google pushed them into profitability by a slim margin would look absolutely stupid.
I would also like to point out, that on a forward P/E basis, AAPL is quite overvalued compared to historical norms, but basically every tech company is right now.
Most companies have a P/S of 1 or 2, almost all have it bellow 4.
A few segments of the economy are known to have low revenue/investment ratios, and companies there get P/S up to 7 or so.
Then, very few companies have people betting on their growth so much that their P/S get as high as 15.
And then you have literally about half a dozen exceptions on the ones S&P tracks that get higher than that.
Nothing about Apple is representative of a normal business.
It’s an interesting phenomenon: being Apple is one of their key sales drivers. The brand is worth more than the business itself.
Number like this might appear when a company is expected to create a revolutionary thing that upends multiple markets. I would consider a number much larger than 3 in SpaceX’s case, but 94 feels, indeed, excessive.
It’s almost like the future we were promised in the 1960’s would immediately materialise the moment launch costs drop. Starship will be revolutionary if it pans out the way we expect (as the shuttle would have been, had it kept the low cost promise), but that’s not enough to warrant that 94 number.
SpaceX may well revolutionize multiple markets. But I really don’t see the sub-business of building large datacenters and leasing them out, hopefully at a profit, as revolutionizing anything. Also, SpaceX has no particular competitive advantages here — the list of competitors is huge.
Yeah, only a small portion of SpaceX's revenue actually comes from Space (payload delivery). At this point they are basically an ISP (Starlink) and a datacenter/leasing company.
It's not clear if Musk (SpaceX/X.ai) is really pursuing AI any more - I expect he hasn't necessarily given up on it, and he hasn't said he has, but it seems he's rented out almost all of his GPUs to Anthropic and Google, so that's not going to be much of a revenue generator, at least for time being.
It was in the news not too long ago that Musk was looking to use Samsung to fabricate "AI chips", presumably either for X.ai and/or Tesla, so perhaps he's basically put X.ai on hold until he can reboot his efforts with his own chips (& perhaps a new datacenter)?
Given the amount of compute rented I doubt there’s anything meaningful left for the people there to do any AI.
They can use still every spare minute that’s contracted but not actually used.
At those scales, that’s absolutely massive, and more computing capacity than most governments have.
I’m pretty sure he’s just trying to become the world’s first trillionaire at this point, these deals are obviously gimmicks to boost the SpaceX share price and his less-than-critical-thinking fanbase will happily oblige.
Yeah, then next move may be to have SpaceX buy Tesla with it's inflated stock, before it collapses.
According to their IPO S-1 draft they are 93% an AI company and 4% a space company. Its the remaining 3% of the company that is profitable, the Starlink stuff.
As I recall isn't Starlink revenue at least 3x Space revenue, so not sure how they are characterizing that 3:1 ratio as 3% vs 4% !
The "93% AI company" is also a huge mischaracterization since this isn't AI business - it's datacenter/GPU leasing business which their 2 customers can pull the plug on with 90 days notice.
Yeah, Starlink is about 3.5x the space launch revenue but still only about 0.5x in terms of profit. Falcon 9 is as optimized as a rocket could be, and absolutely owns the market. Starlink is a mostly rural service with global consumer pricing where average monthly rates in poorer countries drag the average down. Starlink government and commercial business, however, is growing quickly and I expect that soon Starlink will be ahead of launch, in terms of income, probably by the end of this year.
Does Starlink pay SpaceX for launches?
For SpaceX it’s critical to maintain a steady cadence. If they don’t, they lose institutional knowledge. If the cadence drops below a point, their effectiveness at reusing rockets will also drop, defects will creep in, and they’ll have higher fleet churn.
Yes. Amount is actually irrelevant, since if they underprice it SpaceX loses launch revenue, and if they overprice it Starlink looks less profitable.
The more important takeaways are that SpaceX's near-monopoly launch business is profitable but not nearly as big as Starlink, and Starlink is a good business but not one to justify a trillion dollar valuation
given that SpaceX is choosing what price they're charging starlink, there's a reasonable argument that starlink isn't profitable either
That's in the IPO documents. Starlink had $11.4 billion in revenue and $4.4 billion in operating profit in 2025. Falcon9 had ~$4 billion in revenue, so they didn't cheat by subsidizing starlink with Falcon9.
They have to say this because we know how to value a satellite and space company (aka at 1/100th of their offering price).
The profit center, to the extent any division makes money, is Starlink, yes, but what we have always known as SpaceX is just a tiny side project in the combined company.
Maybe they'll become an AI company again after they've abused their privileged access as hardware providers to reverse-engineer Google and Anthropic's weights and operations.
That doesn’t seem beyond Elon’s capacity to rationalise.
> I sincerely hope the market is not willing to value this sort of deal at a P/E ratio anywhere near 94.
It will very likely be valued much, much higher. The SpaceX IPO is, in itself, a marvelous piece of financial engineering (requiring co-operation among multiple actors) which has been a long time in the works.
- Right out of the gate nearly all retail investment platforms have dramatically reduced requirements for purchasing an IPO, most notably Fidelity, which previously required $500,000 in your account to participate in an IPO reduced (on Friday) this amount to $2,000
- Retail investment, despite being quieter in the post-WSB era, is at all time highs.
- Reports are that the SpaceX IPO is already highly oversubscribed, meaning there are many more retail investors interested than there are shares available.
- SpaceX has a wildy low float of only ~4% which means price discovery will be much slower then normal, especially with aforementioned demand
- All of these retail platforms enforce some sort of "soft lock-in" whereby you're excluded from future IPOs if you sell your shares within 15-30 days. So if you want to get out you're not going to be able to participate in Anthropic/OpenAI IPOs in a few months.
- Coincidentally, most of the major indexes (thankfully excluding the S&P 500) have adjusted their rules to require only 15 days post-IPO before inclusion and have no profitability requirements. Many also adjusted the rules so that low float IPOs have their weight multiplied despite the low float.
- Many retirement accounts, in one way or another, are required to track these indexes and will be forced to buy these SpaceX shares at a very likely frenzied price and further drive the price up.
SpaceX will very likely open with far more retail demand than shares, the insiders (VCs, employees etc) will still be legally locked from selling, retail investors are penalized if they sell, and so the demand will be high and supply very low.
If they can keep this demand hyped for just 3 weeks, price will still be elevated when retirement accounts are forced to buy... roughly the same time retail investor start seeing the penalty for selling expiring (meaning it is not irrational at all to be in the IPO, but it is irrational to sell before being listed in an index).
Fun fact: the other fascinating thing about this IPO is the terms for insider lock-in. At first earnings (Jun 30) inside investors unlock and can therefor liquidate 20% of their shares... but if the stock performs well, they can unlock and additional 10%. There are additional rules for continued unlocking of more shares depending on performance as time goes on. So everyone on the inside has a very vested interest in a spike in stock prices: not only will their stocks be worth more, but they can realize that value faster.
I would be surprised if SpaceX price doesn't explode in the first few weeks because for everyone involved this would make sense. It's only in August that we'll start seeing the really interesting things start happening.
> Right out of the gate nearly all retail investment platforms have dramatically reduced requirements for purchasing an IPO, most notably Fidelity, which previously required $500,000 in your account to participate in an IPO reduced (on Friday) this amount to $2,000
Not at all surprising that the US in 2026 has degenerated to the point of turning the equity market itself into a bucket shop.
Strangely, these limitations don't seem to have been present on the European platforms. (Although I've never bought shares in an IPO myself, so I'm not certain about this.)
e.g. with https://www.nordnet.dk/kampagner/ipo/spacex for Denmark.
The minimum is 1 share (~$135), the FAQ on "when can I sell" says "Once trading begins in SpaceX, you can sell your shares at the current market price, which can be both higher and lower than the IPO price."
But growth rates could make that a bargain. If the market has taught us anything since 2009, it’s don’t underestimate growth
I don’t think earnings have much to do with any of Elon’s projects’ market caps.
China just entered the chat, so that 94 multiple will get slashed in the year to come, hence the rush to offload onto retail
Except they’re paying $30b (the deal is signed for almost 3 years), there’s no reason to believe that SpaceX maintains revenue multiples and this deal creates a trillion in value, liquid cash is not the same as pre-IPO shares. And finally, the deal comes down to $11 per hour of h100 equivalent, which is pretty much within market which experiences a severe lack of supply.
> this single deal boosts SpaceX's valuation by 94 x 11 billion = $1 trillion dollars
That's not how valuations work. Also, it is not unlikely that SpaceX's valuation drops post-IPO (tech was 6.65% in the most recent trading session) due to its very rich valuation and a long tenured investor based that is probably looking to get liquid.
Google is renting compute from SpaceX because they need GPUs and SpaceX owns a huge supply of them and has excess capacity bc no one uses Grok. Google has stated that this is a temporary arrangement while they continue to build out their own capacity.
why revenue that barely cover the estimated revenue (and depending on assets yet to be acquired) boost valuation? is everyone an idiot?
Utterly nauseating. Why would google help prop up this company and its figurehead? Maybe this is finally the straw that breaks the camel’s back for me and google.
It seems like Silicon Valley has decided on solidarity among tech billionaires and they're gonna take average Americans' wealth to keep themselves semi-relevant globally as China assumes global dominance. This is after insulting and demeaning the rest of the world, they plan to try to sell anemic services to other countries in whose politics they're also meddling. Circular agreements promising to purchase goods and services without the money in the bank, but you can show your promissory note to a guy with his own promissory note who then writes you a new promissory note based on your first one to take to another guy with his promissory notes, look at all the paper.
> Why would google help prop up this company and its figurehead?
Simple, money.
When Billions of $ are in the picture, people really don't care about ethics.
They're not "propping up" anything. They're buying a service.
Well Google needs GPUs, SpaceX has GPUs but nothing to do with them since their AI business failed. Why is that insufficient?
> and makes 50 billion
assuming google sells, the stock tanks, nobody wants to buy next year
is this masterful? more like a scam
Now with this incredible deal, SpaceX is now GAAP profitable under the existing rules, and they get to join the index next year without a rule change.
Didn't they also run up against a "minimum free float" rule?
The company has been around since 2002, I'm sure plenty of insiders will cash out in the next calendar year to satisfy the minimum free float rule by the time they're eligible.
True. The amount of free float increasing dramatically will probably also depress the share price.
> masterful piece of financial engineering
Love how we assign positive adjectives to unethical practices by corporates
I think the op was being a bit satirical
I don't think so, considering a substantial proportion of their comments on this site seems to be fanboying for SpaceX in particular and anything AI in general.
s/think/hope ?
I wouldnt class 'masterful' as a positive adjective personally.
EDIT: Downvotes? Not sure why. I would say Darth Vader is masterful of the force, and even that Donald Trump is masterful at being provocative. Masterful is not definitively positive or negative, it just describes being very good at something.
So SpaceX is selling inference capacity. Who else is? What were the competing offers for Google and Anthropic?
anthropic isn't selling capacity. they're using all of theirs and more
Anthropic is buying a lott of inference from SpaceX. Where else could they have turned?
by inference .. do you mean renting GPU compute ?
Googled it :
> Anthropic is paying SpaceX $1.25 billion per month (approximately $15 billion annually) to use the computing infrastructure at the Colossus and Colossus II data center clusters in Memphis, Tennessee. This massive infrastructure deal gives Anthropic access to over 220,000 NVIDIA GPUs (mostly H100 and H200 chips) for large-scale AI inference.
They still need 10% float and 1 year of bake time, so the rules are still doing some work for us
Float will be 40-50% after lockups expire later this year.
This is the first time I get to understand why it is important to have big companies as your early investors.
> SpaceX is now GAAP profitable under the existing rules
We'll need to see audited financials, but if this part is true people are going to be upset. I wonder if all the people who have been acting like the S&P rules came down from the mountain with Moses will start lobbying to change them to keep SpaceX out?
And to be clear, I think SpaceX is way overvalued and I wouldn't buy it stand alone. But there are a lot of companies in the S&P 500 I wouldn't buy stand alone, yet I still own a a lot of an S&P 500 ETF. /shrug
Brilliant meaning clever, like a well thought out scam.
Not brilliant meaning something actually positive for humanity in any respect at all.
Maybe they just need compute. Isn't that the more obvious reason. It's good that they own part of them and that's a bonus but the idea that the senior brass is orchestrating this to increase the paper value of something some division in google owns strikes me as wrong.
So they have followed the rainbow and found some pots of gold... And then they all lived happily ever after.
Apart from the peasants of course.
> and they get to join the index next year without a rule change.
You seem to have ignored the 50% float rule. SpaceX is proposing to go public with about 5% of the float, but S&P requires 50%.
Do we think that the market will absorb the release of 45% of the shares? I'm dubious.
What 50% float rule? S&P only requires 10% minimum float for index inclusion.
And while SpaceX is IPOing with 4% float, after the 6 months lockup many more shares will release and float will increase to 40-50%.
So after 12 months, SpaceX meets the S&P inclusion requirements.
It only shows that Musk can't make xAI profitable and he needs to push numbers higher for the IPO which he needs for <i actually do not know> his ego? debt correction? Having enough money for Starship development?
I don’t know. Give me a 94x multiple and I can make any financial deal look brilliant. I think a better word is just opportunistic.
The market should consider this a huge negative: SpaceX is renting out their compute because they have failed to make use of it themselves. This calls into question whether they have any talent in xAI at all.
Sounds like the system works like all other hacked systems on this planet. We need to fix our broken systems.
> Google spends 10 billion and makes 50 billion, $40 billion profit.
And gets a datacenter.
that's the best part they might not, and don't really care. they've already made $30b when is the dc never shows up
I wouldn't call it brilliant. It's like cancer cells celebrating how fast they're growing.
Isn’t that the entire point of a capitalist economy?
What is the alternative?
No, the point is to implement laws that foster holistic growth, not gamesmanship that ends in terminal illness.
> holistic growth
I have never before heard that term in regards to the economy.
Everyone has always wanted maximum growth now, future be dammed.
People want to live now.
>> I wouldn't call it brilliant. It's like cancer cells celebrating how fast they're growing.
> Isn’t that the entire point of a capitalist economy?
> What is the alternative?
If the point is to be cancer, then the alternative is to kill it.
Things are getting so out of hand, this former-libertarian is getting to the point were he'd support any market regulation that makes libertarians cry.
> SpaceX is valued at a whopping 94x revenue. This deal increases SpaceX's revenue by $11 billion per year. If SpaceX maintains this revenue multiplier, then this single deal boosts SpaceX's valuation by 94 x 11 billion = $1 trillion dollars.
This isn’t how valuations work. The PE ratio isn’t fixed. It doesn’t scale with revenue. It’s based on projected future growth. This kind of deal is expected, meaning this deal likely won’t move SpaceX’s market cap much. Certainly not by anywhere close to $1T. That’s +60% of the entire pre-IPO market cap.
Google is doing this because they need more compute and TSMC is booked out for years.
"Clever" is not a word you want to hear in front of accounting..
> because of this deal, SpaceX is now profitable
This is a huge claim for which we have no evidence.
$920mm/month at 30% datacenter margins yields $3bn in gross profit. Less in net income. That doesn’t cover SpaceX’s losses.
I'm sorry this is a misplaced framing.
==> Those facilities are being leased because Grok is failing.
Space X does not want to lease away it's competitive advantage to a primary competitor.
It'd be like Tesla leasing factory space to Toyota and Ford.
'GPUs, Energy and Data Centres' are a hugely critical resource in the AI race and SpaceX is now leasing it away.
Will it make money? Sure.
But this is 'Strategic Fumbling'.
The cash flow happens to help them leading up to IPO - that's a side show.
It is probably both.
I think they're sacrificing short term terrestrial GPU advantage to fund their space GPU mega-advantage. It's a risky bet, but if it pays off then SpaceX will be one of the most powerful companies the earth has ever seen.
It's not that complicated, and the 'datacentres in space' is a myth.
They have rapidly depreciating assets in GPUs and they can't use them.
Because Grok is failing.
They are licensing out their unused capacity.
XAi is not strongly related to Space X - they were folded into one thing because XAi was losing money and failing (the Social Media part is worse).
XAi isn't really some kind of strategic advantage for Space X and even though revenues from the data centres may be positive - it's a 'stop gap' - it's probabaly not a 'net positive' thing to do.
The best thing for Space X would have been to never merge wht XAI.
The second best thing for Space X would have been to close XAi/Twitter lines of business a long time ago.
The 'Wrench in the Logic' is that by putting these things together, EM is able to dupe so many people into so many ridiculous concepts.
Data centres in space, 1M people on Mars, all sorts of crazy things.
It's a bit like Putin's and Steve Bannon's Media Strategy: 'Flood the Zone' with nonsense, and people speculate as to all kinds of things.
The Space X IPO is a 'retail push' meaning he needs to get all the Dentists in America and their Private Bankers to want to 'Hold the Bag' and then keep holding it for a long time.
Space X - at it's core - is a decent company, wrapped in layers and layers of hyperbolic nonsense.
All it takes is a bit of rational thinking to wade through what is plausible, and what is not, and we can see how overvalued this is.
Note: this is different than the other 2 AI IPOs which have some sketchy economics - but the premise is not far fetched, 'that people will want AI in large quantities'.
But Google loses $11 billion per year, and they gain $50 billion... in stock?
As far as I know they really will be paying $11 billion annually in liquid cash to SpaceX (not a small ask) starting this year, and all they get in return is more money on paper?
What incentive do they have to help SpaceX out like this at great cost, if they're not actually buying something valuable? Why are they incentivized to do this if it's just an empty deal and financial engineering? Genuine, good faith question: what are they getting out of this?
I would bet that there is a nice clause in that contract that gives exit options to Google at year 1, 1.5, 2, etc.
Perhaps they only need to pay $11B, or $16.5B, before exiting the contract.
Plus, instead of getting nothing for these $11B/year, they surely get some compute power that should have some value.
That's what I'm saying though. They must be getting something out of this deal, otherwise why would they be going through with it?
The explanation that this is just financial engineering (which to me, means neither Google nor SpaceX is getting anything out of this other than looking better on paper) doesn't make sense to me. How does this financial engineering benefit Google?
Even if they have an exit option, why is Google (a private, separate, self-interested firm) giving a single dollar to SpaceX if the deal isn't mutually beneficial?
Because Google owns a sizable stake of SpaceX, and for every $1 they give SpaceX they get $5 in investment return.
That $5 return doesn't actually materialize the way you're framing it.
Even if your 94x multiple held perfectly (a big if), Google's "return" here is unrealized appreciation on an illiquid, minority stake. They can't spend it. And if they try to sell post-IPO, the act of selling a large block would push the price down, shrinking the very gains you're describing.
Meanwhile, the $11B/year in cash going out the door is very real and liquid and hits Google's income statement immediately. So the actual trade is: guaranteed cash expense now, in exchange for speculative paper gains later on a stake they can't easily exit. Even if you assume bad faith on Google's part here, no CFO in their right mind would see this situation as an easy 5:1 return.
The simpler explanation is the one Google gave: they need bridge compute capacity because Gemini Enterprise demand is outrunning their own datacenter buildout, and SpaceX has 110K GPUs available now.
> must be getting something out of this deal
They’re getting compute. There was a free for all period when xAI did one smart thing and that’s build like there’s no tomorrow. Because tomorrow is today, and today jurisdictions are racing to pause datacenter construction.
I agree with you--this is my whole point.
This deal can't just be financial engineering, since that wouldn't make sense. They must be getting something out of this, i.e. compute.
Google is buying compute because they need it. That explanation works a lot better to me than one where Google is doing this purely for unrealized future gains on a minority stake in SpaceX.
> Google is buying compute because they need it
The fact that Google owns a stake in SpaceX doesn't hurt. But the multiple math is specious, and profitability math plain wrong.
yeah
the ironic thing is if the parties involved were bullish on xAI winning or near term ODCs undercutting compute costs this deal wouldn't have been attractive. But as it is, Google probably only slightly overpays for boring ground-based datacenter space they actually need to hit internal goals, and it looks even better if IPO investors in a stock they hold pick up some of the the tab.
So you think Google is going to spend $11B in hopes it will boost the value of the SpaceX stock, while pretending to public investors it's a multi-year thing, and then after 1yr sell off their SpaceX stock after the value rises while also ending the contract early?
This site is turning into conspiracy central
I can't imagine why so many people would be looking for conspiracies now days /s
they're spending $11B on compute because they need the compute and that's the market rate for it. it's the same price Anthropic is paying to spacex for compute.
but if they boost the spacex stock for the right amount of time, they can get that compute for free instead of for $11B. Google's own announcement of the deal frames it as a short-term agreement while they scale up their own datacenter capacity.
>I would bet that there is a nice clause in that contract that gives exit options to Google
from the linked article
>After this year, the agreement can be terminated by either party provided they give 90 days’ notice.
The contract has an exit clause, either side can terminate the agreement with 90 days notice. I do not expect this contract to last the full 3-year term.
And this deal protects Google's investment. Google owns close to $100 billion of SpaceX stock. This deal increases SpaceX's revenue by 30%, and pushes SpaceX into profitability. With this deal, SpaceX is eligible for S&P inclusion. Assuming $6-7 trillion in S&P 500 tracked funds, and a 1% SpaceX weight after a year, this is $600-700 billion in demand for SpaceX stock. It means Google now has someone to unload its position off to. This play directly protects Google's investments.
Not doing much to beat the accusations of circular dealing are they?
> This deal increases SpaceX's revenue by 30%, and pushes SpaceX into profitability. With this deal, SpaceX is eligible for S&P inclusion.
You keep saying this even though you don’t present any evidence that it will make SpaceX profitable. Where are your numbers?
SpaceX announced $26B/year in compute deals with Anthropic and Google in the past week. The margins on both deals are incredibly high, Google is paying around $11.75/hour per GPU. Infrastructure costs are far below that, SpaceX likely has 70-90% margins. These two deals are around $20B/year profit. In the preliminary S-1, SpaceX reported a $5B loss in 2025. Combining these numbers, that's a $15B profit, assuming losses are constant. Likely expenditures will increase, but even if losses double, that's a very healthy $10B profit.
And Google will exit at 12 months when the S&P seasoning period and 4 quarters of profitability are satisfied.
Where did you get your costs and margins from? I have direct experience in this business and I can tell you they’re usually not that high. These machines are also not cheap to power, cool, and house.
As a comparison point, CoreWeave’s most recently reported operating margin was 16%.
I think your point still stands, but a correction that 1% of $6-7T is $60-70B, not $600-700B.
My mistake, I'm running on a lack of sleep.
They're buying compute for 11 billion and the 50 billion in stock growth is a bonus if it happens.
They also get compute, which has real value. If you are going to spend 11B on new data centers or rental, better to spend with a a company you are about to ipo.
Either way, 500% return on the spend would be amazing
And that grants S&P (plus the existing NASDAQ indices). All US pensioners are bagholders for an illegal immigrant lol
I feel like you are missing the difference between cash out the door and the market cap value of a business. One is a real tangible thing, the other is a function of the stock market.
I don’t think google would spend this money if they did not need this compute, and who know what will happen with SpaceX valuation over the course of a few yrs.
Most things like this are more straightforward than we want them to be - this feels like google paying market value for compute?
From don’t bee evil to: f all of your 401ks, Sundar needs to join the billionaires club!
Great for everyone except those who invest in index funds (directly or indirectly) and want some level of stability?
The best thing about leveraged schemes like this is that if/when it fails it takes down everyone involved.
Who benefits from all this brilliant deal making who doesn’t already have plenty of money? If we are going to invent money out of paperwork maneuvers, you’d think we could invent a way to fund healthcare and schools.
As long as they can cash out from these investments by dumping on others, they are safe.
I am not sure you can called this kind of thing “financial engineering”, every market manipulator know this.
what the actual fuck haha
I can't tell if you're being sarcastic or just really really deeply invested into it
And SpaceX will spend $800M per month on Nvidia hardware purchase contacts, and Nvidia will spend $700M per month on Google services.
I'm picturing a teenager blowing a bubble gum bubble bigger and bigger. I assume it can go on forever!
A bubble will never pop as long as stay in it's bubble form
Usually there’s some environmental disturbance eventually, that makes it burst.
So… data centres in space it is.
The doubt you are expressing was very justified until this week. But on June 1st, Microsoft changed the pricing for business and enterprise Copilot, and people started paying real money for using AI. Until that day, Github Copilot was charging users 4 cents per request (if they exceeded their subscription's monthly limit). Now, they charge at the API rate. I monitor my usage, and it's easily 10 times more expensive than the 4 cents per request before, maybe 20 or even more. And guess what? Businesses are shocked about the changes, and thinking hard what to do, but most of them will just pay 10 or 20 times or more for AI than they used to pay until now.
We will hear projections soon, in a few months, but my guess is that the big 3 (Anthropic, OpenAI, Google) will get of the order of $10 billion per month in AI inference revenues. And it will only go up from there.
What makes you think “most of them will just pay 10 or 20 times more for AI”?
They can’t measure ROI, and it will start costing more than their staff. You might be right, but I can’t think why any competent C suit would agree to this..
Look at cloud spend - how many of your employers have measured the ROI of using cloud vs. self-hosting? At a certain point these things just become the cost of doing business I suppose.
Every single one minus Federal Gov. if you are in a leader position you absolutely should be assessing hosting options, trade offs, costs etc, and looking forward as things grow to make sure you aren’t just burning cash. Only my experience from Australia, the low interest environment could be different in the US, but I would expect this attitude to change if interest rates stay above 5%.
> but most of them will just pay 10 or 20 times or more for AI than they used to pay until now.
At my work, after the GitHub price hike, we all got the option of 1. Keep using Github, but with the same total spend as before. i.e, use 1/20th as much since the dollar cap isn't changing. Or option 2, use as much self hosted DeepSeek v4 Pro, Qwen 3.6, Gemma4 as you want since it's almost free. (to be fair, we already had the GPUs)
If the Chinese keep releasing open weight models that are "close enough" to the big 3, I expect many orgs to make the same choice. I think we will see VPs and higher start saying "you better have a good reason for using Opus 4.8 or GPT 5.5 Pro, do you have metrics showing ${cheaper_model} isn't good enough?"
> to be fair, we already had the GPUs
Most businesses don't have the GPUs, or the knowledge necessary to do self-hosted inference. So, they'd have to rely on OpenRouter, or Ollama, or some other inference provider, but there are lots of problems with that. With Microsoft, people could get comfortable with the compliance side of the problem. They already use Outlook, and Office365. Copilot is just one more point where things can go wrong, but it's less scary than your emails being captured and held for ransom, and you already think Microsoft can take care of that. But with Ollama or OpenRouter, you have no idea what is happening with your data, and you also are not sure if they are serving the real models, or quantized versions.
To be sure, there will be plenty of people finding alternate solutions, but 80-90% of the businesses will just pay the higher price to Microsoft.
For sure not everyone can self host (though I suspect most tech and tech adjacent companies can).
But all the existing “safe/trusted” cloud providers will offer cheaper models. The choice won’t just be GitHub vs OpenRouter. It will be DeepSeek, qwen, Gemma on GitHub vs Opus on GitHub. I’m sure AWS, GCP, Azure, etc will be happy to sell open weight models. And those lower priced models will put a cap on how many people pay for higher priced models.
This is an active conversation going on at my day job right now (and I suspect many other peoples too)
Every developer (we have about 100) has Github Copilot, and interestingly some barely use it while others use it a lot (about 70% of usage comes from a handful of devs), and the dashboard shows you exactly who is using which models, and how much
I definitely don't think they will just go along with paying 10/20x more than before without seeing some sort of return on that investment
We've already had the we're spending all this money on AI, why aren't we shipping software faster conversation multiple times
My prediction is that those high users, costing the most money, will be watched carefully (one colleague even suggested half-jokingly that whoever tops the leaderboard should have to give everyone else a presentation on what they spent all those AI credits on)
The sweet spot is to have good competent developers who users AI when it actually makes sense, but aren't dependent on it
What is Nvidia spending so much on Google services for?
Google renting infra from xAI, I did not see that coming. My understanding of what computers are doing, what companies are doing and what governments are doing seems to be getting worse day by day.
They're struggling.
The future needs more AI compute. No one has enough AI compute.
Memory chip vendors are betting hard on this being a temporary state of affairs that doesn't last, and doesn't warrant commissioning a shitton of new memory foundries.
Musk is betting hard on this staying that way, and is putting the next Colossus into the last place not corrupted by NIMBYs... SPACE!
> Google renting infra from xAI, I did not see that coming.
Actually that seems to be fairly logical? Hardware is what xAI has, and it's in great demand. So sell what makes you money. The real story here is that that xAI hardware is going to be running Gemini and not Grok. Which is to say: Grok basically failed as a frontier AI and they need to pivot to a business model which makes money.
Obviously not everything Musk did was wrong. xAI bought a ton of compute when it was possible to get it. But the product they were going to build with it failed and so now they're deciding to be a landlord.
This IPO is just insane. No way do you justify a $trillion+ valuation based on what amounts to a bunch of commoditized rent seeking endeavors. Datacenters are buildings and chips, and everyone can build those. Starlink is just an ISP with lots of competition at scale (they have the high bandwidth mobile market cornered, but that's a very small market!). Mars is at best a grift on public funding. Even satellite launch services are commoditized and competetive these days.
> Which is to say: Grok basically failed as a frontier AI and they need to pivot to a business model which makes money.
They can just run Grok as a local AI inside Tesla cars. It's actually really efficient as a compute platform because the Tesla cars are in motion at highway speeds, which gives you lots of free airflow for shedding waste heat via the car radiator. Way more efficient than trying to run AI on space satellites.
Grok is just DOA. No need to beat a dead horse. Even Musk got that thus the reason why he is renting the stuff it planned for Grok.
Grok has plenty of "non-woke AI" cred which will make it a preferred choice for lots of government-side and politically sensitive workloads.
What do you think the term woke actually means?
I think their point is less that it really means something and more that enough customers think it means something to provide economic opportunity
The only frontier lab to be selling the compute rather than inference seems to say more about this economic opportunity.
Something which is inconvenient to trumptys
I am pretty sure the gov gets an uncensored /heretic version of the AI models instead of the nanny stuff we get so Grok really doesn’t have a “killer” feature. Even for multi model passes(I.e used purely as a contrarian gate) it’s not really that great due the high rate of hallucinations.
Nazi AI is bad actually, most governments will not want to be associated with it
Anecdotally, Grok is mostly not that anti-woke. It is coasting off of its reputation from Elon's marketing. That said, it does have meaningfully fewer guardrails, which is a real benefit.
Teslas spend a tiny percentage of their life at highway speeds, and a major selling point of the platform is that their compute would be used to pilot the vehicle.
If they could train using Teslas they wouldn't have needed Dojo.
lol, not sure if this is a joke, but Teslas do not have anything close to the necessary hardware to run grok locally.
Who’s going to be paying for the energy? People have been floating using the cars as compute for years and it just doesn’t make any financial sense for anyone.
You make it sound like they’ve given up on Grok, which I don’t think is accurate. I think it’s been mentioned the Grok 5 1.5T model is currently training on Colossus 2. And their recent deal with cursor is part of being able to eventually compete with Anthropic for agentic coding.
There is no evidence they can deliver anything competitive based on their past performance, though.
Even if their model is competitive or even surpasses e.g. Deepseek (which is far from given) how would that justify a huge valuation?
Strongly agree with all of this, except that charging rent for the use of an asset you own is not what economic "rent-seeking" means. I blame the dumbass economists who named it this, forever polluting the discussion to be had about regulatory capture and legalized political bribery.
Keep in mind Google also rents GPUs via GCP, so they could be just reselling these to GCP customers?
Thing is though, Anthropic was really against the wall with lack of compute pre xAI deal. And tbh, Gemini reliability has been abysmal which probably points to real compute shortages.
And nearly _every_ major DC project is really up against it with massive delays, etc. Stargate UAE has been badly affected by the Iran conflict.
So maybe long term this isn't a great business, but _right now_ I'm not convinced it's all financial engineering. There is a enormous shortage of compute and xAI has a load of it _available now_.
> So maybe long term this isn't a great business, but _right now_
Exactly! "Maybe not a long term great business" is exactly the opposite of what you want to buy in an IPO.
This is a "private equity can squeeze out a ton of cash from this asset portfolio" situation, and very much not a "in a few years this will be a trillion dollar business competing with the biggest companies in the world" bet.
Could you please describe the other satellite launch services whose prices are competitive with SpaceX?
The whole of the space part of SpaceX is like 10% of the claimed business according to their S-1. And most of that is Starlink, not launches for third parties.
But building a Starlink competitor is essentially impossible without also building a space company, and the main competitor doing that just turned their only launchpad into a crater and is out of the game for a year or so.
Yes but 90% of the value is supposed to come from xAI, where you decidedly don't need to be a space company to compete. The space part of SpaceX literally doesn't matter, it's an AI company according to its financials. If you need to care about the space parts, the company is overvalued by an order of magnitude or more.
To be overvalued by an order of magnitude, it'd have to have a fair valuation of under $180 B.
At ~5 billion per year in profit, Starlink alone would justify a 100 B valuation at a P/E ratio of 20 (i.e. assuming a non-growth company). If you account for the fact that this is very much a growth company, the valuation of the space part alone is well above these $180B.
And they do happen to have the launch and AI businesses on top of it, which (as usual for growth companies) may not be obscenely profitable but aren't worthless.
If 90% of the value is from the AI business, it's grossly undervalued.
We will see China comming up soon i would argue.
But otherwise yeah SpaceX one that one for now. Only issue with this: We don't have enough payload for SpaceX to expand that much more.
If you are asking for government and research needs rather than commercial then ISRO (Indian space research organization) beats SpaceX
That being said, ISRO focuses more on research and scientific world as compared to the commercial world but they were the least expensive option out there before SpaceX and the only differential which causes the pricing is actually re-usability aspect of SpaceX rockets/launchers and ISRO is actively working towards that too.
And another thing as brainwad said here but Space part of SpaceX is just 10% of the claimed business according to their S-1
So, in other words, launch is not actually a commodotised thing yet and there's nobody else out there that can actually beat SpaceX on price.
SpaceX's launch business is great, but does not justify the majority of the valuation.
Xai seems pointless, and they've got gpus needing to be used for something.
I thought elon hates demis
Demis? Democrats or something else?
Elon likes money and power.
Demis Hassabis - head of Google DeepMind.
Thanks for the comment but then commenting to the GP (@Hellojimbo) that sure Elon might hate Demis
But nobody denies a 920M$ per deal for an unprofitable company's like SpaceX at this point, last line to somehow become profitable after this deal.
The scale at this money & influence operates, although I feel like people project to the general public that they lean a particular side and sometimes they do but what they lean the most is towards money and whatever response is the most convenient for them at that time.
That checks out, Demis is everything that Musk wanted to be.
Financial shenanigans aside, xAI seems to be buying hardware at breakneck speed. So why not?
https://techcrunch.com/2026/05/20/musks-xai-is-being-sued-ov...
The original batch was probably Musks "AI will solve everything, i have a small dick, i want to buy all the hardware and be the first" which became "Ah shit Grok doesn't need all the compute, we can't sell it properly our IPO is coming soon we need better numbers.
And
"Shit why did we agree to buy so much hardware if i can't even use the current one fully?"
to
"Ah fuck it, who cares if i indirectly pivot to selling this compute. It brings money and my Fanboys probably think its some magic smartness and not just ignorance"
Because hardware depreciates quickly, datacenter rentals are a competitive business with much lower profit margins than the IPO prospectus requires (even if there is a temporary bottleneck now) and there's no real moat.
IIRC the large majority of their hardware (at least one tranche, they might have gotten more later) was Elon effectively stealing it from Tesla for xAI, saying “I’m personally doing Tesla a favor, since they can’t fully utilize it currently”, and is now renting that (stolen) compute to subsidize SpaceX.
Musk is a walking and talking financial fraudster and criminal and somehow keeps getting away with it.
Someday, Americans may punish him with a presidency.
Not unless the constitution changes first. You have to be born in America to run for president.
If you bribe five members of the Supreme Court, the Constitution can be whatever you want it to be.
Sure, and Denmark might sneak attack Maine. But what’s the point of wild speculation.
You're acting like the landscape of law hasn't changed and been affected drastically by the purchased Supreme Court justices. That has literally happened. It's not a hypothetical or speculation.
I’m more confused what they’re going to do with all the infra? What could all those GPU’s be doing? Just inference?
It means that there's no memory to buy at any price. There's no GPUs. There's no power.
Elon had the foresight to buy all that in advance and now Google, the datacenter company, has to rent datacenter space.
MU went 1000% in one year and it's still one of the cheapest companies on the NASDAQ.
google: we are commited to carbon free data centers by 2030 (https://sustainability.google/reports/247-carbon-free-energy...)
also google: renting capacity from a data center powered by 27 methane gas turbines on trailers
https://www.epw.senate.gov/public/index.cfm/2026/4/whitehous...
The deal ends in June 2029, which is before 2030.
So you mean to say Google knows AI definitely won't be needed after June 2029... Understood...
They also might switch power sources.
So their hands are clean, but they’re outsourcing the dirty work.
A huge chunk of SoaceX value in their filing is attributed to their AI technology (aka Grok). I believe it’s 90% or more… Now, it seems they’re leasing the infrastructure required for Grok to scale to Anthropic and Google. I wonder how that math works…
But what is xAI? I thought that was the company that had the compute + Grok, the AI company? Since when does SpaceX (which I thought was a space company?) own AI-compute hardware and/or can do model hosting? Are all of Musks companies just one big thing now where the names no longer matter, or how is it supposed to work?
Edit: seems I'm just a bit behind: "xAI — now part of SpaceX ", seems really strange for a space company to buy an AI company, but I guess rather that, than the other way around.
Not really strange... if the goal is to go to mars, you probably need robots, those need intelligence -> ai. It fits pretty well, especially because you want to own all the core technologies as a company.
Wow…sounds like some kindergarten stuff
Why 4-5 companies instead of one then? I thought the goal of SpaceX was to get to Mars, why does xAI need to have that same goal? Or he didn't think xAI was suitable for that goal, then changed his mind so merged the companies?
You are overthinking this. The whole purpose of the SpaceX / xAI merger is for Musk to launder his failing companies to make them more palatable to the public. Not unlike the complex Mortgage Backed Securities of the GFC era which had a ton of low quality debt but yet were somehow assigned spotless credit ratings. Twitter is also being rolled up into SpaceX for the same reason.
I sure wish my company were failing the same way Musk’s allegedly are.
Personally I can go without owing money to Saudi royals.
Yeah, there are too many people happy to sacrifice principles for a buck...
He’s a drug addict and sociopath. Also has very thin skin (and hair) so he does stupid shit. Somehow we are all left holding the bag on his BS.
And Africa is left holding a larger bag of Ebola.
The stated goal is to "go to mars", the real goal is to make money.
He sold his failing but hype business to his soon-to-IPO successful but kinda boring business.
It's a way of laundering the debt and dumping into investors as he pitted different indexes against each other to force his way into one of them, and have people's 401k buy into them. Its a ton of money.
I wouldn't be surprised if Tesla is bought into spaceX in the future.
I think some justify it as SpaceX plans to offer hosting in space, and then use Starlink to distribute it.
That's what the IPO salesman and pamphlet said anyway.
Can you provide a good example of something that is currently hosted in space and distributed via satellite?
GPS..
You believe that GPS is hosted on servers in space?
Next up Tesla and SpaceX are going to merge and that will another round of synergies where Tesla and Vision AI (in FSD) and xAI.
Musk sold Twitter into xAI which he then sold into SpaceX as a financial engineering effort to lessen the impact of massive debts and cash burn. The IPO and some clever structuring is the final step in the process.
I.e., fraud.
It's really just a debt transfer to make one company look good while the other is saddled with debt. Should be illegal
Context here (Patrick Boyle):
https://youtu.be/IHD8BDFYyGI?is=dnpBeOoxH7LUJknm
It has nothing to do with Grok, at least not the current iteration. SpaceX is the only company that can concievably launch large scale orbital compute.
I’m out of the loop, why is compute better /after/ being launched into space? Is the idea just to be co-located within the ISP to reduce round trip time to the LLMs?
Grokipedia would be way better launched into space.
The risk is getting our planet annihilated if something stumbles upon it.
There would be some benefits, assuming you could do it for a reasonable cost. For one, you have effectively uninterruptible power using solar panels in space. And it's free, too, once you have the hardware in place.
And you don't have to deal with any of the site selection stuff you have for terrestrial data centers. No NIMBYs. No politicians trying to extort bribes. No water problems.
In space there are no earthquakes, tornadoes, or floods.
I'm still skeptical. It's hard to believe it costs so much to build a data center on the ground that putting it into orbit is an economically viable alternative.
Yeah, launch costs alone make it infeasible, and power being "free" exacerbates the cost (gotta get all those panels up there). Cooling is also dramatically harder, plus shielding, and it makes repair/upgrade basically impossible.
I'm not going to assert that large scale space compute will never happen, but I feel confident saying it won't happen this decade or next.
> launch costs alone make it infeasible
Last time I did the math, launch costs were well balanced against permitting delays (mediated by interest rates). The break even rests almost entirely on radiator mass efficiency (which is, admittedly, a function of launch costs).
Like, if everyone’s terrestrial datacenter projects start getting blocked, and demand for AI continues, the price a rational buyer would pay for in-orbit compute could get ridiculous enough to break even on current kit. And current kit in launch vehicles, radiators and solar panels is advancing.
I don’t think the thesis is met yet. But it’s less ridiculous than I thought it was before I sat down with pen and paper.
Wouldn’t it be easier and cheaper simply to focus building your data centers in other poorer countries where your permits won’t be blocked? Why would the next most logical choice be “let’s put it in orbit”?
When they get the kinks out of Starship, launch costs will be dramatically lower than we're used to thinking. They'll probably be using it to launch Starlink sats in earnest next year, so I don't think that would be the long leg.
I used to think heat would be a problem, too, but I've come around. It's a consideration, but it's doable. Remember we already have some pretty high power sats up there, so it's not something we haven't already been working around.
IMO the big cash drain will end up being maintenance, as in, you can't do it. If you have a box or a power supply fail on the ground you can swap it out. Anything in orbit would have to be replaced.
Things to think about: the russian satellites currently already in orbit and being tested to jam global GPS signals: https://youtu.be/tz23G_UXCGA?si=Jkg7hYnwER39-FXf (Veritasium). In all these sci-fi space datacentre scenarios, has anybody considered that astrolaw is in no way currently equipped to deal with datacenters in space? Neither are international relations.
The agreement in question is quite short[1], and includes no penalties for failure to provide the required compute amount other than pro-rating things. There's nothing in this that you couldn't sign even if you had no GPUs to offer Google.
I'm not a lawyer, but it seems to me that this is like Google agreeing to buy a billion dollars of lemonade from Tim's lemonade stand, Inc, and Tim is 8 years old.
I don't see how this provides any cover to xAI/SpaceX as far as SEC rules go for getting into the top 100 stock index.
[1] https://www.sec.gov/Archives/edgar/data/1181412/000162828026...
> $920 million per month from October 2026 through June 2029 for access to “approximately 110,000 NVIDIA GPUs, CPUs, memory, and other related components.
That's about $8,400/month per "component" is that in the ballpark at all with what a month of dedicated/exclusive access to an NVIDIA GPU would go for?
Plus electricity, labor, and maintenance?
Yeah I was wondering about this too. It seems like way too much per GPU considering the purchase price of a B200 was around $40k last time I checked. So if we naively ignore the price of electricity and maintanence, it would only take 5 months before renting is a worse deal than buying outright.
It’s a supply and demand thing. Google would definitely be buying from nvidia and setting up themselves if nvidia had the capacity.
SpaceX/xAi/musk are currently in a good market for “happening to own 100k cards we have nothing to do with”, and are exercising that control as hard as they can.
That's roughly 11.66$ per hour per GPU, which is above the price that Google Cloud is reselling them at if you commit for 36 months: https://getdeploying.com/gpus/nvidia-b200
That's for standalone servers. xAI has something that nobody else has. The single largest interconnected cluster[1]. For inference it doesn't really matter, but for training that networking is crucial.
[1] Probably, there could be undisclosed clusters owned by other companies.
I would think that for training Google has optimized their entire setup for TPUs so I can’t see how this would be used for anything but inference
That's a good point. That makes it less likely that it's training, but who knows.
> compute from its Colossus 1 data center near Memphis, Tennessee, that xAI — now part of SpaceX — originally built for its own artificial intelligence efforts.
Is this the same Memphis data center notorious for burning jet fuel nonstop for power?
What would you prefer it to burn instead?
probably boiling water with nuclear energy?
They might do that in 16 years when the next reactor comes online.
I'd prefer it to absorb photons and wind kinetic energy, and store it in lithium batteries.
Not surprised. I work in the gas turbine market and this AI boom has revolutionised our business and investments, oil and gas is dead. (to us)
You guys don't understand. Banks like JPMC will make billions on this IPO. Doing everything to prop it
Maybe that was the handshake deal from twitter financing, twitter exit and so on. "I will make you whole".
I do not know, but I wonder if someone can tally the bankers from twitter buy, twitter merge into xAI and the new spaceX launch.
Dimon himself is inserting himself https://www.reuters.com/legal/transactional/jpmorgans-dimon-...
These sort of numbers are really easy to estimate and it sounds like you haven’t done.
For the sake of a reality check:
IPO is raising approx $75bn of new equity
SpaceX has negotiated substantially below market fee of 0.75%
Total fee pool = ~550mio USD
Fee pool will be split between 23 banks, so average of 23mio per bank, likely skewed heavily towards Goldman Sachs and Morgan Stanley as the lead bookrunners.
Clearly everyone has incentives for spaceX to go up, but important to keep in mind the order of magnitudes we are talking about, the monthly google compute spend in the headline totally eclipses the one off banking fees
Why did you feel the need to post this disinformation? Do you get paid to spread these lies?
Is there any data on whether Google, Amazon, Microsoft, Anthropic, OpenAI etc are most cost efficient in getting datacenter compute online and operating it?
I'd be interested in how large the range is here across company and region and specific data center and how it relates to companies like Hetzner if at all.
that's asking the cart before the horse; is there any data on what compute actually results in real GDP improvements?
Nothing other than vendor promises and white papers.
I’ve seen some numbers related to datacenters in Ireland and they would stress price per MW as a way to see where to build them. But then you have depreciation of equipment as well. Depreciation can be played with when filing taxes though.
> Is there any data on whether Google, Amazon, Microsoft, Anthropic, OpenAI etc are most cost efficient in getting datacenter compute online and operating it?
Well considering that ~80% of the price is hardware deprecation, I don't know why they'd be considerably worse than anyone else at negotiating hardware deals.
Typically when you buy in bulk, you have more sway.
Companies like Google also have in-house chips like TPUs that are substantially cheaper for inference for them to make than anyone else can get through Nvidia.
I don't think they are most efficient for small GPUs. I think they might only be the one which have capex and certainty required for multimillion dollar purchase of GB200 NVL72 or something of that scale.
Well, Elon seems to take the fastest path possible to these DCs. One can envision a future where these get shut down for the severity of the pollution, not to mention being built and operated illegally [0].
[0] https://www.selc.org/news/xai-built-an-illegal-power-plant-t...
Which is precisely why there has been a push to weaken the EPA and other regulating agencies
Amazon / AWS is very efficient at it. They are the largest cloud by a significant margin. Much larger than Hetzner.
Google and MS may be close behind.
Not sure about Meta but they are also renting from Amazon so...
Anthropic mostly rents from Amazon, Goog & MS.
380 dollars per second... Good to know I could afford my own data center for an appreciable fraction of a minute.
plus $473 per second from Anthropic
> As part of that deal, Anthropic agreed to pay SpaceX $1.25 billion per month through 2029 to rent all the available compute from its Colossus 1 data center near Memphis, Tennessee, that xAI — now part of SpaceX — originally built for its own artificial intelligence efforts.
I don't get why SpaceX is going public. But anyway, well played, the whole crypto mining that dried out GPUs back in the day seems tiny now.
> I don't get why SpaceX is going public.
Liquidity for investors. They raised everything they could from private markets, government contract, debt, the remaining source of financing is from the public
For context, Alphabet earns ~$12k/sec.
Why would you want to own your own giant datacenter? What would you do with it? Of course it's expensive to operate a datacenter that serves millions of people.
They were just being jocular.
I was actually surprised by how low the per-second rate is.
These deals are part of how the AI economy operates. Amodei has explained this in his recent Patel podcast.
1. Building datacenters takes time. Months, if not years. They take billions of investment.
2. AI revenue is highly unpredictable. Sure, you can make predictions, but maybe your competitor releases a better model 2 weeks after your release, maybe the new model you built isn't as much better, maybe the chinese models steal your show, etc.
3. AI revenue grows a lot. Anthropic's case is 10x per year.
4. So if you are off by just a year in terms of how much GPU you actually need, then that means a 90% of your compute capacity is wasted, and you go bankrupt.
As a solution, companies buy compute from each other! If one company's model did well, they can buy compute from the company whose model didn't do well (like in the case of grok). It's beneficial for both sides, so positive sum game. So deals like this aren't something bad in itself.
It's nothing new either. In SAAS deals, you often commit to a certain revenue and then pay extra if your revenue exceeds that amount. And power market is cut in two as well: longer term deals plus spot markets. Spot prices are way higher than the longer term deal prices.
Given it's SpaceX of course there is financial engineering involved: the GPUs aren't actually owned by SpaceX but a daughter company, and it's been financed via loans that are backed by pension funds. So it's already the case that pension funds back bear the risks associated with SpaceX's operations.
Right now, the bulk of the AI bubble sits in such debt statements and not in public markets.
> the GPUs aren't actually owned by SpaceX but a daughter company, and it's been financed via loans that are backed by pension funds. So it's already the case that pension funds back bear the risks associated with SpaceX's operations.
I think a more accurate phrasing of the Valor GPU deal would be something like this:
"SpaceX’s AI compute buildout relies in part on off-balance-sheet or lease-style financing vehicles. Valor-owned vehicles purchased Nvidia GPU infrastructure and leased it to xAI/SpaceX subsidiaries, with Apollo providing debt financing and SpaceX or subsidiaries guaranteeing some obligations. That creates indirect exposure for institutional and retirement capital, though not necessarily direct pension-fund ownership of SpaceX operational risk."
This is only a partial solution to a problem though. If x ai fails to build a good model they rent to Google. But that means all these companies are incentivised to build as much compute as possible. If they win their margins look great, if they lose they still make money. BUT at some point aggregate supply will outstrip aggregate demand and the bottom will fall out of the market.
By the time bottom falls out, they will all have done their IPOs and offloaded the risk on to the public. Govt will be forced to bail them out.
> SpaceX said in the filing that if it fails to “deliver access to the committed amount of GPUs by September 30, 2026,” Google can immediately end the agreement, or accept the number of GPUs provided at a reduced fee after a one-month grace period.
> After this year, the agreement can be terminated by either party provided they give 90 days’ notice.
Circular financing at its peak for the IPO. There has to be some regulatory body to not allow such shady things
> Circular financing
Circular financing would require SpaceX to buy a similar quantity of stuff from Google. (Or invest in Google.) We have no evidence of that. Instead this looks like Google taking advantage of SpaceX’s desire to print revenue today versus a month from now.
(If the agreement is terminated with no exchange of goods, it might be market manipulation. But still not circular financing.)
It's circular since Google owns part of SpaceX. According to [1] they own 7% of SpaceX, so a $1.75T IPO would value their stake at $120B. The target IPO price is >90x revenue, so if Google increases SpaceX's revenue by $11B, SpaceX's valuation could increase by $990B to maintain the same multiple, which would increase the value of Google's stake by $69B.
1: https://finance.yahoo.com/markets/stocks/articles/alphabet-s...
Their exposure is more than just their ownership of SpaceX.
If the SpaceX IPO bombs (or even merely underperforms), the expectations for the Anthropic/OpenAI IPOs collapse, and with that, everything else AI.
AI companies can't afford to let any AI company go down.
I'm not sure this is true for Google. Ignoring their equity in Anthropic, AI is generally a threat to Google, since it's the closest thing to upsetting their search monopoly. The best case for Google is if OpenAI and Anthropic are way out over their skis, and Google is the only major player left with their sturdier financial position. The worst case is if ChatGPT/Claude completely displace search and nobody wants to pay for gemini. I find it unlikely that all three go down for the same reason.
> It's circular since Google owns part of SpaceX
Not what circular financing means. Buying from a company you own stock in can be a conflict of interest, but it's only circular if you invest in the company and then they use those proceeds to buy your stuff. A past investor buying services from a company they are affiliated with is pretty par for the course in business.
> Alphabet has made a windfall from backing SpaceX. Musk’s company was worth $12 billion at the time of Google’s 2015 investment
How come its not a circular deal where google is investing little bit more money to make a whole lot more money
that's not circular though
It’s only circular if it violates my narrative, of course.
It's circular when money flows from A to B and then back from B to A again.
This is a series of transactions in which money flows from Google to SpaceX. There is no flow of money from SpaceX to Google. So it's not a circle.
More to the point, allegations of circular financing are about following cash. When NVIDIA invests in a company so they can buy NVIDIA chips, that raises a unique set of questions distinct from other types of conflict of interest. Affiliated parties doing business, as is the case between Google and SpaceX, has its own host of conflict-of-interest concerns. But they're distinct from those that arise in circular transactions.
Google is paying $12.00 per gpu-hour which costs SpaceX $1.50-$3.50.
Who's taking advantage of who?
> Circular financing
Keep in mind, Google has a 6% stake in SpaceX, so this is more like exchanging millions to gain billions.
Yeah, I just looked this up because my first thought was another circular financing deal (or not circular by definition but certainly backscratching). Looks like Google's SpaceX stake, diluted, based on a cursory search, at a $1.5T valuation is somewhere in the $80-$100B neighborhood (bought back in 2015 I think is what it said when SpaceX was valued in the low tens of billions if I'm remembering correctly). So you have Google sending $12B back to SpaceX annually in this deal, so maybe 12% or so of their equity stake at that valuation. I'm not sure how to feel about it other than a means of swaying people to buy into the IPO with the added benefit of actual compute value.
And seems silly to ignore that the Google founders and Elon are buddies, or were, based on which gossip rag you believe in, and there's zero chance these types of deals are being made independent of those guys talking (when are they ever, of course, but it's even more obvious in this case given the players and their histories).
There is nothing shady or circular in the text you quoted
I avoided adding too many details, made a base assumption that folks on this topic would already be aware of google's investment in spaceX, probably should have added that too
> made a base assumption that folks on this topic would already be aware of google's investment in spaceX, probably should have added that too
Still doesn't make it circular financing. If SpaceX issued Google a dividend right after Google paid SpaceX, that would be circular.
Closer to just vanilla juicing numbers than circular
Google has code written for their Tensor processors (TPU). Will it run on the NVidia GPUs that xAI has? Because I'm thinking they're "not part of their core architecture" and it will thus be money wasted.
(I thought for sure the title was backwards - it's a strange world)
inference code is effectively trivial to port at this time
everyone understands cuda well enough anyway
> If SpaceX maintains this revenue multiplier
Yeah, if a ridiculous premise is given you'll reach a ridiculous result.
It's not that ridiculous considering these are the current facts on the ground.
See also: "The Madness of Crowds" On Wall Street,people think they are betting on the fin performance of Companies, when in fact you are betting on the crowd's perception of a company's performance.
Quite the abstraction.
The Facts: Tesla wasted billions for Cybertruck, hasn't had a new real model for years, promises Full Selfdriving without supervision for a decade and other companies are either on the same level or better.
xAI has such a shitty AI, that he makes more profit renting his Compute instead of making profit directly from it as the companies doing who have better AI then him.
Space-X is a limited business and he tries to make it unlimited by selling stories of Mars and dyson spheres (literaly), no one will ever finance or need as long as we have still desserts everywhere. In parallel his Starlink business gets competition left and right and despite this, he only has 10 Million customers AND increased prices for STarlink just last month or so.
And the payload, most payload increase is only Starlink. He has to sell us a story, that suddenly even with Starship, he can send so much payload up there to make Space-X this mega trillion company.
He can't even scale Starlink. Its expensive. The satelites work for 5 years and have limited capacity. He NEEDS Spaceship to be able to send up Starlink Server v3 and he hasn't even prooven he can get his ship back which he needs for the payload price.
Twitter/X? Yeah he tanked that one.
Optimus? When did you see the latest non faked demo? And while he works on it, we already have the market cornered here.
I'm just as dumbfounded about Tesla's stock value vs what it does in the market and will trash talk Elon all day long but SpaceX is a different beast. I know of whole industries that are just waiting for the ability to get more stuff into space for less. The company will succeed despite him once Starship is established.
Who? What payload?
The only thing which increased the payload is starlink itself.
Fine he might send his competition in space. Amazon and Leo.
And then?
Check out K2 Space. They are planning a large bus satellite that can ferry deliverables to different orbits. They are just one of many many companies just itching to send large mass objects into space at low cost.
They are doing the same marketing garbage as Space-X and to no surprise, were founded by ex Space-X people.
You need companies actually wanting to send stuff up there.
Musk and K2 Space are desperate for customers and the fact, that they talk about datacenter in space, which doesn't make sense (for at least the next 30-50? years), should tell you everything you need to know.
It is very easy to just lay down energy cables and fiber somewere and build a datacenter. This datacenter can get upgraded hardware without any further big investments, is running for years without issues, can be maintenanced and the origianl infrastructure gets cheaper every single year.
Someone said Space-X is a generational company. Like wtf? Every normal datacenter on earth will always be cheaper on the ground than in space. The only advantage you have in space is solar energy efficency and these prices are still dropping on earth and you don't need to send these panels up in space. And batteries will have a fast RoT.
In space, you have to first even build and solve fundamental issues like "how do i cool reliable a lot of energy", "how do i send big payloads reliable to space", "How can i build datacenter hardware/rebuild datacenter hardware to be space stable".
And why are they doing this because they have to not because its more cost efficient.
Leo orbit is a lot better than what we had before with 30km but your mobile phone can't suddenly do realtime and low latency internet just because starlink sells it like this. The current starlink mobile phone service is still slow and they need to even prove they can do it. For this they need starship because the starlink v3 satelites, they need, are to heavy for falcon 9.
And it doesn't make it better for Space-X if they already have other companies who also want to do this as it lowers their margin and they need to recup their R&D.
Space-X Starlink satelites are the main driver of payload increase in the last few years. Starlink itself!
Ok, you might be right about all of that. None of that changes the actual fact on the ground that the IPO valuation is currently being set at nearly 100x sales, and for god-knows-what-reason, enough people appear to be willing to actually pay it in order to justify that valuation.
Go argue with the entire market. I'm just the messenger.
Well... AOL had rather extreme aspirations and a massively overvalued market cap during the internet boom as well.
So yes, ridiculous things like that happen and markets are very often not rational at all (short and medium term at least).
Nortel, Sun, AOL, Cisco were all very innovative and rapidly growing companies. Until reality kicked in.
While you’re not wrong at all in the concept of your post, I wouldn’t call AOL a particularly innovative company. They basically innovated once and then went straight into lazy rent-seeking for the rest of their existence.
I don’t know if I would put Cisco or Nortel in that category, either. They were like gold rush pickaxe companies. The pickaxes themselves weren’t particularly innovative in their case.
A lot of the innovative companies from the dot com era are still around.
Why the hell ARE they even valued that way?
Do people think those numbers are correct? 920 million a month for 110,000 GPUs is $11.61 per GPU hour. That seems very high to me.
I think in the case of supply-constrained GPUs, you can get the opposite of a volume discount. Google has the most capacity of anyone, the fact they’re paying so much per month to spacex is pretty remarkable
You could also read it the other way. That there is a lot of stranded gpu-capacity which is not being allocated correctly. And buyers would rather rent - than build out themselves.
The contract has some clauses that lets Google pay less if SpaceX can't deliver the full amount of GPUs.
But $12/hr is probably quite accurate. SpaceX' datacenters are horrifyingly expensive, and regular GPUs are being rented below cost in many cases.
Just the gas turbine power alone is horrific. Doubles or triples the power bill and adds a big chunk of depreciation.
With ~$2.1B/month of GPU rental revenue, is xAI now profitable? Are all divisions of SpaceX now profitable?
Yes, but as Elon himself remarked, these are short term leases (90 day exit window), not guaranteed long term contracts.
Yes they should be profitable. If SpaceX maintains profitability for 12 months, they are eligible for SP 500 index inclusion, even under the old rules
Elon is pulling financial engineering black magic to make this happen.
More like incredibly lucky that the global hardware market dried up for compute capacity even as his AI product flopped. Right place at the right time.
I just dislike that it is now harder to avoid giving Musk money directly or indirectly.
It’s not “black magic” to sell excess GPU capacity to third parties to make a profit. This is a legitimate business venture. It’s just not the business that people naturally expect a business with a name of Space Exploration Technologies to be making the most revenue from.
They’re in good company, competing with Amazon, CoreWeave, Google, Microsoft, Nebius, and many other players for the same business. They just invested (through the X.ai acquisition) in more capacity than they could take advantage of to get there.
Even if they manage to make a profit selling this capacity to Google, Anthropic, and others, it might not be enough to push them into profitability as a whole. That remains to be seen, and you keep asserting without evidence that it is true.
Neither Nvidia nor xAI owns those chips on paper. Valor, the shell company holds legal title.
https://x.com/BullTheoryio/status/2061029970236133554
What exactly is SpaceX's core business?
Smoking crack and investment fraud.
With a light sprinkling of space.
Harvesting energy from the convulsions of people who got tds / tiktok psychosis during covid
Its main business is connectivity. Starlink generated over 10B last year.
Becoming a broader infrastructure company with xAI.
> Starlink generated over 10B last year
An entire one-hundredth of their proposed valuation!
Yeah, crazy for a company with nothing but the largest civilian satellite network and what amounts to a monopoly on space flight.
Profitability of space flight has a hard maximum. It’s not anywhere close to what their valuation would suggest.
There’s a reason Elon keeps trying to get investors to believe his “data centers in space” lunacy, because you need that sort of magic pixie dust to justify why any of this valuation makes sense, let alone have anywhere to go but down.
Starlink terminals are popular, they put them on drones to avoid jamming (Starling jamming exists but not that easy for now). It might be their sales are inflated due to its use at war.
That's only about 35% more than the main telecom operator here in Belgium (Proximus: $7.2B revenue in 2025, $2.5B market cap, positive earnings for 15+ years).
Obviously Starlink can and will growth. I'm just pointing out how insane the market cap is, when compared to similar scale "connectivity" businesses.
I'm with you the 5B loss for 18B overall revenue shouldn't grant a valuation anywhere near 1.7 trillion.
was just answering the question.
Their satellite internet business is the only thing which makes them money, which is enabled by their orbital launch business which is as of right now not profitable and I have no idea of if it ever will be but without it they would not be able to launch enough satellites.
Their stupidity with AI and buying X mostly seems to be about scamming investors to make Musk even richer. Like this particular deal is just them doing what CoreWeave does at a SpaceX valuation.
I can understand this being a move to increase valuation, but I can't connect with the stupidity and scamming investors argument.
Sorry, I was unclear. With that I did not talk about this particular deal. This particular deal seems sane. XAI built more compute that they can use themselves since Grok is not very successful so to not just have the hardware standing there they rent it out to competitors. Makes total sense.
It is other things Musk has gone with Twitter and SpaceX which are shady.
I'm pretty sure xAI is just Musk throwing a tantrum after being played for a fool by Lying Sam.
Launch isn't profitable simply because ongoing Starship R&D is eating into it. A lot of opex, capex, and pre-revenue.
If they start running Starship anywhere near the way they do Falcon 9, it'll flip into profits. A lot of big bets SpaceX made ride on Starship coming online. I'm honestly surprised Starlink is already so profitable without it.
One of their big named bets includes: orbital datacenters. Which puts this specific deal into perspective.
80% of the space launch business is putting starlink satellites into orbit, so it's all internal funny money. They could very well be letting the space launch business take losses to make the satellite internet business look better (only profitable part of the whole thing).
Wasn't starship supposed to be funded by the NASA contract?
Orbital datacenters sound like a dangerous bet. I couldn't think of a worse place for a lot of delecate electronics.
Boomers and luddites won't let them be built on earth so no other option really
It's more unpopular than that. Not surprising since they're competing underhandedly for electricity generation with everyone else.
Well it would be a lot easier if those companies wanted to build them in uninhabited areas in the middle of nowhere with no infrastructure. Somehow they don't want to do that...
Have you considered Magma Chamber datacenters?
A datacenter that also provides connectivity/Internet
Government contracts. Dumping its shares on retail investors. Selling compute to AI vendors
Elon Musk.
“If we fail to deliver access to the committed amount of GPUs by September 30, 2026, then following a one-month grace period, Google may immediately terminate the agreement or accept the number of GPUs provided, with a corresponding pro rata reduction in the monthly fees. After December 31, 2026, the agreement may be terminated by either party upon 90 days' notice.”
https://www.sec.gov/Archives/edgar/data/1181412/000162828026...
It’s only to boost the IPO price. The agreement will last only a few months on paper. I doubt it is a real transaction.
Didn't Anthropic pull the same in both ways? you pull me up I pull you up kind of deal? Sounds like SpaceX bought themselves some time up to Q4, which is not the case of Anthropic and even worse for OpenAI. Not counting that none of them got their S&P500 fast-track ticket.
why would Google help a competitor like that, though?
The article mentions Google is heavily invested in it.
How is Google competing with SpaceX?
They’re both AI companies
One of which has more capacity and wants even more, one of which has less capacity and is renting it out.
One is an ad company the other a lifestyle venture?
In the way that Michael Jordan and myself are both basketball players
All companies are now AI companies. Just like a while ago all companies were suddenly Ads companies. The entire tech sector is one big FOMO - once you reach certain scale you do exactly the same thing as everyone else.
I get what you mean but SpaceX owns xAI, which is objectively a company that trains models and has massive distribution by owning X.
I don’t think their models are competitive with Google, and Google obviously has the best distribution imaginable, but they definitely are a competitor.
In the sense that if you want to sell anything whatsoever today it must an AI story.
If you look at the IPO filings you’ll see that Spacex as we know it is just a small part of the expected revenue generator. It is supposedly Grok and AI, hence Google competitor.
I can’t believe serious people use Grok. It has to be propped up by Twitter usage/Musk fans right? It really strikes me as the worst one.
Well you or me also can publish a statement claiming we are Google's competitors. That doesn't mean they'll take it seriously.
Maybe common investors want to sell stocks to retail
Google (Alphabet) owns 6% of SpaceX which they bought for $12B in 2015. They want to maximize the value of their investment.
They are not. The amount of conspiracy in high ranked HN comments for AI companies is insane.
Google is safeguarding it's investment in SpaceX.
Either that or SpaceX is permanently turning xAI's assets into a neocloud because xAI itself has no traction.
The whole thing looks rather desperate. I wonder what SpaceX's margins are on these contracts.
SpaceX has recently started pitching itself as an orbital datacenter company.
If you buy into that business model (or pretend to), it makes sense for SpaceX to start selling compute early. Their "earthside compute" clients of today are "skyside compute" clients of tomorrow.
A part of Musk's old pitch for Starlink was: space-based solar makes perfect sense for powering space assets, and no sense whatsoever for powering Earth assets. So you have to find a way to use that power in space to do something economically useful. Comms were the only scalable way to do that, so Starlink it was.
I can see how space-based datacenters would follow the same logic. If SpaceX can make them economical, that is. There's no guarantees of that - but if anyone at all can make space-based datacenters economical, it's SpaceX.
Why would it ever be more economical to put datacenters in orbit, rather than on some dirt cheap land?
Because dirt cheap land usually does not have dirt, cheap water or dirt cheap electricity.
Water in orbit: famously cheap.
Ah yes: computation. Famous for annihilating water. Every bit you flip consumes an H2O molecule.
Well, how do you cool servers in space then?
Evaporative cooling is the way it happens down on earth - and that shuttles h2o molecules from dense useful clumps like aquifers and rivers to a less useful form spread out in the air. But evaporating h2o isn’t an option in space afaik - since there’s a shortage of air to take up the h2o. In fact I think radiative cooling is the only actual option in space.
That's the neat thing: you don't, or at least not in the megawatt range. A kilowatt can be done with radiative cooling but doesn't get you far with a hypothetical datacenter satellite.
So, somehow the servers can run hot in space without a problem?
No; if you try to do this you don't launch in the first place because the amount of servers required to be useful can't be cooled within your payload budget.
It seems like you are agreeing with me while sounding like you’re arguing with me… confusing.
Radiative cooling. When something gets hot, it begins to radiate that heat away - black body radiation.
Fucking hell - do you all think ISS is cooled by hopes and prayers?
Starlink V3 sats have to dump ~20kW of pure waste heat just to exist. Going from that to the stated 100kW is an engineering task, not some sort of impossible arcane rite.
My job is mostly worrying about cooling paths, maintenance, power, heat transfer, lifetime of GPUs, and high performance networks. NVIDIA partner. I can drive to the datacenter. This stuff BARELY works here on Earth. Especially thermal issues.
Looking forward to watching spacex defeat physics.
Skill issue.
Starlink V3 bus already has to dispose of ~20kW of waste heat from the electronics - because RF amps aren't that great at what they do. That's a ~2020 server rack, in SPACE.
Going from that to a 2026 server rack is engineering, not magic.
The data link between earth and space has so much bandwidth.
There are sensors in space that send data to earth it gets processed and then the data is sent back to space then to the end user back on earth. If you do the compute in space you save the space-earth transfer time twice. Latency and availability of bandwidth are both factors.
There may be limited utility for this outside of military.
There are no NIMBYs in space. No government permitting on land use. And solar power is plentiful. It's like having a dollar store Dyson sphere.
Making use of that is predicated entirely on being able to put a lot of hardware into space cheaply. SpaceX is the undisputed best at that, no one comes close. The question is whether their "best" is good enough to make space datacenters economical.
But you don't have to build it in someone's _backyard_, just build it in a middle of nowhere.
That's literally what datacenter in Utah was and it still had a horde of retards complaining.
There are many Not In My Orbit people on this very page. Many current national politicians would be happy to vote AI out of orbit today. Space is not an escape from earthly politics.
> Space is not an escape from earthly politics.
Well, Earth orbit isn't.
That won’t ever be the case. It’s pure grift. There is literally no other actual reason
I am surprised how many people say that there is no reason to put data centers in orbit, when, at the same time, data centers are becoming the hated thing du jour all over the US and politicians left and right (but mostly left-of-center) are touting bans and restrictions to their electorates.
It is definitely to escape most political pressures on Earth. They will never be able to sidestep the US feds, but aside from an open war with China or Russia, all other authorities are out of the game when it comes to space.
People don't want to live near data centers. But companies find it logistically cheaper and easier to keep proposing to build them near existing towns and infrastructure, and then deal with regulatory fights rather then picking an isolated area and running an extension of high voltage lines out to them.
Which tells you something about why space data centers makes no sense.
"rather then picking an isolated area and running an extension of high voltage lines out to them."
Does not this usually mean extending/upgrading roads and other infrastructure as well?
IDK how this works in the US, but in most of Europe, a "linear" project like this, which crosses multiple jurisdictions, usually runs into more resistance, not less. The multitude of people and special interests along the line compounds.
In some places, special legislation has been enacted that exempts such linear projects from detailed review and opposition, otherwise pipelines, grid upgrades etc. would stall for decades in courts.
When I hear space I think "that's the perfect location for a data center", since data centers are lightweight, small, require little power, don't need human intervention, have lifetimes measured in decades and don't have to reject heat. Since space easily satisfies these requirements, space is an ideal deployment location for data centers.
Yeah... What am I missing? Like why isn't this just laughed at when it's proposed?
I felt the same way about the "tube with an air hockey table in it." But here I am fifteen years later eating crow as I take the hyperloop to Vegas.
Isn't the Vegas Loop just a car tunnel? As far as I know, there aren't any actual hyperloops[1] involved, just a narrow highway, even if they deceivingly brand it "Loop".
https://en.wikipedia.org/wiki/Hyperloop
That’s the joke
It seems off at first glance but actually appears to work out if you do the math. You can model a solar panel as a flat, opaque rectangle. You can calculate power generation and equilibrium temperature for it based on surface area. If you require additional radiative surface area to achieve the desired equilibrium temperature you can place a flat triangle orthogonal to and behind the solar panel in its shadow.
Compute is "free" at that point because waste heat is coming out of the total energy flux which was already accounted for (because we modeled it as opaque).
Of course swapping out the equipment poses a bit of a challenge. The "helping hands" rate is entirely unaffordable and wait until you see this new DC's physical access policies. 0/10 would not rack with them again.
This may be one of the rare instances where the sarcasm is obvious without using the sarcasm font
You forgot that standard computers are also not sensitive to radiation
Space-based datacenters simply won't work. That people are talking about them shows Musk is the greatest snake oil salesman the world has ever seen.
> won’t work
A datacenter (earthbound or space) itself is a fantastical idea until a mix of events and inventions made it feasible to build them to sell compute.
... what? Data centers are literally the original form of computer facility. How are they different from the computer rooms mainframes, etc were housed in?
You think the military can’t or won’t dump billions into this to make killing people with drones more effective?
It’s a engineering challenge not impossible.
There are asteroids with concentrations of precious metals more valuable than earth's entire economy. Why don't we just send up spaceships to mine them and send the haul back to earth? What country would say no to free money?
After all, it's just an engineering challenge, not impossible.
The numbers on that are at least somewhat questionable. Even ignoring that you'd crash the market (thus it's not actually worth what it first appears to be) what is the total fuel cost to adjust the orbit of the target asteroid to land the entire thing back on the earth? Because that's what you're doing bit by bit as you shuttle loads of ore back.
Now if you have space based manufacturing or fuel production on the other hand ...
That's the point. Basic rule of thumb: anytime someone is arguing that the military will fund something, they're wrong.
Its not a real argument it's just used because to most people the military is a big mysterious thing they don't understand which they think has an infinite budget for things.
Can anyone explain how the thermals will work? One of the biggest challenges on Earth is cooling the data center, and it's at least as challenging in space.
The earthbound equivalent would be strapping each chassis to the back of a dedicated solar panel and having the panel double as a giant heat sink. The problem is that doesn't work on the surface due to (at least) rain, the day/night cycle, and the cost of real estate.
Isn't a solar panel going to be a poor heatsink, though? It's flat, and thus has relatively small surface area compared to its size.
In atmosphere, yeah, relatively speaking.
But it doesn't matter since in this scenario each chassis is powered exclusively by the respective panel. How hot does a black panel sitting in the midday sun get? That's your equilibrium temperature. As long as it's within the operational limit of the device there's no problem.
The reason earthbound DCs are difficult to cool is because of density. When you match up panels to devices and shelter in their shadow you no longer have anywhere near the same power density.
That's not right. This works a couple orders of magnitude better on the ground than on space (unless your computers run at several hundred °C).
The reason people don't do it here is because it's too expensive.
What isn't right? I pointed out that if you adhere to the same power density then cooling is no longer a challenge on earth (in reply to the observation that cooling a DC on earth is one of the biggest challenges).
For the record the equilibrium temperature in earth orbit is above freezing but below room temperature. Cooling won't be a problem at all unless you bring along a self contained power source. Heat distribution however might be - you will need an efficient yet lightweight construction to spread the heat generated in the chassis across the entire solar panel.
The idea that passive radiators don't work on the ground isn't right. I wrote it badly, the core of your argument is really fine.
The reason we don't use them is because the other options are cheaper. But passive radiators on the ground are orders of magnitude cheaper than on space because they can use convection and conduction.
> The reason we don't use them is because the other options are cheaper.
Yes, that is literally what I have been saying from the beginning. Are you sure you didn't misread my original comment?
> passive radiators on the ground are orders of magnitude cheaper than on space because they can use convection and conduction.
That statement is technically correct when comparing designs to radiate an equivalent amount of heat in the two environments.
However in context (ie solar powered computing in outer space in the vicinity of the earth) it is entirely missing the point that the problem is not a lack of surface area but rather efficient heat distribution across the already existing surface area. I have no idea how much that costs in materials and workmanship but when you're boosting things into orbit I don't think the material cost of a rudimentary heat spreader is likely to be of much concern. The weight certainly will be, but you can also get away with some incredibly flimsy designs when operating in zero g.
Thermals are one among many really big challenges that require costly solutions.
It won’t. It’s not supposed to work, it’s a mirage to raise dumb money. It’s way, way more challenging to cool something a vacuum. The only option is radiative cooling, which is far from being performant. The idea is as realistic as Musk previous grifts such as his digging company and there hyperloop, both absurd and supposed to revolutionize transport, both created as grifting devices and ensure public transport doesn’t develop in the US
> Space-based datacenters simply won't work.
Everybody knows.
Musk is a snake oil salesman (that’s been clear since the self-driving car promises) but he also has made a lot of people a lot of money and that’s all anybody really cares about.
None of his companies have a traditionally reasonable valuation. Is there any reason to think that’s going to change soon?
> if anyone at all can make space-based datacenters economical, it's SpaceX
Let's hope burning ten thousand tons of toxic e-waste annually in upper atmoshphere never becomes economical. Or mankind gets to senses and bans externalizing your e-waste problem by burning in atmosphere...
> ...burning ten thousand tons of toxic e-waste annually...
Expressing water usage in gallons makes it seem really large, too. NASA says[0]:
If we assume that they're all the heavier v2 units, the total mass of the orbital portion of Starlink is ten point four tons. [1] If we assumed that they lasted one year (instead of the five that they're reported to last[1]), then over the course of a year, Starlink would dump six hours worth of asteroid collisions into the atmosphere.
I think we'll be fine. Pour all that frustrated energy you have into substantially reducing the amount of incredibly hazardous d-waste [3] big commercial operators burn up into our atmosphere, instead.
[0] <https://science.nasa.gov/solar-system/meteors-meteorites/#h-...>
[1] According to [2] there are currently 10,413 satellites. At an assumed 1760 lbs each, this works out to roughly 10.4 tons.
[2] <https://www.space.com/spacex-starlink-satellites.html>
[3] "dino"-waste, AKA CO2
I think you missed a factor of 1000 somewhere in there: Each satellite weighs about 1 ton, there are about 10,000 of them. That is 10,000 tons in orbit for the constellation, not 10. Assuming a 5 year decay, that's 10000/5/365 ~= 5 tons / day. Still about 10% of the natural incoming material, but considerably more than your "six hours worth per year".
> I think you missed a factor of 1000 somewhere in there... there are about 10,000 of them. That is 10,000 tons in orbit for the constellation, not 10.
I did. what. the. hell? Maybe my swiss-cheese brain read the "," in 10,413 as a decimal separator? I guess that's what I get for posting while old. Thanks for the correction and supporting arithmetic.
Though, I still stand by my "please for the love of everything, get to complaining about CO2 because this thing you're complaining about is a damn nothingburger" conclusion. (I am sufficiently aware to notice that that you're not OP, so the "you" in that pseudoquote is not directed at you.)
a) Meteorites don't have any of toxic chemicals used to build a server with lithium-ion batteries and solar panels
b) we could use the same argument to defend dumping spent nuclear fuel to oceans (like we used to do)
c) I agree with the CO2 issue, grok/spacex/xAI and others should be banned from building gas powered datacenters.
You think that meteors don't have lithium? The third most common atom in the universe?
You think the toxity and dangers of materials are defined by the atoms the materials are made of rather than the molecules? Swimming in a ocean of Hydrogen-Oxygen salted by Sodium Chloride must feel dangerous..
Also the toxic fumes from burning batteries don't really come from the lithium but everything else the batteries are made of.
This is all just the typical Elon hate. What's desperate about getting paid $920,000,000 per month? If that's desperation, I'd love to start groveling more!
Given extreme supply constraints, it's very unlikely that Google or Anthropic will just suddenly cancel right after the IPO unless their own demand collapses. And even if this were true, what value would that provide Musk? Could you imagine if your newly public company suddenly received termination notices from your two largest compute customers? Disaster.
Try logic.
I have no love or hate for Elon Musk. I wish him luck with his space endeavours.
What's desperate is announcing a temporary (allegedly) doubling of revenues days before an IPO that has been criticised for being overpriced at 93 times sales.
These data centers were supposed to serve xAI. Now suddenly they get rented out to others. Why the sudden change of plans?
It's either an emergency accounting gimmick or the effective shutdown or repurposing of xAI.
It’s a repurposing of xAI to be a commodity service provider during a crunch for that commodity. It would be dumb if xAI had any quality or market traction, but they have neither, so it’s actually a rational fallback. But it writes off any high margin future in favor of low margin scale.
And once the compute crunch is over, they’ll have a lot of overprovisioned data centers with no business to soak up the capacity.
Why don’t you have hate for Elon? You can love his companies but hate the man. It’s what I’m doing anyway.
> I wonder what SpaceX's margins are on these contracts.
In the Anthropic deal they have to be negative; Anthropic's announced higher margins during the deal.
Feels like these IPOs are thankfully the top coming before the AI crash and we get back to the real world.
One can hope, but that sentiment is quite unpopular on HN.
Everything is a conspiracy now.
Of course this is a real deal. Compute is the most valuable resource in the world for these companies at the moment.
The same terms Anthropic have today I believe.
Which means more Grok degradation, more severe throttling, etc.
I can't understand why xAI charges 50% more per month for Grok over competitors when it doesn't even gracefully downgrade to a cheaper model when paid subscribers hit the limit.
Why would you even want to use that dumpster fire of a model in the first place..?
Probably because it has all but zero filters on the input and output. It took widespread media outrage about "grok show me her in a bikini" to at least create a filter that bans such things.
[1] https://counterhate.com/research/grok-floods-x-with-sexualiz...
Does the thing where it wanted to move every conversation onto the topic of "white genocide in South Africa" not count as a filter on the output?
Who uses Grok? Not even SpaceX engineers that is known...
I've used/use it. For a while it had one of the best lightweight coding LLM's, which actually lead to a #1 spot on openrouter usage ranking although they've fallen off the top 10 used now. It's also provided some good reasoning models, which perform better when dealing with non-PC topics.
Also, although I've never used it for this, I believe some of the paid models produce some of the best "adult" content, and I know there are even subreddits which do nothing but praise Grok and "content" produces who use it.
> which actually lead to a #1 spot on openrouter usage
that was only because it was free
+1. The coding model was fine and it was fast but the fact that it was free was a massive boost.
Tesla drivers, at least for a few minutes each day before hitting the limit.
I am a Tesla driver and I never knew it had a limit, which tells you how much I use it.
A surprising number of people have conversations with Grok every day and hit the limit in a hurry. Not my thing, either.
Grok is pretty good. It really excels when the results can be improved by deep online search. It tends to be more aggressive in looking things up than competitors. I use it in certain situations.
It’s exceptionally fast at it too. I love using it for looking up things where recency matters.
Grok is the best for researching recent events and real-time information. All the other AIs have a learning date cut-off too far in the past.
Claude accuses me of hallucinating events that happened the day before, and it's quite annoying.
Gemini, Claude, and ChatGPT all offer web search integrations in order to get recent data.
Grok 3 and Grok 4 have a 2024 knowledge cutoff. https://docs.x.ai/developers/models
Grok has access to the X firehouse, and gives context on realtime events much better than the models you listed.
I wish Meta made their own AI/search model because they probably have the best data source.
They already make it required to have a premium X account
Claude has tons of throttling already. Chat GPT is not as accurate at computational problems despite less throttling. Gemini has fewest restrictions but worse quality. Always a tradeoff.
> can't understand why xAI charges 50% more per month for Grok over competitors
One potential read is xAI knows Grok isn't going to be a Tier 1 model. So while SpaceX focusses on infrastructure, Grok bets its users like its model enough that they'll pay a premium for it, even if this curtails growth prospects.
Is this admission that google’s proprietary chips etc. are not cutting it? Why would you need a bunch of nvidia GPUs if you have your own silicon? (AFAIK they have their own for both inference and training do they not?)
Kinda; while it does show that overall Google's proprietary chips etc. are not cutting it, it doesn't say if the problem is the hardware itself or the factories to make more of the hardware. Without more information, it could be that Google's hardware is 100x the energy efficiency per token, but they can only make enough hardware for 1% of the tokens there's currently demand for: 1% of your product being 0.01% of your costs isn't nothing, but it leaves the other 99% at full price.
How do you come to this conclusion? All it means is that spacex has compute and google does not.
Suppose tpus were theoretically a million times better, but cannot be produced due to supply chain constraints, this action would still be rational.
My personal take is that this really shows how bottlenecked the entire supply chain is. For such an important commodity there are shockingly few players ready for scale.
It's a very long contract (till 2029) for just covering themselves for supply.
3 years is quite a short horizon when it comes to semiconductor fabs. Also this article is a dupe, when it was previously discussed it surfaced that after some time either party can cancel with only 90 days notice.
No its not.
"Both SpaceX and Google have the option to terminate the agreement with 90 days’ notice after December 31, 2026"
They know allocation they have from TSMC for TPUs production they know allocation they have from Nvidia they see demand curve.
I see it mean two things:
1. Indeed, Google is compute-constrained, and is ready to buy any it can.
2. xAI (now SpaceXAI) has a lot of idle compute, which it resells to Cursor, Anthropic, Google, probably others as we speak.
In other words: Google is training models, xAI is not.
Yes, it is issue of scale, google had to restrict usage because hardware are not available, regardless of what kind of hardware that is
It could be, or simply we are so far away into chip shortage that even google needs to buy from other people’s pot.
Or alternatively there is simply a huge demand for compute and this is helping them fill a short-term need. Keep in mind if you saw in the article there is a 90-day cancellation clause. This is a nothing burger.
> 90-day cancellation clause
In other words, this is a fake IPO booster
I don't think so. It provides some nice optionality for Google and I am guessing this opportunity only exists because Grok is not popular and xAI does not really have any other use atm.
Supply and demand? Bubblists seem to think there's an infinite supply of chips, power, and water to make as many chat bots as possible; physics, as usual, dictates limits.
Or it’s paying to make sure competition can’t buy said compute. Also isn’t Google an investor in SpaceX anyways?
Not necessarily, just that they don't have as many as they can make use of, and that xAI can't make more valuable use of them than renting them out.
At this point you are not buying a particular chip. You are buying whatever compute you can get.
Its because none of the promised Data Center and NVIDIA hardware deployments described in NVDA earnings calls have actually happened. Once more Ed Zitron has the goods: https://youtu.be/zbKDmkJPVvI?t=482
My understanding is google owns a pretty decent stake in spacex (around 6% end of 2025). Booking revenue now will probably help Spacex's valuation.
I am really wondering if Google is just subleasing Anthropic capacity. The terms are suspiciously the same as Anthropic's and Anthropic was supposed to have leased out all of Colossus 1.
Maybe with the corp token spending limits and the rise of codex, Anthropic saw steep deceleration in usuage?
That plus sota model regressions. When they’re public we’ll see the numbers at least.
All important technologic revolution can turn into an infrastructure revolution => the railroads, electricity etc … so the technology can be a transformation while the capital cycle becomes in excess
I guess their training runs aren't going great if they're dumping all the compute they can.
Or I guess juicing the numbers for IPO
Tangent alert: a couple of questions for folks who know far more than I do about compute capacity and Google these days...
Lately, like the past few months, I've noticed Google services (search, gmail, drive, maps) running very slowly to the point where, at the moment it happens, I always think it has to be my connection and not Google, but sure enough every time I check a couple of speed tests and they're... fine. And then I don't seem to be having the same latency from other sites/apps. Is there any chance that the commingling of the AI snippet and then directing users into the AI funnel through the text box is actually causing material performance impacts in other Google properties? Probably a dumb question because I can't imagine they would allow performance for broader properties to suffer for AI prompts/chats, but then again all this talk of compute starts making me think otherwise, like the prolific amount of prompting and chatting is causing massive across-the-board performance issues.
Somewhat related, but does anyone use Gemini and end up with the experience where you have a chat and it's obvious, to yourself and to Gemini, that you're trying to find a product to purchase, but Gemini doesn't even link you to what you would think would be the obvious place to purchase the product? This happens daily where I interact with it, it suggests some products, but won't even provide a link to that product or, if it does provide a link, it's to some no name site that wouldn't come up as a highly-ranked paid or organic result through regular Google search. Keeps making me think this is a Google performance problem where they have not figured out how to take the entire AI chat and engineer it back into a simple short keyword phrase to get an acceptable search result.
Btw, if anyone's thinking "why are you using Gemini because it's the worst?" I think that's fair and right. I have... reasons, but they're not super sensible ones.
Do you still perceive search and maps to be slow even when logged out?
I'm probably 50/50 with search in particular logged in vs. out and I do think I notice on both, but I'm not entirely sure. Just saying the search and maps algorithm is wading through so much of my history that it can't help but choke trying to deliver the "right" results?
No, but I was thinking it might be possible that your account is specifically afflicted by some storage problem. For example, it could be homed in the wrong part of the world, compared to where your browser is hitting frontend applications. Or a million other possibilities. When logged out those wouldn't be factors.
Maybe agentic PRs made it to production and performance cratered.
On a serious note I feel the same. Google is slow these days and the slowest and least reliable service of them all is Gemini. Sometimes I don't even know if it hang already (no error messages) or if it's still "thinking".
Yes. When I plug my phone into the car it used to use google assistant to process voice commands and it was pretty fast. Now for some reason it has switched to Gemini and it takes twice as long to play a song or send a text. Sometimes Gemini forgets it even has the ability to play songs. Gemini is better at answering random questions that the kids ask though.
Couple of anecdotes from the last week.
Yesterday the Gmail virus scanner stopped working. For a while I couldn't download my attachments. A few minutes later it said the virus scanner was offline and download at your own risk.
Meet audio seems to be having a particularly bad week. It just doesn't work with headphones. Their testing tool indicated everything was fine. It's worked after I logged off and on. Audio quality issues are getting more common as well.
Makes a lot of sense that Musk should do the parts of the AI stack that look more like manufacturing/regulatory bottlenecks, and rent out the compute to research-focused AI labs. Does anyone know the full accounting of how much it cost to build Colossus (plus ongoing opex) vs. the revenue it's generating now?
If you can't buy DRAM, you gotta rent your compute infrastructure.
That’s a lot of moolah.
Sorry, what?
Does this mean that SpaceX are the only company that really did build some datacenters to put all the million of GPU/TPU/whatever they all talk about everyday?
I mean, Google, Amazon, Meta and Microsoft told investors they spent more than $1B per day last year in CapEx... why on Earth do they (well, Google and Anthropic at least) need to rent compute to SpaceX, of all companies?
They overbuilt capacity for grok but no one wants to use grok for several reasons
Yes but someone will be along shortly to defuse what sounds like giving the bad mars man credit where it’s due. Like everything else he does that works out, it was just luck, timing, actually a mistake that worked out, or someone else behind the scenes that he got lucky in hiring at the right time (by accident).
If he’s so smart why isn’t grok using all that capacity?
Building excess capacity from the start and selling it for a billion a month to constrained competitors. I only wish I could be so dumb.
If your dad had owned an emerald mine I am sure you could also have been that dumb.
But to be more serious: It is impossible to say if this is good or bad for XAI without more numbers. What if they bought their compute way over market price and sell it at a loss?
Short memory. When musk was buying all of this capacity it was billed as xai is going to take over the world. Instead grok is a flop and now he has extra capacity. If xai was a data center he’d be smart. But it is a failed Ai venture.
It’s like training your dog not to jump on the sofa. But then you fail to train to stay off and then brag about how you trained it to stay ON the sofa.
Source: vibes
Huh? That's just basic history of xAI. At no point was xAI being sold as a Coreweave-like middleman leasing out data centers to hyperscalars. That's a boring, regular business. The pitch was that xAI would develop groundbreaking AI models for Grok which would attract actual users and generate revenue.
That evidently did not work out, otherwise these deals wouldn't be happening. OpenAI and Anthropic aren't leasing out their datacenters, if they did it would be obvious something was grossly wrong with their projected growth.
People with access to enormous wealth tend to get a lot of chances at the betting table.
Scarcity. It's becoming difficult to plan for new data centers. They will rent where capacity is available. Grok hasn't gain the expected popularity.
No, CoreWeave for example also rent compute to the big AI companies. This likely just means Grok has few users so they need to rent their extra capacity to their competitors.
Plus it’s not like some absolutely enormous data centers, only 300MW.
Other companies built data centers but also built products that soak up their data center capacity.
xAI built data centers, and products that are mostly good for nonconsensual porn and confirming a small group’s biases. So they have a lot of excess capacity, and might as well rent it to the adults.
None is using grok so they are renting out unused capacity
how many ads per month is that?
"It will have to be paid for," they said. "It isn't natural, and trouble will come of it!"
Fellowship of the Ring.
the GPU builds are very high stakes games of depreciation: if the mission life is e.g. 4 years you win, if a disrupting ASIC for the transformer comes in you lose.
As of today the gamblers seem to win, demand even for A100s, H100s is high prices are even rising.
When as appears inevitable Google decides to stop using this capability what will it do to the SpaceX stock value?
Space-X is an AI/datacenter company that also makes rockets
And cars, and 18-wheelers, and satellite internet, and home/commercial battery backups, and (formerly) solar roof tiles
That is Tesla.
For now. SpaceX will be acquiring Tesla as soon as Elon gets around to it.
It's not an AI company. It is a datacenter company. While all frontier AI labs are fighting for compute SpaceX is give up compute, instead of reserving it for their own models. That tells you all we need to know
I serious doubt Google is doing this for the spare datacenter capacity.
This is a ridiculous amount of money.
Have to believe a non-tech company could hire an entire team/company to build datacenters for this kind of money.
Make no mistake - this has to be “do evil” territory.
I'm curious if this offer lasts until after the IPO.
Google owns 5% of SpaceX fyi.
How can SpaceX have so much GPU spare capacity? It doesn't make any sense.
Did Musk blindly order humongous amounts of GPUs years ago before any of us had any sense of the scale this was going to reach?
They acquired xAI
so why did xAI acquire so many GPUs but have no use for them today?
Musk made big investments in building AI data centers starting in 2024, continuing through the present. SpaceX got those assets from xAI, spun off from X, via an acquisition. More details:
https://en.wikipedia.org/wiki/Colossus_(supercomputer)
That wikipedia page mentions SpaceX reached a deal to lease all of Colossus 1 to Anthropic: https://en.wikipedia.org/wiki/Colossus_(supercomputer)#cite_...
So will SpaceX lease Colossus 2 to Google? If both Colossus datacenters are rented, will xAI have any compute?
Wait, are these the same GPUs that were diverted from Tesla into xAI a couple of years ago?
There may be a few here, but xaispacex has bought a very large amount of nvidia GPU since then for their TN datacenter .
I knew GCP was third banana but what is even happening?
SpaceX valuation and ultimate success depends on two things:
1. AI demand continues to grow. 2. SpaceX's orbital data centers are profitable.
If both of those are true, then their current valuation is absolutely justified. I'm confident #1 will happen.
#2 is the big bet, and IMHO this is just an engineering/execution problem. All they need is (a) Starship to work reliably, and (b) a manufacturing line that can build a data center satellite at low cost.[1]
(a) is the harder of the two, IMHO, but they are well on their way. Once they successfully recover and refly a Starship upper-stage, they will iterate step-by-step until launch costs drop to the level they need.
Now assume that SpaceX succeeds. What if AI demand continues to grow and SpaceX orbital data centers are profitable? Think of their moat: they spent 10 years and billions of dollars developing a fully reusable rocket that happens to also be the largest rocket in the world, and that costs 1/10th of what other rockets cost (per kilo to orbit). Plus, they have an assembly line that can build data center satellites cheaply, and they start fabbing their own AI chips.
How is anyone going to compete with that? There are a bunch of data-center-in-space startups, but none have their own rocket--they're going to have to pay SpaceX to launch them. Blue Origin is developing a rocket as large as Starship, but it's not fully reusable--they will never get the cost down to Starship levels.
What's interesting is that all the AI companies, OpenAI, Anthropic, and even Microsoft and Google, are mostly leasing their data centers from someone else. They think compute is a commodity and the value is the trained model. But if SpaceX has the cheapest data center with the most capacity, they will be able to extract profits from the AI companies or (why not) compete against them with their own model (Grok).
In 10 years we'll see whether SpaceX succeeds or fails. If they fail at this, they will retrench back to a launch company (assuming they are still in business). But if they succeed, they will be a massive company, and the synergy between their businesses will be so obvious that everyone will say, "of course they succeeded!"
----------------
[1] Don't be distracted by claims that "cooling in space is hard" or "radiation is a deal-breaker". Neither of those are insurmountable problems--they are just engineering problems. Crucially, they are problems that are easily solved by getting mass to space. If you can get mass to space cheap enough, those two problems are trivial to solve.
Even if I do accept your claims that cooling in space is not insurmountable, you still would grant that launching and cooling (and shielding??) a data center in space still cost more dollars than building a data center on earth right? What is the use case that people will spend money to rent servers in space? I think nations have a strong enough grip on the internet now that the customer use case of "evading my country's laws" won't generate that much revenue.
Is the hope that power will be cheaper because solar panels have direct and continuous exposure to the sun?
There is no physical reason why it can't be cheaper. For starters, solar power is 4x better in space, so you need 1/4th the area of panels. But also, data center costs are skewed by things like permits, environmental reviews, and (increasingly) lawsuits.
Terrestrial data center costs are only going up, while space tech costs keep going down. It is plausible (but not guaranteed) that they will intersect at some point.
2. SpaceX's orbital data centers are profitable.
This will never happen.
I'm never that confident about the future, and I hope I never am.
Yeah sure the technical problems are solvable if you throw money at them. I'm sure we could have had a colony on Mars by this point as well if NASA/etc. continuously spent insane massive amounts of money on every year since the 70s.
So what?
Why on earth would you want an AI datacenter in space? Like what would you gain by doing that at an absurdly higher cost than you could build on them earth?
"Free" energy? lol.. just build nuclear powerplants or loads of solar, wind and batteries on earth. Its still going to be cheaper...
> How is anyone going to compete with that? There are a bunch of data-center-in-space startups
A better question is why would anyone even try?
> are mostly leasing their data centers from someone else
It's really not. Building your own datacentres is very expensive and more importantly takes a lot of time. They need compute now, so it makes perfect sense to rent it from failing AI companies like xAI which bought a lot of chips but don't have anything to do with them since their models are just not very good.
> But if SpaceX has the cheapest data center with the most capacity, they will be able to extract profits
Well.. that would be a first one, since no similar industry works that way. Compute is a commodity so unless your literally run out of space on earth to build datacenters or Nvidia/etc. stop selling to anyone but SpaceX that can't really happen, can it?
You just said that "building your own datacentres is very expensive and more importantly takes a lot of time."
I agree. If building data centers in space is cheaper and takes less time, then that's a win and a clear reason to do it.
Costs for terrestrial data centers keep going up and costs for space tech keep going down. At some point, they will intersect.
> If building data centers in space is cheaper
So you don’t have an argument because everything you are saying is based on some absurdly speculative nonsensical premise?
> costs for space tech keep going down
How do you measure the cost of something which does not and has not ever existed. These data centers are a hypothetical concept nothing else.
This feels actually like a pretty safe bet for Google, they secure the compute in case it works (I doubt that the described volume will be available in the near future), while if SpaceX doesn’t manage to provide there is not much loss. I see it more as another way of blowing up SpaceX valuation on paper…
So Google AI will now be running partly on xAI data centers which run primarily on natural gas burned on site next to poor neighborhoods in Tennessee and Mississippi causing massive air pollution to these families and children. Is anyone else disgusted by this? I’m imagining all the people there developing lung and other issues because of this. Greed and power on full display over doing the right thing.
I’ll be switching off the Gemini model at work (Composer’s been off since their xAI deal). This is the final straw for me to move completely off Google services.
Because SpaceX has excess capacity.
Even Google does not use GCP…
looks like elon web services (EWS) is the master plan all along :D
Everything will run on Elon's Costly Compute servers.
So space data centers are absolutely possible then. I heard a lot of skepticism about the feasibility but it looks like Google and Anthropic looked at SpaceX and trusted them to deliver on the promise and even signed deals worth billions.
They are paying for the existing earth-bound data centers SpaceXai owns.
Oh wow did not realize xai has data centers. So are they completely abandoning xai or do they just have that much capacity left over?
They have unused capacity in their Tennessee datacenter. We don't know everything but the backend of Grok probably runs in the TN datacenter. Grok is not as popular as hoped, so the TN datacenter has unused capacity.
There are other companies besides Google and Anthropic that are considering renting capacity in xaispacex's datacenters.
Global capacity for GPU hosting is tight at the moment. That TN DC is the only one not totally 110 percent already allocated for five years in the world .
Cloud companies were made to sell others compute. Now, one is buying billions of compute from SpaceX, a rocket company. That sounds so backwards lol.
Great work by Musk and his companies to be in a position to sell billions to cloud vendors. I'd have probably missed that opportunity while trying to build great rockets or AI models.
This deal was only possible because xAI isn't building great AI models with actual customers leaving most of their compute sitting unused.
We're all going to end up as Elon's serfs, aren't we?
The Ponzi scheme that Elon has set up is one for the books. Fail forward. Unbelievable skill.
Google is getting in bed with some folks even more unsavory than themselves. The thing I noted most from I/O was how prominent and proud the are of partnering with Palantir. "Do no evil" has become "Let's do evil"
I thought it was notable that in Google's press release yesterday regarding their new facilities near Amarillo they seemed to go out of their way to point out that the applications are not AI, listing "Search, Gmail, Maps, Cloud, online banking, and 911 systems" instead. I wonder if they find it more convenient to rent an existing one rather than face public scrutiny for building another "AI data center".
I wonder if they are more than happy to let someone else take on the burden of the massive writedowns that are bound to hit in a couple of years.
Perhaps. It also seems to insulate Google from the risk that air quality regulators will be unexpectedly reinvigorated, while still providing to Google the benefits of xAI's lawlessness.
Burden in terms of tax implications, or in terms of the investment possibly not being profitable?
the road goes ever on and on.
what a crock
In other news, the gold rush has entered a new phase as miners pivot to selling shovels.
How did Elon get so much NVIDIA hardware before everyone else?
I've heard the harder part is to have data centers to put the nvidia hardware than getting the hardware currently.
And the secret ingridient to building those faster than others is... crime.
https://www.theguardian.com/technology/2026/jan/15/elon-musk...
Holy shit:
> This article was amended on 16 January 2026 because a megawatt is a unit of power, not energy as an earlier version suggested.
Because he went all in with money before a lot of other people.
He moved as fast as he could with known financing
> How did Elon get so much NVIDIA hardware before everyone else?
He’s the richest man on the planet and doesn’t have a track record of not paying for shit he buys. If you want to reliably offload your chips, he’s safer than e.g. OpenAI who might or might not have the money when the bill comes due.
tesla not paying bills: https://www.cnn.com/2025/07/31/us/elon-musk-company-unpaid-l...
x not paying bills: https://www.cnbc.com/2023/02/24/musks-twitter-has-been-sued-...
spacex not paying bills: https://www.fastcompany.com/91124157/spacex-contractors-texa...
It has been leaked the have a huge open bill with AWS....
> He’s the richest man on the planet and doesn’t have a track record of not paying for shit he buys.
My impression was the other way around. The shenanigans he pulled around the Twitter acquisition were just farcical, and at Twitter he repeatedly refused to pay owed rent, etc. (I assume as a ploy to renegotiate terms).
> doesn’t have a track record of not paying for shit he buys
You mean like the time he committed to buying Twitter and then tried to back out of a legally binding contractual agreement to finalize the deal?
"doesn’t have a track record of not paying for shit he buys"
Hahaaha. A solid admission of being clueless.
Elon has a strong track record of doing shady stuff to get out of deals.
Related / same story from different source (Bloomberg), submitted earlier: https://news.ycombinator.com/item?id=48416941
That's... $12.50/hr per GPU. WTF?
From Google's spokesperson, quoted in the article: "This is a short-term, timely agreement to ensure we have bridge capacity to meet surging customer demand for our agent platform, Gemini Enterprise, which has been even higher than we expected."
Google wants a lot of compute sooner rather than later, and they're willing to pay a premium for speedy delivery of that compute. SpaceX has the capacity already built and ready to go. Hence the high price.
This is such a disgusting economy
$$ taking another circular financing lap.
So now Google is supporting fascism...
Google had already donated $1 million to Trump's second-term inauguration fund.
Another way to read this is, "Twitter's AI dept. has been doing so badly they don't have a use for billions of dollars of hardware they bought."
On the one hand, yes, this is really embarrassing for Grok. On the other hand, everyone except a couple Twitter randos already thinks Grok is worthless junk: there's no reputation left for it to to lose. And Elon is crying all the way to the bank with an extra $11bn in annual revenue.
The downfall of Twitter is one of the most spectacular self inflicted business failures I have ever witnessed.
Amazing to think it was once so ingrained in mainstream society.
What metrics are you using to classify it as a downfall?
I don't care either way but I got curious.
Not an easy thing to gauge. X/Twitter stopped publishing MAUs after the acquisition.
External estimates vary, some point to growth, some to stagnation. We know that revenue suffered. LOTS of partisan and emotional opinions for either.
Google trends does paint a bleak picture for X but I am also questioning how much google itself can gauge that after LLMs exploded in popularity.
Anecdotally I did notice that references and embeds to X are way less prominent and common than before. My usual news used to be filled with them. My consumption of the platform also plummeted after not being able to read threads when not logged, its much harder for me to get drawn into it.
Still without data, I would be surprised if the changes to verification and logged out access did not massively hurt new adoption. With tiktoks prevalence amongst a new generation I would bet its a matter of time before X gets grouped to tumbler/facebook, not dead, but way past its peak and cultural relevance. If that has not already happened.
> Not an easy thing to gauge. X/Twitter stopped publishing MAUs after the acquisition.
You're in luck. IIRC some of the SpaceX IPO marketing materials said they have 550M MAU.
Anecdata: Mastodon now has witty, un-earnest comments semi-regularly. And I have learned of maybe ten percent of breaking news things in the last three months on Mastodon via links that weren’t just to twitter.
Reddit has more monthly active users than twitter and reddit isn't really culturally relevant at all (neither is twitter either IMO).
Impact in the zeitgeist. Twitter was everywhere. Regularly referenced on live news television statins. Was considered a major news source. Shows had segments dedicated to it. Everyone and every brand had a Twitter. That is not the case today. Not by a long shot.
Is this another circular investment to help pump up the stock valuation? Why would Google need to rent that much compute?
> Google parent Alphabet has made a windfall from backing SpaceX, which was worth $12 billion at the time of its 2015 investment, and is looking to go public at a valuation of over $1.75 trillion
antigravity is a token hog
It's all about the money.