Google will pay SpaceX $920M per month for compute

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.

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.

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?

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.

You guys don't understand. Banks like JPMC will make billions on this IPO. Doing everything to prop it

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…

> $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?

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!"

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[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.

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.

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.

380 dollars per second... Good to know I could afford my own data center for an appreciable fraction of a minute.

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?

“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.

What exactly is SpaceX's core business?

"It will have to be paid for," they said. "It isn't natural, and trouble will come of it!"

Fellowship of the Ring.

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?)

I'm curious if this offer lasts until after the IPO.

When as appears inevitable Google decides to stop using this capability what will it do to the SpaceX stock value?

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.

$$ taking another circular financing lap.

I knew GCP was third banana but what is even happening?

Because SpaceX has excess capacity.

If you can't buy DRAM, you gotta rent your compute infrastructure.

It's all about the money.

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…

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?

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.

[dupe] Discussion: https://news.ycombinator.com/item?id=48417490

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