The Bottom Line

No one wants AI data centers on Earth. Do they make sense in space?

Published Sun, Jun 21 20269:33 AM EDT, Updated Sun, Jun 21 20265:22 PM EDT

By Bob Woods

Key Points

• The successful IPO of Elon Musk’s SpaceX may help bring the questionable idea of AI data centers in space closer to the realm of plausibility.
  
• Engineering and technical issues are being solved and SpaceX now has considerably more capital, but economically, the concept remains challenging even as rocket launches become cheaper, though Jeff Bezos and Google are also chasing it.
  
• Long-term, the best argument for data centers in space may be that the cost of building them on Earth is likely to go up over time — while land use, water use, and electricity use all remain points of tension with the public — and all while the cost of building in space may come down.
  

Following the astronomical success of the SpaceX IPO — raising $85.7 billion, valuing the newly public company in the trillions, and minting Elon Musk as the world’s first trillionaire — what many skeptics still view as a pie-in-the-sky idea, building AI data centers in space, is coming into view. There is good reason for the skepticism, but the concept has potentially moved onto at least a more plausible path as a result of the SpaceX windfall.

SpaceX has reliable, reusable Falcon rockets — and a more powerful one in the wings — while its xAI has an insatiable need for compute power and its space-based internet service, Starlink, has upgradeable satellites. Now the interconnected entity’s engineering and technology has billions in new capital necessary to bring those components together in space, not only to feed SpaceX’s massive internal AI operations but also to provide commercial services for an array of paying customers such as Anthropic.

Some investors contend the company has no choice but to make the idea work if it hopes to justify its public market valuations over time. “The company comes down to data centers in space,” Duncan Davidson, a partner at Bullpen Capital, said on CNBC’s “The Exchange” the week before the IPO. “That is the big, long-term play.”

The engineering and technical issues are being solved, said Davidson, whose firm is not a SpaceX investor but has an indirect interest in space startup Starcloud. Though he added, “economically, right now, it’s marginal.”

Considering, too, the ever-increasing constraints on terrestrial data centers — practical, political and public — the prospects of launching them into low-earth orbit, where the sun shines 24/7, is no longer the stuff of science-fiction.

If, as Musk has stated, SpaceX’s heavy-duty Starship rocket becomes operational next year — definitely an “if,” given his track record of under-delivering on previously promised schedules — it will greatly lower launch costs, which are a critical barrier to affordability. Meanwhile, the cost of building Earth-based data centers might go up, while “the space ones are going to start getting cheaper and cheaper,” Davidson said. “So I think the [business] case is really strong for these things,” he said.

In January, SpaceX filed an application with the Federal Communications Commission for a constellation of up to one million satellites that would be the foundation for an orbital AI data center. Two months later, at an event in Austin, Texas, Musk reiterated past claims that space-based, solar-powered data centers will be more cost-effective than terrestrial ones in as little as two to three years. “Increasing power on Earth becomes harder over time and more expensive over time,” he said, “but in space it becomes actually cheaper and easier over time.”

The so-called AI1 satellites will be upgraded versions of those used for the existing Starlink communications network and will require exponentially more semiconductors. The sheer scale needed is so massive that SpaceX, Tesla and Intel have partnered to create Terafab, a 10-million-square-foot facility being built in Austin and slated to open in 2029 and which could cost up to $119 billion to build.

Continue/Read Original Article: Do space-based AI data centers make economic sense?