Can Orbital Data Centers Unlock SpaceX's Sky-High Valuation?

SpaceX has reportedly submitted confidential documentation for an initial public offering (IPO), aiming to secure $75 billion at an impressive $1.75 trillion valuation. Central to the company's future strategy, according to CEO Elon Musk, will be the development of orbital data centers.

This ambitious vision, alongside similar endeavors by other companies, was a key topic of discussion on a recent episode of TechCrunch’s Equity podcast, featuring Kirsten Korosec, Sean O’Kane, and myself.

Bringing orbital data centers to fruition will necessitate substantial technological advancements and enormous capital investment. However, as Sean O’Kane pointed out, with "opposition happening around the country to data centers in general," industry leaders like Musk and Jeff Bezos might perceive that "The engineering challenge may be less than the social challenge back here" on Earth.

Sean O’Kane observed, "This has been a trend — I would say a rapidly forming trend — over the last half year to a year, and we have different examples of it." He added, "We have SpaceX; I feel like in some ways, Elon Musk was late on this trend." O'Kane suggested momentarily setting aside "the actual mechanics and the viability of data centers in space" to discuss broader implications.

Kirsten Korosec interjected, noting, "We have a really good storywe’ll link to in the show notes, by the way. One of our most recent hires, Tim Fernholz, is amazing. He writes all about the physics and the constraints of that."

Sean elaborated, acknowledging the significant hurdles: "I think it’s a really interesting engineering challenge. It’s a really interesting physics challenge. It’s a really interesting orbital mechanics challenge." Despite this, he affirmed, "it’s something that clearly a bunch of companies and people are going to try and chase." He highlighted SpaceX's involvement, building on their Starlink network, and mentioned Starcloud, a Y Combinator alumnus, which recently secured $170 million, achieving unicorn status for its space-based data center ambitions. Jeff Bezos is also a contender, escalating the rivalry seen between Starlink and Amazon's Leo satellite network, with Blue Origin also preparing its own satellite network. "So there’s going to be a whole bunch of this happening, and it feels like it wasn’t happening a year ago," Sean commented. He speculated on Elon Musk's motivation, noting Musk's aversion to bureaucracy, having experienced "the challenges and the risks you have to take to sidestep that red tape" with a data center in Memphis. Sean reiterated the growing domestic "opposition happening around the country to data centers in general," which leads these innovators to think, "We have access to space, so let’s just try and do it up there." He concluded, "The engineering challenge may be less than the social challenge back here on our [planet]."

Kirsten emphasized the strategic appeal: "And it also creates excitement, right? If a company is about to go [public] and they’re working on data centers in space, this is something that people can have expectations about in a positive way and ignore the constraints." She added, "It feels like a company that is working on something that’s not old and outdated, but signals the future. And it’s really a great strategy when you think about it."

I (Anthony) noted that while not unique to him, "Elon Musk is incredibly successful at being like, 'Don’t judge my companies based on how much money they’re making now, judge them based on these grand visions that I can spin out about what will happen in the future.'" I then questioned how this initiative aligns with the broader data center landscape, particularly in light of public opposition and potential limitations on terrestrial expansion. Acknowledging that "none of us are engineers who can really assess the viability of these plans," I conceded it "does certainly have a tinge of fantasy to it." However, I suggested that even these ambitious space plans appear "just a drop in the bucket in terms of compute capabilities compared to what they want to build out on Earth," implying it would serve as a "supplement" rather than a replacement for terrestrial data centers.

Sean concluded by highlighting two critical points. Firstly, he noted a potential "backing off in some ways [from] data centers," not only due to opposition but also a re-evaluation of demand, citing "jockeying from some of the AI labs about, ‘Well, maybe we don’t need to lease this much from this company.’" He questioned if a reduction in perceived need could diminish the momentum for such a radical undertaking as space data centers, even if technically feasible. Secondly, Sean underscored the fundamental business model for SpaceX: "the idea of building these massive data centers in space, with all these satellites that make up the quote unquote 'data center,' is business for SpaceX." He distinguished SpaceX by its primary role as "a launch company," despite Starlink's revenue. As "the vehicle that gets the data centers to space," SpaceX directly generates revenue from these deployments. "And so it becomes this thing where, of course [Musk] wants — whether or not it works, he would eventually have to prove it — but of course he wants to send more and more satellites into space because it’s more revenue for SpaceX," Sean explained. This, he argued, would enhance SpaceX’s appeal as a public company, driving a cycle of increasing satellite launches.