space exploration technology(NASDAQ: SPCX)The company known as SpaceX has grand ambitions to eventually help humans colonize Mars, and understandably much of the attention surrounding the company has focused on its rocket business.
But a growing part of SpaceX’s opportunity lies in its neocloud business, which rents capacity from its own high-performance data centers. Here’s what some investors may have missed about SpaceX’s growing AI empire.
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SpaceX is an AI trading decision machine
According to recent research, gartner predicts that by 2030, neocloud providers like SpaceX will control 20% of the $267 billion AI cloud market. And recent moves by SpaceX could help the company become a major player.
First, the company’s $60 billion acquisition of AI coding company Cursor strengthened SpaceX’s Grok AI software and helped make its development capabilities more robust.
SpaceX also signed a number of new contracts with tech companies for AI computing power. One of the latest deals is a $6.3 billion deal with Reflection AI, which will pay about $150 million a month for access to SpaceX’s Colossus 2 data center. The agreement is set to run until 2029 (but can be terminated by either party with 90 days’ notice).
Even some of the biggest cloud computing companies are leasing SpaceX’s neo-cloud space. alphabetGoogle recently signed a multi-year deal to access 110,000 Nvidia GPUs from SpaceX data centers. Google is rapidly expanding its Gemini AI, which will give it the processing power it needs while also generating an estimated $30 billion for SpaceX over the life of the contract.
Last, but definitely not least, is SpaceX’s blockbuster deal with Anthropic. The AI company will reportedly pay $15 billion annually over the next three years to lease the full capacity of SpaceX’s Colossus 1 data center. This will give Anthropic access to 220,000 Nvidia GPUs for AI computing, while also providing SpaceX with significant and stable revenue.
What this means for SpaceX and shareholders
SpaceX is a bit of an unusual company. While the company’s long-term goals are in space exploration, it is also building a large neocloud business. Further complicating matters, most of its current revenue comes from its satellite internet connection business, Starlink.
Still, the company’s neocloud business is growing rapidly. Adding the recent deals to the company’s previously disclosed cloud sales, the division already has an annual revenue run rate of about $26 billion.
If SpaceX can build out more data center capacity and add customers of similar size to its current customers, its cloud business will become an even more important part of its future.
Certainly, this is a promising initiative for SpaceX. Still, investors should be aware that buying this stock now involves significant risks. The company has invested heavily (capex was $20.7 billion last year), and its stock is expensive. SpaceX stock has a price-to-sales (P/S) ratio of 103 times, which is significantly higher than the average P/S ratio for the tech industry, which is about 9 times.
The company is currently building an AI empire, but the high premium investors must pay to buy its stock should give investors pause.
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Chris Neiger has no position in any stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
