SpaceX's Potential IPO Is Not What You Think It Is

Musk math strikes again!

Photo by NASA on Unsplash

Last week, reports began circulating that SpaceX is preparing to go public late next year, with an IPO set to value the company between $1 trillion and $1.5 trillion and raise well over $25 billion in the process. Why does SpaceX need this massive injection of cash? Well, according to Reuters, SpaceX plans to use the funds to buy AI chips and then build and launch space-based orbital data centres. All of this sounds typical and run-of-the-mill in our current techbro hype economy. But, as always with Musk, if you dig a little deeper and start asking questions, the entire narrative falls apart. You see, this IPO is almost certainly not about space-based AI infrastructure but about something far more sinister.

Before we carry on, none of this is financial advice, obviously. But hopefully, you guys have your heads screwed on, and none of you take financial advice from randos online anyway.

Is SpaceX Worth $1.5 Trillion?

Let’s start with the hard question: is SpaceX worth $1.5 trillion?

It might seem so at face value. Over 66% of satellites in orbit today are SpaceX’s Starlink satellites. Over 90% of US space launches are carried out by SpaceX. The company is expected to haul in $15 billion in revenue this year. Surely such a dominant player is highly valuable?

Well, no. For one, the global space launch market is valued at less than $10 billion a year, and it has been stagnant for decades (excluding Starlink). There is also little sign that Starship will change that, as the craft itself is still light-years away from its promised targets. Not to mention there is little demand for it anyway, outside of a handful of NASA missions and SpaceX’s own needs. Moreover, over 80% of SpaceX’s launches are for Starlink, and Starlink’s profitability is, at best, highly questionable. It gained a positive EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortisation) in 2024, but considering SpaceX has likely taken on a lot of debt to build out Starlink, and Starlink satellites only last a few years, that does not mean they are operationally profitable at all! Indeed, some accountants believe that Starlink is still far, far from profitability.

SpaceX, with its huge revenue and gargantuan market share, might seem like a highly valuable company. But in reality, it is a giant hollow tree in a very small forest. So no, I do not think it is worth anywhere near $1.5 trillion or even $1 trillion.

But does its actual value matter anymore? SpaceX is AI now! Surely that will make it worth more than a developed country in our twisted modern world?

Orbital Data Centres

Indeed, the techbro justification of orbital data centres sounds good. Up there, there is constant, free, clean solar energy. What’s more, an orbital data centre won’t take up land, impact local communities’ energy prices, or affect the local water supply, as terrestrial ones do. In orbit, the social, environmental, and operational cost issues of datacentres can, in theory, be reduced to zero. That is pretty damn appealing, given that these factors make current AI data centres wildly unprofitable, and this unprofitability is threatening to pop the AI bubble. This concept is also somewhat proven, as a startup has already trained a basic AI on a tiny prototype orbital data centre (read more here).

So, could SpaceX resolve the AI bubble by building space-based datacentres? That would surely make it worth $1.5 trillion.

Well, for many, many reasons, no. You see, orbital data centres make no sense at all (as I have covered before).

Because AI chips perform significantly better when wired together, these orbital data centres would need to be part of a single, giant satellite, not a constellation of thousands of interconnected small satellites, each with its own GPU rack. Indeed, one proposal for a relatively small 4 GW orbital data centre satellite is a massive four km by four km, with the majority of that size coming from the solar array and radiators. If it had ever been launched, it would be by far the largest thing ever put into orbit by a colossal margin!

This size alone causes immense problems, not just in getting such a gargantuan object into orbit, but also because it makes no orbit suitable.

Low Earth Orbit (LEO) makes sense, as launch costs per kg are the lowest. But that orbit regularly shifts into the shadow of the Earth, cutting off power. So it would have to stay in a special polar-orientated LEO to remain in the sunlight 24/7. Unfortunately, both typical LEO and polar orientations of LEO are full of other satellites and tonnes of space junk flying around at Mach 22. Adding a giant four km by four km satellite to that mix is a recipe for it getting torn to pieces. Furthermore, in LEO, satellites are at risk of geomagnetic storms, which can not only damage the chips through radiation but also deorbit the satellites through induced atmospheric drag. Such a giant satellite will have far more drag and therefore far more risk of deorbiting and burning up in the atmosphere than typical LEO satellites. So, LEO is a challenging location, to say the least.

But while higher orbits, like GTO, get loads of sunlight and have far fewer other satellites or space junk to contend with, the cost per kg to these orbits is substantially more, and out there, they are exposed to far, far more radiation, which can cause critical damage to these chips. More likely, this radiation will corrupt files, which is why many satellites in these orbits run parallel computing and data systems to help mitigate this issue. Needless to say, file corruption in a data centre is unacceptable, and doubling the number of excruciatingly expensive chips in an orbital data centre compared to its earthly counterparts to protect against this problem isn’t viable at all.

Simply put, there is no orbit where this kind of data centre would be safe, even if you spent the extra cash to put it in a higher orbit.

Then there is the cooling issue. AI data centres run their chips at the rugged edge and push them to breaking point. This generates a lot of heat, so to keep the chips efficient and avoid critical damage, they need a lot of cooling. In fact, up to 40% of a data centre’s energy consumption can come from cooling alone.

You might think this isn’t a problem in orbit, as space is very cold. But, while space is ‘cold’, there is not enough atmosphere for convective cooling (which terrestrial data centres use to cool themselves), so only the far less efficient radiative, or black body, cooling can take place. This means objects in space can rapidly accumulate heat if not adequately cooled.

Furthermore, while space is cold, the unfiltered Sun is not! That is why surface temperatures on the Moon can reach 127 degrees Celsius. Because orbital data centres will use solar power, they will be exposed to this crippling heat 24/7.

This means an orbital data centre will have far greater cooling requirements than a terrestrial one. Therefore, it will need larger radiators and greater energy demand, which will increase the satellite’s mass and, in turn, increase launch costs. Even after all that, this additional heat stress, combined with the increased exposure to orbital radiation, could significantly shorten the operational lifespan of these chips.

Then there is the fact that even simple maintenance, such as replacing a damaged chip, is cost-prohibitive on an orbital data centre. Overall, the data centre’s efficiency could rapidly plummet as these issues mount.

And what about space junk? Sure, in LEO, a single fragment could destroy the entire satellite. But an AI data centre only has a three-year lifespan. So, putting a meaningful number of these giant data centres in orbit would either create serious issues of orbital overcrowding and space infrastructure falling to Earth or take us significantly closer to Kessler syndrome if they are left to become space junk. In terms of e-waste problems, orbital data centres are significantly worse than their terrestrial counterparts.

Then there is the risk of losing the data centre to a launch explosion. Historically, this was a very low risk for the space industry. But it isn’t for Starship, as a sizeable number of launches have ended in a fireball.

Purely from a practical point of view, orbital data centres make no sense. But somehow, it gets so much worse.

Orbital Data Centre Economics

The main argument for orbital data centres is that the constant free solar energy will make operations cheaper and therefore more profitable. Or, at least, less unprofitable. If that were true, maybe all this impracticality could be stomached. But this idea is nothing short of fanciful, even with Starship.

Let’s start with Starship. As I mentioned in a previous article, SpaceX insiders have confirmed that a fully stacked Starship costs multiple hundreds of millions, not the single hundred million Musk claims, which aligns with my previous estimate of $500 million to build a single fully stacked Starship.

This means a fully reusable Starship with an optimistic lifespan of 33 launches for both the booster and upper stage will cost $53 million per launch, with no repair or operational costs taken into account. But, as we know, Starship does need extensive maintenance, and components like the heat shield are being built for rapid replacement, not reuse. So, a fair but highly optimistic cost per launch is $70 million.

The latest version of Starship is apparently rated to take 35 tonnes to LEO, even though it has never carried more than 20 tonnes on a suborbital flight while not being fully reusable. SpaceX has boasted that the next generation will have significantly more payload, but there is little evidence to suggest this is true yet. So, let’s assume a Starship can take 35 tonnes to LEO for a cost per kg to LEO of $2,000.

In my opinion, Falcon Heavy is likely the best option for an orbital data centre, as it actually works without exploding every now and then. It costs $1,500 per kg to LEO and $3,632 per kg to geostationary orbit (GTO).

Okay, so we have calculated realistic, yet optimistic, launch costs. What about the orbital data centre?

Well, in a previous article, I took an Nvidia GB200 NVL72 rack, a typical ‘module’ of a modern AI data centre, and then, using sources from the likes of NASA, figured out the mass of the solar array, radiators, radiation shielding and laser-based communications required to turn it into a scalable ‘module’ for an orbital data centre, given that all these masses scale equally. I calculated that this module would have a mass of at least 3,794 kg.

On Earth, this single rack consumes, on average, $578,160 worth of energy over its entire lifetime, which is by far its largest operational cost.

Okay, so how much are the launch costs to get this same rack into space? Because energy is free once you are in space, these are analogous costs for orbital and terrestrial data centres.

Using our very optimistic estimation of Starship launch costs, it would cost $7.5 million to launch our 3,974 kg module, based around the exact same rack, into LEO. This means that launching this rack into orbit to avoid energy costs actually costs nearly 13 times as much energy as it will use across its entire life on Earth.

Falcon Heavy is slightly better, costing just $5.6 million to get it into LEO. But that is still more than nine times the rack’s lifetime energy costs on Earth!

Not to mention that if SpaceX opts for a higher orbit for all the reasons we have already discussed, costs become extortionate. Using Falcon Heavy, it would cost $13.8 million to get our AI data centre module to GTO, which is over 23 times the rack’s lifetime energy cost on Earth.

Keep in mind that none of these calculations include the cost of the solar array, radiators, radiation shielding, communications, or satellite fabrication, all of which are substantial. For example, modern space solar arrays cost roughly $300 per watt, so the 135 kW solar array to power this one rack would cost north of $30 million. That is ten times the cost of the Nvidia rack it is powering. Again, all of these costs have no economies of scale. In other words, they scale up equally when building a larger orbital data centre versus a smaller one.

Ergo, the cost of turning an AI data centre into a solar-powered satellite and placing it in orbit is substantially more expensive than just using it as a normal terrestrial data centre.

Again, AI data centres are already wildly unprofitable and are a painfully financially unsustainable industry. Orbital data centres will turbocharge this problem!

Really, this is just yet more evidence that Musk doesn’t understand AI at all.

You see, the biggest cost to AI data centres isn’t actually water, land or energy. It is depreciation. That is the main problem that needs to be solved.

As I covered in a previous article, Capital CIO Harris Kupperman recently revealed that the AI data centres being built today will incur $40 billion in annual depreciation while generating somewhere between $15 and $20 billion in annual revenue. Simply put, the revenue these chips generate per year is less than half their annual depreciation, locking in catastrophic losses. Putting these chips into orbit simply isn’t going to change or mitigate that doozy of a problem. If anything, it will make it worse, as the heat and radiation stress of being in orbit could shorten these chips’ lifespans even more.

Financially, orbital data centres are an utterly brain-dead non-starter that only a drug-addled egomaniac would believe in. So, why is SpaceX going public explicitly to raise funds for them?

Why an IPO Then?

Well, quite frankly, I think SpaceX has already spent all of its Starship development funds and needs a serious top-up.

Musk himself has said that he expected Starship development to cost $10 billion, and from what I can see, SpaceX has raised a little more than that to develop Starship through debt, investment rounds and NASA contracts.

But by the end of 2023, they had already spent over $5 billion on Starship. Considering how many launches have happened since then, along with major unplanned redesigns, we can safely assume that those costs are close to $10 billion, if not significantly more. This is a bit of a problem for SpaceX, as despite being years behind target (Starship was supposed to have landed on the Moon by now, after all), Starship is still light-years away from even getting functional payloads into orbit, let alone reaching its critical targets.

Even worse, Starship needs significant design overhauls to get there. We now know that Starship V3 and V4 have undergone substantial changes to the original design and that the rocket engines themselves also need serious overhauling. Not only that, but SpaceX seemingly hasn’t even started designing the orbital cryogenic refuelling required to get Starship out of LEO. Nor have they started designing the system needed to prevent fuel boil-off to make such operations viable, even if the orbital refuelling works.

Considering it has taken around $10 billion, 11 launches and three years to go from initiation to not even hitting a single operational target, it is safe to say that SpaceX needs at least the $25 billion this IPO could raise, if not more, to finish Starship development.

So, I suspect that SpaceX knows orbital data centres are a terrible idea, but they also know they can raise tens of billions by claiming they will be profitable, thanks to the idiotic AI hype gripping the economy. This will not only further justify Starship’s idiotic existence and development but also give SpaceX the capital to continue its development for a few more years.

Personally, I don’t think this $25 billion will make a difference. Even after all this money is spent, I genuinely don’t think it will work (read more here). A bad idea is a bad idea, no matter how much money you throw at it.

But why an IPO and not another investor round or bond offering?

The IPO Question

This is a serious question that no one is asking.

Historically, SpaceX has raised billions through investor rounds. In 2023, it raised $11.9 billion through debt and financing deals alone. However, these were primarily through venture capital (VC) and sovereign investment from the likes of the UAE and Saudi Arabia. But these sovereign funds are pulling back, as their own costs and losses are starting to mount. Furthermore, while VCs are moving more and more towards AI, they are becoming stricter as fears of an AI bubble bursting loom overhead. So, it isn’t surprising that SpaceX’s old way of financing Starship has run dry, particularly when Starship’s costly development has been so disappointing.

But why not use bonds instead? Meta recently raised $30 billion in bonds (a form of debt financing) explicitly to build AI data centres. If SpaceX raised funds this way, they could continue developing Starship while remaining a private company and keep their questionable accounting and development budget secret. That secrecy is priceless, particularly for Musk. So, why aren’t they opting for bonds?

Well, the cost of AI-tied bond borrowing has skyrocketed, thanks to justified fears about the AI bubble sending bond insurance through the roof (read more here). But, again, with the kind of mad economy we are in right now, that isn’t as big a problem for SpaceX as you might think.

Sadly, I have a hunch as to why SpaceX is seemingly going for an IPO. It is so Musk can cash out.

I think Musk knows that Starship can’t ever live up to the hype or even be an economically successful launch vehicle and that the cost of developing it could sink SpaceX. This IPO enables him and his closest investors to sell their shares, cash out, lock in their wealth, and pass on most of the collapse to someone else. Right now, their shares aren’t liquid, as SpaceX is private, but an IPO will let anyone buy them, suddenly freeing up their theoretical wealth.

It isn’t like this would be unprecedented either. Despite once claiming he would never sell a single Tesla share, Musk has since sold more Tesla stock than anyone ever, and all at market peaks. In fact, one of the reasons he is asking for such huge pay packets from Tesla is to get back the shares he sold, now that Tesla is worth more than when he sold them.

Summary

All of these factors explain why SpaceX’s potential upcoming IPO probably isn’t what you think it is. Orbital data centres are a total non-starter, practically and economically. So, this IPO isn’t really about that, though its tentative connection to AI is undoubtedly PR to increase SpaceX’s value. But it might not even be about developing Starship either. SpaceX could use the bond market to raise the funds it needs, as proven by Meta, which would keep the company private, allowing them to continue operations as they are, rather than having audits publish the company’s questionable financial health to the world and the SEC breathing down Musk’s neck again. As such, the only real reason I can see for SpaceX going public is to allow Musk to cash out and secure a few hundred billion dollars. But if that is what is happening here, why does Musk want to cash out? Does he think something is going to happen to SpaceX? Has he finally realised it is a giant hollow tree in a small forest? Or, is he just being blindingly greedy?

This is all just well-informed speculation. I have no crystal ball. But, either way, I do not see this IPO as a good sign for SpaceX, the American space industry, or the state of our economy.

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Sources: The Information, PC Mag, The Guardian, Reuters, Ars Technica, BBC, Scott Manley, PI, Space News, Space News, The Independent, Ultima, Motley Fool, Futurism, Futurism, Futurism, NASA, IEA, TexAU, Reuters, Space.com, Will Lockett, Will Lockett, Will Lockett, Will Lockett, Will Lockett, Will Lockett, Will Lockett