Can orbital data centers help justify a massive valuation for SpaceX?

SpaceX has reportedly filed confidential paperwork for an initial public offering that would see the company raise $75 billion at a valuation of $1.75 trillion. And according to CEO Elon Musk, orbital data centers will be a big part of SpaceX’s future.

On the latest episode of TechCrunch’s Equity podcast, Kirsten Korosec, Sean O’Kane and I discussed Musk’s vision, as well as other companies pursuing similar goals.

It will take significant technological advancements and massive capital expenditures to make orbital data centers a reality, but as Sean noted, with nationwide opposition to data centers in general, executives like Musk and Jeff Bezos may be thinking, “The technical challenge may be less than the social challenge here on Earth.

Read a preview of our conversation below, edited for length and clarity.

Sean: This has been a trend – I would say a rapidly developing trend – over the last six months to a year, and we have several examples of it. We have SpaceX; I feel like Elon Musk was late to this trend in some ways. And for now, let’s ignore the actual operation and viability of data centers in space. We can talk about that all we want, but…

Kirsten: By the way, we have a really good story that we reference in the show notes. One of our most recent hires, Tim Fernholz, is great. He writes everything about physics and its limitations.

Sean: Yes, I think it is a very interesting technical challenge. It’s a very interesting physics challenge. It is a very interesting challenge in the field of orbital mechanics. But it’s clearly something that a number of companies and people will try to emulate. [There’s] SpaceX will do it, with some sort of variance from what they are already working on with their Starlink network.

There’s a startup that came out of Y Combinator, originally called Starcloud, that was really one of the first to try to build a huge company around this, that just raised $170 million this week, their valuation [on] giving them unicorn status.

Jeff Bezos is also trying to go after this. This is a next-generation version of the competition we’ve seen taking place between Starlink and Amazon’s Leo satellite network, and Blue Origin will also have its own satellite network online in the coming years.

So a lot of this is going to happen, and it feels like it didn’t happen a year ago. I know how Elon Musk puts it: we know he is allergic to red tape, he also built a data center in Memphis. Perhaps he now knows the challenges and risks you have to take to avoid that red tape.

There is a lot of opposition to data centers in general across the country. And these people say, “We have access to space, so let’s just try to do it up there.” The technical challenge may be less than the social challenge here on our site [planet].

Kirsten: And it also creates excitement, right? When a company is about to go [public] and they are working on data centers in space, this is something that people can have expectations about in a positive way and ignore the limitations. It feels like a company working on something that is not old and outdated, but signals the future. And it really is a great strategy when you think about it.

Anthony: Not that Elon Musk is the only one doing this, but he seems to be incredibly successful at saying, “Don’t judge my companies by how much money they make now, but by these grand visions I can think of about what will happen in the future.”

And to get back to a point that Sean made, I think that’s part of what’s interesting [ask]: How does this fit into the broader rollout of data centers? How does this fit with the opposition and the idea that people may not be able to build as many data centers as they want?

I don’t think any of us are engineers who can really assess the feasibility of these plans. There’s certainly a touch of fantasy there, but even as they lay out these plans, it feels like a drop in the ocean in terms of computing capabilities compared to what they want to build out on Earth. So it feels like there’s no scenario where this will replace a whole bunch of new data centers on Earth. It’s just kind of […] addition to it.

Sean: The last two things I’ll point out that are really paramount to me are: first, we’ve seen a retreat in some ways [from] data centers – not just because of opposition, but because maybe we don’t need that much, right? We see some AI labs making a lot of jokes about, “Maybe we don’t need to lease so much from this company,” or whatever. And if that becomes something that’s even more true than it was five months ago, do you suddenly lose all that momentum to do something as crazy as putting data centers in space? Provided it works, even.

The other thing is that the idea of ​​building these huge data centers in space, with all these satellites that make up the quote-unquote “data center,” is business for SpaceX. And I think this is unique to them compared to these other companies: they are primarily a launch company, even though they generate a lot of revenue from Starlink. They are the vehicle that takes the data centers to space. They can book that as income for SpaceX.

And so of course it becomes this thing [Musk] wants – whether it works or not, he would ultimately have to prove it – but of course he wants to send more and more satellites into space because it will generate more revenue for SpaceX. And that makes SpaceX look better as a publicly traded company. And then you just tumble down the path until he finds something else to point out to the investors.