Summarizer

Just scratching at the surface, assuming the increase in production capacity is only realistically possible if you can bring prices down (or this "project" would start to consume a proportion of economic output large enough to seem implausible), you can address the intermittency problem in several ways: Driving down the cost makes massive overprovision a means of reducing the intermittency because you will be able to cover demand at proportionally far lower output, which also means you'll be able to cover demands in far larger areas, even before looking at storage. But lower solar costs would also make storage more cost effective, since power cost will be a lower proportion of the amortised cost of the total system. Same with increasing transmission investments to allow smoothing load. Ever cost drop for solar will make it able to cover a larger proportion of total power demand, and we're nowhere near maximising viable total capacity even at current costs. A whole lot of industrial costs are also affected by energy prices. Drive down this down, and you should expect price drops in other areas as well as industrial uses where energy expensive processes are not cost-effective today. The geopolitical consequences of a dramatic acceleration of the drop in dependency on oil and gas would also take decades to play out. At the same time, if you can drive down the cost of energy by making solar so much cheaper, you also make earth-bound data centres more cost-competive, and the cost-advantage of space-bound data centres would be accordingly lower. I think it's an interesting idea to explore (but there's the whole issue of cooling being far harder in space), but I also think the effects would be far broader. By all means, if Musk wants to poor resources into making solar cheap enough for this kind of project to be viable, he should go ahead - maybe it'll consume enough of time to give him less time to plan a teenage edgelor - because I think the societal effects of driving down energy costs would generally be positive, AI or not, it just screams of being a justification for an xAI purchase done mostly for his personal financial engineering.

> But being able to pull if off implies an ability to do a lot more interesting things. Those interesting things won't pump up the perceived value of Musk companies to stratospheric levels - or dare I say - to the moon. He needs the public to believe that to earn the trillion-dollar package from the Tesla-Twitter-SpaceX conglomerate, even if the latter turns out to be the only profitable arm of the conglomerate.

"TwitslaX"

This is a question that analysts don't even ask on earnings calls for companies with lowly earthbound datacenters full of the same GPUs. The stock moves based on the same promise that's already unchecked without this new "in space" suffix: We'll build datacenters using money we don't have yet, fill them with GPUs we haven't secured or even sourced, power them with infrastructure that can't be built in the promised time, and profit on their inference time over an ever-increasing (on paper) lifespan.

Beyond GPUs themselves, you also have other costs such as data centers, servers and networking, electricity, staff and interest payments. I think building and operating data center infrastructure is a high risk, low margin business.

It's essentially a military network (which is why other power sphere want their own) and a way to feed money into spacex

Nothing about this is sounding economically competitive with ground based solutions

But everyone is crazy about GPU’s right now. Why not ride that wave for extra investment? All the benefits transfer to all the other things we can do with it.

Exactly, this is about attaching the AI hype bubble to all of his dealings before he offloads with an IPO (that still leaves him with 75% of the stock).

It's about creating a flywheel for scale. Getting better at creating and erecting solar panels & AI datacenters on earth is all well and good, but it doesn't advance SpaceX or humanity very much. At lot of the bottlenecks there are around moving physical mass and paperwork. Whereas combining SpaceX & xAI together means the margins for AI are used to force the economies of scale which drives the manufacturing efficiencies needed to drive down launch etc. Which opens up new markets like Mars etc. It is also pushing their competitive advantage. It leaves a massive moat which makes it very hard for competitors. If xAI ends up with a lower cost of capital (big if - like Amazon this might take 20 years horizon to realize) but it would give them a massive moat to be vertically integrated. OpenAI and others would be priced out. If xAI wants to double AI capacity then it's a purely an automation of manufacturing problem which plays to Elons strengths (Tesla & automation). For anyone on earth doubling capacity means working with electricity restrictions, licensing, bureaucracy, etc. For example all turbines needed for electricity plants are sold years in advance. You can't get a new thermal plant built & online within 5 years even if you had infinite money as turbines are highly complex and just not available.

Microsoft did do the experiment (Project Natick) where they had "datacenters" in pods under the sea with really good results. The idea was simply to ship enough extra capacity, but due to the environment, the failure rates where 1/8th of normal. Still, dropping a pod into the sea makes more sense than launching it into space. At least cooling, power, connectivity and eventual maintenance is simpler. The whole thing makes no sense and is seems like it's just Musk doing financial manipulation again. https://news.microsoft.com/source/features/sustainability/pr...

> The whole thing makes no sense and is seems like it's just Musk doing financial manipulation again. It's a fig leaf for getting two IPOs in one. There's no sense in analyzing it any further.

Right, let's not forget that he's selling it to himself in an all stock deal. He could have priced it at eleventy kajillion dollars and it would have had the same meaning. He's basically trading two cypto coins with himself and sending out a press release.

Exactly. He can croon about DOGE all day, but the reality is his entire fortune was built on feeding at the trough of government largess. That's why he talks about Mars all the time. He's not stupid enough to think we could actually live there, but damn if he couldn't make a couple trillion skimming off the top of the world's most expensive space program.

Great comment on hardware and maintenance costs, and in comparison Elon wrote "My estimate is that within 2 to 3 years, the lowest cost way to generate AI compute will be in space." It's a pity this reads like the entire acquisition of xAi is based on "Elon's napkin math" (maybe he checked it with Grok)

The deal they made values xAI at $230 Billion. It’s a made up number, with no trustworthy financial justification to back it up. It is set to provide a certain return to xAI’s investors (the valuation decides the amount you get per share), who in turn are bailing out the earlier acquisition of X (Twitter). All of this is basically a shell game where Elon is using one company to bail out another. It’s a way of reducing the risk of new ventures by spreading them out between his companies. It’s also really bad for SpaceX employees and investors, who are basically subsidizing other companies. The thing is, everyone knows Elon is not a real CEO of any of these companies. There isn’t enough time to even be the CEO of one company and a parent. This guy has 10 companies and 10 children. He’s just holding the position and preventing others from being in that position, so he can enact changes like this. And his boards are all stacked with family members, close friends, and sycophants who won’t oppose his agenda.

As both are private companies none of this matters if the investors of both companies are happy.

Most of the investors don’t even have a choice. Nor do all the other shareholders like employees. And the boards of Musk companies are stacked with his yes men.

Ah yes, my favourite kind of engineering: financial engineering

He's bailing out one of his failing ventures with one of his so far successful ones. The BS napkin math isn't the reason he's doing it. It's the excuse for doing it.

Do they need to be maintained? If one compute node breaks, you just turn it off and don't worry about it. You just assume you'll have some amount of unrecoverable errors and build that into the cost/benefit analysis. As long as failures are in line with projections, it's baked in as a cost of doing business. The idea itself may be sound, though that's unrelated to the question of whether Elon Musk can be relied on to be honest with investors about what their real failure projections and cost estimates are and whether it actually makes financial sense to do this now or in the near future.

> [...] and initial capital investment. This is the big one - Musk knows that if he convinces enough people, they will invest the billions / trillions necessary, making him stupendously rich. But anyone investing in that is... not a good investor, to be politically correct, because what's the expected return on investment? Who are the customers? What is the monetization? Or bar that, how does it benefit humanity? It's throwing money down the drain. If you're an investor and are considering this, consider investing in earth instead. Real projects with real benefits. There's enough money to fix hunger, poverty, housing, education, and everything. Enough money to buy and / or fund politicians to make the necessary changes.

the demand is pretty much fake and AI isn't actually making money, just gobbling investors money

In 2026? Grift.

Yeah I don't know where this delusion of "Servers in space" came from, I think of it as the new NFTs But I bet those pushing for it are very interested in feeding the grift

The real reason is, Elon has SpaceX and xAI. He can create an illusion of synergy and orders of magnitude advancements to boost the market cap and pocket all the money. He realized long time ago you don't need to deliver to play the market cap game, in fact it's better if you are selling a story far in the future rather than a something you can deliver now.

Theranos were also hyping a lot and trying to build some stuff. There is some threshold (to be decided where) after which something is more of a fraud than a hype. Also these days stock market doesn't have much relation to real state of economy - it's in many ways a casino.

I mean, personally I'd probably have invested in SpaceX but it's a hard no with xAI attached. I'm probably an outlier though.

I think you can get loans in the stock. That’s how “most people” live(and die)

I argue that if you have literal hundreds of billions of hard cash to burn for stupid things like AI datacenters, you could afford to make the lives of millions of starving people not suck instead, pretty easily so. But to do that, you'd have to try, and that would mean actually doing something good for humanity. Can't have that as a billionaire.

Who has hundreds of billions of hard cash for data centers? All of the AI spending has been in IOUs between Nvidia, OpenAI, Coreweave, etc. And even if you did have hard cash, how will you spend those billions? No one actually seems to have a sound plan, like I said. They just claim it can be done.

Nice article, the first one. I hope they try it, burn many billions of cash, and then fail. I also hope they don't spread radioactive material across the whole atmosphere when failing, though.