AI and SPaceX’s Uncertain Future
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SpaceX went public in the largest initial public offering in history, making Elon Musk the first person in history with a net worth over $1 Trillion. The company is seeking $75 Billion more than double the current record holder, Saudi Aramco. SpaceX was wildly successful selectively raising funds through private markets. Its Pre-IPO investors include but were not limited to family investment offices, venture capital funds, and institutional investors who will now be able to liquidate or hold on to their investment. Approximately 20% of the offering was earmarked for retail investors, far beyond the typical 5-10%, at a staggering $1.77 trillion valuation. Few doubt that the opening day of trading on the Nasdaq will go well for SpaceX, but some are skeptical of SpaceX’s claims and indeed the company’s stability.
Founded in 2002 as a launch provider, SpaceX first reached orbit in 2008 with its Falcon 1 rocket. Today half of all orbital launches are conducted on SpaceX rockets helping it dominate the launch market. SpaceX is not just a rocket company; it consists of three verticals which include Launch, Satellite Internet, and AI.
Launch is the most visible aspect of the company, generating $4 billion in revenue in 2025. Starlink is the company’s satellite internet provider, and it is the segment investors value most because it is by far the biggest source of revenue for the company. From its launch in 2020 to today, Starlink became the fastest scaling telecom company ever. In two years Starlink grew to over 10 million active subscribers generating $11.4 Billion in revenue. Its profit margins grew from 41% to 63%. Combined, these verticals brought in around $8 billion in profits.
If SpaceX only consisted of the launch and satellite internet verticals, there’d be no doubt about the company’s future. Unfortunately, it also includes xAI. Consisting of the generative AI chatbot Grok and social network X, xAI was formed in 2023 to compete with OpenAI and Anthropic. On February 2, 2026 SpaceX acquired xAI in an all stock deal that valued the company at $250 billion, and the combined entity at $1.25 trillion. xAI is a massive drain on SpaceX, costing close to $1 billion a month and recorded a net operating loss of $6.36 billion in 2025. In addition to the net losses incurred, xAI creates serious challenges for the company’s future. Its flagship product, Grok, is facing investigations in multiple countries over its generation of nonconsensual deepfake images on X. X itself only turned a profit for two years of its 11 years of operation prior to acquisition, and posted net losses every year since. That acquisition put the company $13 billion in debt, with debt servicing costing $1.2 billion every year. Banks recently completed dumping that debt on investors last April. The acquisition of xAI effectively turned SpaceX from a very profitable company into one posting a $4.9 billion net loss while holding the bag for all of xAI’s debt and legal troubles.
This is the state of SpaceX as it exists today, but an IPO isn’t just about a company’s current position, it's also about its potential. In addition to its current products and services, SpaceX is continuing to invest heavily in R&D. Its launch service segment is in the process of developing a next-generation, fully reusable launch vehicle called Starship. Starship promises to reduce launch costs by multiple orders of magnitude while radically expanding how much mass can be launched at a faster rate than ever before. The Space Force and NASA are heavily invested in the success of this launch system; it is a central pillar of NASA’s Artemis program and Elon Musk’s personal interest to take humans to Mars. Furthermore, Starlink is preparing to launch a new generation of satellites for both civilian and military applications, and recently announced plans for their AI1 “Orbital Data Centers,” to capitalize on the growing demand for compute in the AI sector. Documents filed with the SEC suggest this capital raised from the IPO will primarily be used to fund Starlink future capabilities, particularly as it relates to AI infrastructure. For those who believe in the potential of these products, particularly the potential of AI, SpaceX must seem like it will be worth its targeted valuation.
AI, or more accurately Large Language Models or LLMs, are touted as a transformative technology, with some claiming it will launch the next industrial revolution. SpaceX is clearly hoping to benefit from this perception with the inclusion of xAI into its company. The problem is, LLMs aren’t transformative. Like every AI company, xAI's revenue scaled directly with costs because every discrete AI interaction incurs a cost to compute. "Compute" just means datacenters, buildings full of servers that need a lot of energy to run. Those buildings cost a lot of money to build, and even more to run. As the user base grows, so do expenses at a non-linear rate. ODCs do not solve this problem, and given the increased costs to launch and maintain server racks in orbit, they’d cost more than terrestrial datacenters. Bottom line: xAI can only get more costly to operate, and it is unlikely to ever turn a profit.
Both retail and institutional investors largely hold to the claim that AI will reach a critical mass when revenues will overtake costs. Some also believe this will lead to an AI superintelligence or "AGI" (artificial general intelligence), but no empirical evidence exists for either. Major banks apparently are not only pulling funding, but starting to offload the debt to reduce their exposure. For all the sunny press releases about new data center construction, half of those planned in2026 are cancelled or delayed. After an initial surge in enterprise-level AI sales, companies are walking away after countless examples of AI tools simply not being worth the money or nor seeing a ROI. Microsoft's own data suggests using AI is more expensive than hiring human workers.
While LLMs face serious issues around operating costs and adoption rates under the best of times, today they face a new challenge with the potential to end the boom. Because of the Iran War, 20% of the world’s oil and natural gas supplies have effectively been cut off. Without getting too deep into the weeds on how mine clearing operations work or the geopolitical realities of negotiations, we’ll simply say that Space Advisors does not expect oil flows to return to normal any time soon. Based on recent data from the International Energy Agency, commercial oil inventories have only a few weeks before reaching tank bottoms. AI companies are extremely vulnerable to energy price shocks, as the cost to compute is directly connected to the cost to power datacenters. Operating costs will surge, and capital availability will be at risk as consumer confidence is inevitably shaken by higher prices. The US has the means to correct domestic price spikes via a provision of the 2016 Consolidated Appropriations Act that allows the President to unilaterally end US oil exports, but that doesn’t stop the broader macroeconomic crisis facing the global AI industry and by extension, SpaceX.
With all the issues facing the AI sector, xAI isn’t just one particularly costly vertical of SpaceX, it’s an aneurysm of the business waiting to rupture. A market correction, or worse, could seriously jeopardize confidence in the company, and make its high valuation a fleeting moment of financial history. Further, public markets also made changes to accommodate AI companies that otherwise would not be eligible to be listed, changes SpaceX is the first to benefit from. It is in Space Advisors’ opinion that these changes inject greater volatility into an industry that already stands on shaky ground. Last year, SpaceX was probably one of the safest bets anyone could make. With xAI, their position is far more precarious.
Keegan Kirkpatrick & Robert Jacobson, Space Advisors, LLC
