One thing that stood out in Space Exploration Technologies' (NASDAQ: SPCX) first quarterly earnings report as a publicly traded company was just how much it's spending to build out new AI compute capacity. The company's AI-related capital expenditures doubled sequentially to $15.8 billion, and management said it expects to continue spending at a similar level through the end of the year. To be sure, that capex spending is still dwarfed by what hyperscalers such as Amazon (NASDAQ: AMZN), Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), and Microsoft (NASDAQ: MSFT) are laying out on data centers.
Each of those three spent between $41 billion and $55 billion last quarter alone. But they're also generating huge amounts of revenue from their cloud computing units, with massive backlogs of contracted business. This Rare Signal Is Flashing Again.
In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue » However, SpaceX CEO Elon Musk believes his company can deploy capital much more efficiently than the hyperscalers can, thanks to a unique competitive advantage.
Musk argues that SpaceX has an engineering advantage over everyone else competing in the cloud computing business. His premise is that it can deploy the engineering talent pool and intellectual property base that supported the development of its rocket operations to efficiently build new data centers that produce high returns on investment. "We're finding that even a small amount of what we've learned building rockets, which are incredibly difficult, applied to data centers, yields tremendous benefits," Musk said on the company's first earnings call.
He noted its cooling systems are well ahead of what's needed. The payoff potential appears substantial. "The current economics have translated into a less than one-year payback on our new capital deployments for compute," CFO Bret Johnsen said during his prepared remarks.
That stands in stark contrast to comments from Amazon CEO Andy Jassy, who outlined the economics for Amazon Web Services' massive build-out. "Data center capital is spent starting two years before we can put servers into them to start monetizing," he explained. That's just the physical limitations it's seeing in building new data centers; it can't even begin to monetize them for two years, let alone break even in one year.
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