The AI boom is giving investors no shortage of curveballs. In a rather surprising move, Alphabet‘s (NASDAQ:GOOGL | GOOGL Price Prediction) Google inked a deal that’ll see Elon Musk’s SpaceX (SPCX) receive $920 million per month to rent its AI compute capacity. The move, which is slated to last between October 2026 and June 2029, is more of a “bridging” solution that will help Google feed the insatiable demand for its own AI.
Any way you look at it, though, the announcement seems to be a huge deal for SpaceX as it gears up for its IPO to land later this week. Perhaps renting out facilities with tons (around 110,000) Nvidia (NASDAQ:NVDA) GPUs will be incredibly lucrative over the next three years or so. For SpaceX, there’s just another bullish revenue driver to consider before the moment to participate in what will be the largest public market debut.
A deal that wasn’t on my bingo card
What’s most jarring is the fact that it’s Google that we’re talking about, a hyperscaler that has been spending money hand over fist to expand its AI infrastructure. And while Google has more than enough cash to keep backing up the truck on chips, I think the big takeaway is that the chokepoint in AI is about more than just chips; it’s about real estate and power.
With the so-called “Mad Max” phase of AI playing out, where speed matters more than anything else (including proving a realistic shot at achieving solid ROIs to investors), perhaps it shouldn’t come as a surprise to learn that the giants need even more compute.
Whether it’s about bringing one’s own power (or going nuclear), or just building AI data centers in tents to get around the real estate bottleneck, as Meta Platforms (NASDAQ:META) was reportedly doing, the AI compute wars are entering a phase that many may have underestimated.
AI demand might be higher than expected
When you hear of AI bubbles nonstop, maybe it’s easy to underrate the magnitude of the buildout. Of course, the rate of the buildouts may very well add more fuel to the bubble. But, of course, time will tell if there is one of its just localized to a few corners within tech.
Indeed, not every player in the AI wars can walk away a winner. As CEOs go wartime and potential rivals in AI start collaborating, teaming up, or selling compute to one another, I do think that investors should be ready for just about anything, including a few upside surprises, especially if we’re talking about Alphabet.
For Google, it’s less about the extra compute it’s getting. Another hundred thousand or so GPUs isn’t anything massive for the $4.4 trillion titan.
What is most remarkable, in my opinion, is that AI demand is off the charts. And as a ton of new-era AI innovations come out of the pipeline, I think it’s going to be a very exciting time for the AI trade. Perhaps there will be more pain along the road to gain, but, at the same time, some uncertainty and choppiness are often necessary on the path higher.
The bottom line
In any case, chalk up Google’s latest deal with SpaceX as yet another hyper-driver for the SpaceX IPO. For Google, though, it’s less of a needle-mover. It’s bridging the gap, it’s spending more money, and the firm needs more time to show off the monetization potential of its latest and greatest innovations as it takes on agentic AI to transform the future of search and beyond.
In short, it’s an obvious win for SpaceX. And the timing could not be better. But for Google, it’s a stealth win that, in my view, signifies AI demand remains off the charts, perhaps enough such that the 27.5 times trailing price-to-earnings (P/E) still undervalues the growth to come from all the innovations unveiled at that I/O 2026 event.
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