xAI, the part of SpaceX (NASDAQ: SPCX) that operates Grok, was always going to drive the entire company under. SpaceX had almost $19 bullion in revenue last year. It lost almost $5 billion. xAI lost $6.4 billion on $3.2 billion. And Grok has already lost its chance to compete with OpenAI, Anthropic, Google, and even Microsoft (NASDAQ MSFT | MSFT Price Prediction). Elon Musk has continued to increase his spending on data centers, for which he will never see a return.
What did not drive SpaceX down was a bond offering that was pegged at $20 billion to pay off a loan due in 2027, maybe. What did not drive SpaceX down was that investors whose shares were locked up will have their lockups unlocked, allowing them to sell. Both were a blip.
Why is SpaceX renting space to xAI competitor Anthropic at its huge Colossus 1 outside of Memphis? Other AI companies have also rented capacity from SpaceX. The argument is that SpaceX can take the capacity back with notice. In the meantime, the leases provide SpaceX with billions of dollars of income. That is odd, based on the money it received from its IPO.
Next year, hyperscale capital expenditure will be over $1 trillion. McKinsey expects that figure to be $6 billion between 2027 and 2023. The explosion in demand makes SpaceX’s data center leases even more concerning. One theory is that SpaceX is renting older facilities to fund new ones. It appears that, among the reasons for the collapse of SpaceX stock, many people do not believe that.
It is hard to see how Musk can make xAI a success. Among individual users and small companies, there does not seem to be much demand, as indicated by downloads from Apple’s App Store.
xAI and Grok are never in the mix when OpenAI and Anthropic battle for huge corporate and government contracts. One would think SpaceX would make a point of its participation if it were part of these projects.
xAI was always the Achilles’ heel of the parent company. There is no reason that, now that this is abundantly clear, SpaceX will be able to escape its gravity.
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