xAI is looking more like a datacentre REIT than a frontier lab

> And Google is a major shareholder in SpaceX, so they certainly have incentive to juice the valuation of the IPO.

Google own 5-6% of the shares of SpaceX. SpaceX is seeking a valuation of $1.77T which means Google's shares would be worth $88.5B-$106.2B. I'm not a skeptic of AI/LLMs but this makes me deeply suspicious of these circular deals. What happens when the music stops?

Weren't we just talking about how SpaceX is valued based on some profits from starlink + tons of speculation?

Yet when we learn of this new $26B in yearly revenue (2.2B/month from Google and Anthropic)the conversation does not return to that discussion. It transforms into:

"xAI's tech sucks"

"Google/SpaceX is Structurally Bad for the Economy"

etc

This is called motivated reasoning. We get new information and instead of the obvious thing, updating prior conclusions, we just find a different way to react negatively. The negative reaction will be achieved. The narrative here is completely polluted by people who dislike Elon/SpaceX.

They have developed an LLM, so they are an AI lab, but the quality of that model suggests they're not a frontier anything.

So we know what they are renting these GPUs for. I'm really curious about the input costs of their power generation. Is there actually enough margin in these deals for xAI to cover their depreciation cost?

Edit: from the footnotes: > Colossus actually runs largely on its own on-site gas turbines, which comes out even cheaper: at a simple-cycle heat rate of ~10,000 Btu/kWh and Henry Hub gas at ~$3.50/MMBtu, the fuel bill is only around $90mn a year.

OK, that's crazy. How can I get into renting GPUs to hyperscalers?

for people, like me, who aren't familiar with the acronym: REIT = real estate investment trust

I suspect that this is the start of a play for SpaceX's orbital datacenter project - if they're really planning on launching as many satellites as they've said (and Starship is going to massively lower the cost of launch), they won't be able to fill them with Grok. So perhaps it's best to become the infrastructure provider to the other AI Labs.

Same idea expressed by a commenter here 2 days ago: https://news.ycombinator.com/item?id=48426082

If xAI is a datacenter REIT, it is a special kind that has a promise that no other datacenter provider could dream of: LEO datacenters. As far-fetched as that may sound, the biggest profit center for SpaceX in my understanding was Starlink. xAI already has extremely high-bandwidth connections from Earth to LEO available. Connecting that to solar powered orbital datacenters seems doable in realistic timeframes, especially once Starship comes online and gives them a significant boost in launch capacity.

If that ends up being viable and profitable, there is no realistic competition for decades. In this view, xAI earning a reputation as a reliable AI hyperscaler is just another tactic in that strategy.

Technology has a very short life. The difference is that a REIT might contain an office buildings that can be used for any business, but a data center is filled with carcasses that start rotting and stinking from the day of installation.

or, could be they pivoted to cover the expenses?

> While this doesn't include opex[2] and depreciation, if the deals continue for 18 months, xAI recoups all the capex they spent and still has many hundreds of MW of GPUs available. With the giant compute shortages likely to persist into the medium term, even older H100s are likely to be extremely useful even 18 months out.

if the bubble doesn't burst until then...

xAI is more than half of SpaceX revenue with the Google sublease. SpaceX is looking like a datacenter REIT.

Moreover they're leasing compute - the actual infra around it is much less important - and how long does anyone expect heavily utilized GPUs to run? How likely is SpaceX to be able to re-lease this compute capacity? It will be broken down or out of date in 2-3 years.

This should be essentially ignored in the long term for SpaceX business prospects, and is low margin business that barely justifies a 10x earnings multiple let along a 100 revenue multiple for the xAI unit.

It makes sense. They've long since fallen behind the big 3 in quality of their models. There's no good reason at this point to keep burning money on Grok rather than making back some of that money renting out their Colossus data center.