Written by Joe Brock
LOS ANGELES, April 1 (Reuters) – SpaceX on Wednesday filed for an IPO that Elon Musk says will contribute to efforts to transform the rocket manufacturer into an AI powerhouse, launching as many as one million satellites into orbit beyond the limits of energy and water on Earth.
Microsoft had a similar desire to escape the constraints of land-based computing in 2015, when it landed a warehouse-sized data center on the coast of Scotland, with the aim of reducing energy consumption by cooling natural seawater and mitigating offshore wind and sea power.
Microsoft’s “Project Natick”, once presented as a potential breakthrough in the data center industry, succeeded in achieving its technical goals but the underwater data centers were abandoned more than two years ago due to a lack of customer demand and an unstable economy, two sources with knowledge of the project told Reuters.
Asked for comment, a Microsoft spokesperson said: “While we currently have no datacenters in the water, we will continue to use Project Natick as a research platform to test, evaluate and validate new ideas about datacenter reliability and stability.”
Five data center experts told Reuters that what went wrong for Microsoft is a matter of caution for SpaceX because although both projects are worlds apart geographically, they share something in common: both rely on modular components that are expensive to use and cannot be expanded, repaired or improved – features that are valued by the AI industry.
“These problems may be more severe in space than under the sea,” said Roy Chua, founder of the industrial research center AvidThink, pointing to unsolved questions about how to cool data centers in orbit, the high cost of launching a rocket and the effects of the harsh environment of space on AI chips.
SpaceX did not respond to a request for comment. SpaceX, which acquired Musk’s AI startup xAI in January, could raise up to $75 billion when it goes public, making it the largest IPO in history. xAI’s assets include social media company X, formerly Twitter, and AI chatbot Grok.
MUSK’S SPACE THINGS TO DEAL WITH PROBLEMS
Although Microsoft has proven that undersea data centers can work, customers have not been interested in scaling them up, instead growing conventional land-based infrastructure that has allowed for cheaper, faster upgrades as AI development accelerates, two people with knowledge of the project said, asking not to be named because of the sensitivity of the matter.
A proven, “locked-for-life” design – which SpaceX would carry out in orbit – is limited, as AI chips improve rapidly every year, while a satellite or undersea data center can be replaced every five to seven years.
The economy was also an obstacle, the two people said. Running data centers under the sea was more expensive than building on land, and while those costs could come down significantly, doing so would require tens of billions of dollars in investment.
The place will cost a lot of money.
Analysts at MoffettNathanson, an independent American equity research firm, said in a February research report that Musk’s plan to put a million AI satellites into space would cost more than billions of dollars.
For data centers in space to become viable, startup costs will need to drop from the low thousands of dollars per kilogram to the low hundreds of dollars per kilogram, analysts say.
“The issue is not whether something will work, but whether it makes economic sense versus building more capacity on the ground,” said Tim Farrar, an independent satellite industry analyst at TMF Associates.
Musk says he will overcome technical and financial hurdles, including radiation exposure, temperature control in a vacuum and the need to constantly renew equipment, by significantly lowering startup costs and developing more stable AI chips.
The need will not be an issue, Musk says, because the Earth’s energy resources will quickly run out as AI is needed to support a world where robots outnumber humans, all cars drive themselves and space travel becomes the norm.
“The idea that we can’t solve the world’s problems, like the lack of electricity and environmental issues, strikes me as something wrong with the Earth trying to make everything seem better in space,” Farrar said.
Musk’s case hinges on Starship, SpaceX’s next-generation rocket, designed to be fully reusable and carry larger payloads than SpaceX’s Falcon rockets. But Starship is behind schedule and has had multiple problems on some of its 11 suborbital test flights through 2023.
MoffettNathanson estimates that achieving Musk’s goal will require 3,000 Starship launches per year, or eight per day.
Jeff Bezos’ space company Blue Origin also supports orbital data centers. The rocket company said in March that its Project Sunrise concept would add AI computing capabilities to orbit, fueling clean solar power while maintaining Earth’s data center infrastructure.
Blue Origin did not respond to a request for further comment.
THE AI SPACE COULD BE A NEW BUSINESS
Space data centers have a future, but they have the potential to complement ground-based data centers, said Claude Rousseau, director of research at Analysys Mason who tracks satellite markets.
“I firmly believe that in the future there will be no way that space-based data centers can replace data services,” said Rousseau, adding that it will be a niche industry serving orbit infrastructure, such as military constellations and space stations.
For example, the International Space Station already hosts test systems designed to process data in orbit and reduce dependence on downlink bandwidth.
Speaking on the All-In podcast in January, Nvidia CEO Jensen Huang said the economics of AI data centers are still not attractive.
“We need to work on the ground first because we’re already here,” Huang said, describing orbital AI architecture as a long-term engineering challenge rather than a near-term solution.
Chua says plans to move data centers under the sea or risk trying to escape Earth’s problems and create even more problems.
“There are many problems we can solve on Earth before space,” Chua said, pointing to the success of the AI chip process, efficient water use, and the expanded use of solar energy and nuclear power generation.
(Reporting by Joe Brock in Los Angeles; Editing by Matthew Lewis)
