2027: Data Centers in Space

2027: Data Centers in Space

Elon Musk made it clear yesterday during SpaceX’s inaugural earnings release: He intends to launch data centers in space next year.

And not a moment too soon.

We’ll get to our team’s take on SpaceX in Bullet No. 2. But as we said two weeks ago during our last foray into the data center backlash… Musk’s vision of data centers in space may be the only way to feed industry’s insatiable demand for “compute” without compromising the power grid and the water table.

Pushback from the public is starting to have a measurable impact on the data center buildout. 

“The public is concerned about rising electricity rates caused by data centers,” says University of Michigan political scientist Ben Green. “They are concerned about the enormous water use that data centers require. 

“They’re concerned about public handouts in the form of tax breaks that are going to data center developers,” Green tells The Harvard Gazette — “and they’re also aware that data centers don’t bring meaningful economic development, especially in the form of jobs.”

Yesterday, colleague Matt Badiali spotlighted this chart from Goldman Sachs for his Real Wealth Insider readers. “Goldman expects companies to complete only about 50–60% of data center capacity. That’s due to delays and cancellations.”

But it’s not just growing public opposition acting as a constraint.

“Our power grid is old,” Matt reminds us. “It needs a lot of investment as is. Data centers add massive new load to that grid. They currently use 4.4% of all electricity generated in the U.S. That will jump to 12% by 2028, according to research from the Harvard Kennedy School.”

And then Matt laid out the following stats — which were new to me even though I’ve been writing about the fragility of the power grid for over four years…

• “At the end of 2023, 11,600 projects waited to connect to the grid. Those projects represented 2,600 gigawatts of generation and energy storage. At the time, the U.S. grid’s entire energy generation capacity was only 1,280 gigawatts.

• “Only 13% of the new power requests submitted from 2000–2019 were in operation by 2024. That’s not good. Less than one in five got through. Looking ahead, that could mean even fewer data centers.”

You might think these facts and figures undercut the case for investing in copper miners — something we talk up periodically in this space. But Matt says hold on.

Copper is “the key that unlocks the electricity we need for the future,” he tells us. “It’s the railroad that makes all this AI data work.

“And it’s not just AI. EVs, renewable power, batteries, etc. are all incredibly copper intensive. Updating and expanding power grids all over the world, not just here in the U.S., requires billions of pounds of copper.

“On the other side of the equation, we’re dealing with an aging fleet of mines that require more ore moved to produce the same amount of copper. And there is currently a lack of new copper mines coming online.”

S&P Global forecasts that yearly copper mining worldwide will peak in 2030 at 27 million metric tons. 

Right now, demand is already at 28 million — and it’s forecast to leap 50% to 42 million metric tons by 2040.

“Short of another massive global recession, sustained higher copper prices are inevitable,” Matt concludes. “We do not have the supply we need to meet forecast demand.”

Matt added another copper miner to the Real Wealth Insider portfolio yesterday. If you’re new to the sector, you might want to first try an ETF. Sprott offers COPP for larger firms and COPJ for the juniors. [Dave’s disclosure: I own both.]

SPCX: Still Not a Space Company

Remember when we said before the SpaceX IPO that SpaceX isn’t a space company as much as an AI company? Yeah, the rest of the world discovered the same thing within the last 24 hours.

Yesterday afternoon, SPCX delivered its first quarterly numbers as a publicly traded company. This morning, traders have driven down shares nearly 8% — mostly because of the company’s plans to spend prodigious amounts of money on AI infrastructure.

This shouldn’t have surprised anyone who reviewed SpaceX’s pre-IPO prospectus. As our Ray Blanco noted at the time, the company saw space as a $370 billion market… while AI is a $26.5 trillion market.

Given that backdrop… and given the scale of Elon Musk’s ambitions, whatever he puts his mind to… is it really so shocking that SPCX’s capital spending last quarter totaled $18.4 billion — compared with only $2.8 billion a year earlier?

We won’t dwell on the other headline numbers, which you can find anywhere. That’s because under the surface are some other items at least as interesting, if not more.

“SpaceX expects to be running at $100 billion in annualized revenue by December,” says our Ray Blanco. “That's FIVE months from now.

“CFO Bret Johnsen laid it all out. In the first weeks of the third quarter, they've already contracted an additional $6.7 billion in cloud services revenue, ramping from October. Google and Anthropic agreements start hitting later this quarter. Plus the Cursor deal closes and consolidates.

“Elon removed the hedge entirely: ‘The $100 billion ARR in December is not a question mark. That's what we'd achieve if we basically did nothing. So I think it may be higher than that.’”

And while The Wall Street Journal’s headline spotlighted Musk’s forecast that SPCX will in time generate 10X that amount in revenue… Ray tells us that Musk has moved up the timeline to reach that $1 trillion target — from 2031 to 2030. Musk added, “There's a non-zero chance of that being in 2029."

“The rest of the call,” Ray says, “explained where it came from…

Compute. “1.4 gigawatts today. Over 2 by year-end. ‘Closer to 10 gigawatts than 5,’ by the end of 2027 said Musk— and they're building power and cooling toward 20 gigawatts, deliberately ahead of GPU supply. Payback on new compute capital is running under one year.

Starlink V3. “Ten times the capacity per satellite, and 10 times as many satellites. Musk: ‘Even if our monetization per bit dropped by a factor of 10, that would still mean a 10X increase in the revenue of Starlink.’

Starship. “Falcon delivers about 2,500 tons to orbit a year. The rest of the world combined does roughly 300. The Starship target is over a million tons a year, ultimately 10 million. And the heat shield — the hardest remaining problem — is, in Elon's words, solved (although he mentioned he doesn’t want to jinx it).”

Starmind. The orbital data center now has a name and a date. An optimized Vera Rubin NVL72 computer, launching next year.

Companywide, second-quarter revenue totaled $7.8 billion. 

Ray does the math: “A $100 billion December run-rate means roughly $8.3 billion in that single month. More than all of Q2, just in December alone.

“If they hit that in five months,” Ray concludes, “the valuation argument is over.”

A big “if” to be sure — especially with all those insider shares about to unlock between tomorrow and December. For the moment, no one on our team is ready to commit to SPCX as a buy. 

[Editor’s note: Ray posted his insights first thing this morning on the Daily Feed section of the Paradigm Press mobile app. Our editors deliver a host of instant insights every trading day — material we don’t publish anywhere else.

What’s more, the app is hands-down the simplest way to stay on top of our editors’ buy and sell recommendations — no sifting through your email to find exactly what you need to know. 

The app is available for both iOS and Android. Download at this link.]

Meanwhile, the major U.S. stock indexes keep powering higher.

To be sure, the momentum of the last two days is waning. But the S&P 500 is up another third of a percent at last check to a record 7,762. The Dow is up another 1%, also in record territory approaching 54,700. The Nasdaq is just barely in the green at 26,600.

The big action, however, is in precious metals — gold up nearly 4% to $4,236, the highest since mid-June. And silver’s up nearly 5% to $62.35, the highest in a month.

Crypto is like watching paint dry this week — Bitcoin a little over $64,000 and Ethereum a little under $1,900.

Such a Deal

“Oil Markets Price In an Iran Deal That Does Not Exist Yet,” says a pithy headline at the Oil Price website.

Indeed, U.S. oil futures remain under $76 even though the probability of a deal to reopen the Strait of Hormuz is slipping further and further away.

When we left you yesterday, Treasury Secretary Scott Bessent said “there is a chance we may have a deal today or tomorrow.”

But late last night, Donald Trump told reporters, "We're moving along very nicely. We'll find out. We'll know in 48 hours, I would say."

Which takes us to Friday — just in time for the “deal” to fall apart and the war to resume while markets are closed for the weekend.

In a not-unrelated development… Do you remember how the “memorandum of understanding” between the United States and Iran back in June never got off the ground in part because Israel was attacking Lebanon?

Well, Israel just resumed airstrikes on Lebanon today. In fact, the Israel Defense Forces ordered everyone in the village of Mansouri to leave their homes. By one account, it’s the first time the Israeli military has done that since the 2006 Lebanon war.

Honestly I didn’t plan on the South Park banker to appear in these digital pages twice in the same week, but here we are.

Comic Relief

Well, if the buzzword this year is “affordability”...

And we’ll carry on the theme in the mailbag…

Mailbag: Affordability

“I can't believe how easy you can throw out that line that if your GI parents didn't help you, too bad,” a reader grouses after something I said at the conclusion of an issue last week.

OK, it’s at this point I invite you to check out that issue: This link will take you directly to my comments at the end.

Back to the reader: “The problem is people like you who think that since your parents have money, they should pay for whatever their kids need, they should live at home half their lives, go out to the clubs and, of course, buy the newest fab car out there.”

The rest of the email continued in that vein. You get the idea.

Now here’s the thing: Did I ever say in my reflections that boomer parents are obligated to finance the lifestyles of their adult progeny?

No, all I said was that on several levels — housing, higher education, health care — life for folks in their 20s and 30s is a lot less affordable now than it was in the 1970s and ’80s. And that boomers might wish to see where the millennials and GenZ-ers are coming from. 

To drive the point home, I reminded boomers that the GI generation was notoriously tin-eared and unwilling to listen to boomers’ concerns (whatever those concerns might have been) when boomers were younger.

I honestly didn’t think anyone would be triggered by those remarks — but such is the life of a GenX writer trying to mediate disputes between the generations on either side of me. 

(I’ve been doing it for over a decade. It does seem as if the vitriol is getting worse now…)

“If Gen X is destined to be ‘abandoned’ then there’s a real possibility to fix Social Security or end it,” a reader responds to the mailbag section of yesterday’s edition.

“Once the boomers are too small a group the millennials will be able to do what they want with it.”

Dave responds: That’s still many years in the future. Crunch time comes well before then. The Social Security trustees estimate the old-age-and-survivors trust fund will be exhausted by year-end 2032 — at which point, benefits would have to be cut by 22%. 

Go figure, the oldest Xers will have just reached full retirement age of 67…