Google to pay SpaceX $920M a month for compute capacity at xAI data centers

Stocks generally rise with inflation, whereas bonds continue paying out the same nominal amount, which buys you less over time.

As a retiree I'm 50/45/5 in stocks/bonds/cash, having opted for a conservative portfolio. The stocks are the only reason I haven't lost buying power. But the bonds have performed so poorly that I've barely kept up with inflation despite the amazing bull run in stocks.

If you have more than enough saved to meet your basic needs, it does (IMO) make sense to give up some total income for lower variance.

I really appreciate when someone chooses to be that guy.

    > "stable" dividend stocks are almost never really stable when the financial world crashes.

If you want to get intuition for why this works, this is a really fun and interesting video: https://youtu.be/TQuxVz52w2w

Tesla grows in large steps. Next big step is Robotaxis, which is well on its way. After that, robots, for which they have the best real-world AI platform for.

You could say Tesla is a speculation stock as well when they had released the Roadster. Tesla shorters always lose.

> The 10 biggest companies in the S&P 500 make up almost 40% of the index, and if Anthropic, OpenAI and SpaceX are added later this year, the concentration could approach 50%, see chart below. The bottom line is that the S&P 500 basically doesn’t offer much diversification anymore.

> My investment philosophy comes directly from Warren Buffett: "Never bet against America". Of the three largest economic zones in the world with free markets (United States, Europe, and Japan), the United States is by far the most dynamic. Ask yourself: In the next 30 years (or more), which of those three regions will grow the most? In my view: Absolutely the United States.

The next 30 years will not look like the last 30 years, and to be frank, this administration impaired any thesis of the US being at the center of the economic world globally for at least the next decade or two. The ultimate strength of the US economy was that global trade centered around the US. That trade is already reconfiguring around the US, and will continue to do so to de-risk and decouple. How is the US supposed to grow with restricted immigration? 21 states already have more deaths than births and this will continue to all 50 states eventually. India and Africa are the last parts of the world where any growth will be found, everywhere else is in terminal population decline.

https://www.visualcapitalist.com/fertility-rate-of-world-pop...

So! VT reduces your concentration risk from the AI bubble (versus the SP500) while still keeping you exposed to a risk asset class (total world equities) to capture higher returns than you’d get with bonds.

Your backtesting is of no value in this context, the world has changed permanently due to the actions of this administration. Portfolio composition decisions made today are for the future, not the past. Past performance is no guarantee of future results.

Citations:

https://web.archive.org/web/20210104201135/https://advisors....

https://www.morningstar.com/portfolios/experts-forecast-stoc...

https://www.aqr.com/Insights/Perspectives/The-Long-Run-Is-Ly... (click through to the full version, the last decade+ of US out performance was mostly just the US getting more expensive, not US companies being much better than foreign companies)

https://www.morningstar.com/stocks/you-might-think-industry-... (We see the same results looking at the more recent period of July 1963 to September 2024. US stocks returned 10.64% annually, high-tech stocks returned 11.35%, healthcare stocks returned 11.99%, and both were outperformed by beer, which returned 12.18%, smokes, which returned 14.56%, and guns (defense), which returned 12.77%. Even shops (wholesale, retail, and some services such as laundries and repair shops) outperformed, returning 11.88%)

> Our base-case forecast entails $56 billion in revenue for Starlink in these niche and growth areas by 2035, representing about 45% of the identifiable market we’ve sized

source: https://www.morningstar.com/stocks/spacex-what-investors-nee...

So stock marked is always meaningless except considering it is so large and consequanetial and so many people have access to it that it will be rational automagically. This is more of a belief that seems to be fairly correct than a rational line of thinking. This is similar to Democracy in a way

>If a stock never intends to pay dividends, the value of the stock is simply the price the next shumck is willing to pay.

So, by construction, we're talking about the value of shares in a hypothetical company that admits it will _never_ pay dividends. And we're asking what value that stock has BESIDES selling it to another shmuck, so for the purposes of the exercise, it's clearest to just imagine we are not allowed to sell to someone else. Most people will tell you that the stock nevertheless still has value because you own a share of the company itself, which entitles you to a share of its liquidation value. However, the argument I've been making here and in other posts are that:

a. A company tends to be "greater than the sum of its parts". The techno-social arrangement of people and business flows is part of what allows the company to be profitable, so disassembling it, selling off the machinery and returning whatever cash assets it had to the investors is unlikely to cover the market cap (at least, as they are priced today in current climate)

b. Even looking at whatever value IS leftover, the circumstances that lead to you realizing that value are extremely fraught / carry other baggage. It usually doesn't lead to common investors getting value back out, and cannot realistically be a justification for the current valuation of most big non-dividend stocks. For instance, consider how valuable it was to own a share of the underlying capital assets of Bed Bath and Beyond when it declared bankruptcy. It was far worse than just point 'a' ("oh no, we sold all the inventory and real estate it still didn't cover the market cap"). No, if you were a common investor, you essentially got $0 because there were lenders and preferred investors ahead of you in line that consumed those assets and left you crumbs.

c. Acquisitions are the best chance of turning your "ownership of the company itself" into dollars... but this is also slightly cheating, because you're appealing to sale of the shares to another entity again. Now, in real life, if a single entity owned the entire company, it would probably be able to extract some of the business's cash flows (a power which common investors lacked). So it's not quite fair to call the acquiring entity "the next shmuck", since they may be able to realize actual $ value in a way that the common investor couldn't. But technically, if we're playing along with the thought exercise, the premise is that the company continually reinvests in itself and refuses to pay out to the owners. If somebody buys out the company, takes it private, and redirects the profits to their own coffers, the new owning entity is essentially getting dividends by another name.

Voting rights are also not valuable by themselves - they are only useful to steer the company towards greater future payouts, which means you are appealing to some other entitlement to value.

If you zoom out, a company is a temporary arrangement of people and things that makes more money than it spends _over time_. They are not really designed to accumulate and store value in and of themselves. The machines the employees use to do the work is a small fraction of the overall utility of a living breathing business. The valuable part is the capacity of this techno-social organism to reliably and continuously make profit, which is far greater than the sum of its parts. So if the profit that’s being earned is never paid out to stakeholders, then there’s no point in being a stakeholder. If the profit is redirected to make the organism bigger, then you are trading now-dollars for future-dollars which must be appropriately discounted. If everyone expects a company to do this forever, then the correct price is what the expected liquidation share should be, and that number is basically zero.

Yet, stocks that do not pay dividends exist at high valuations. What that tells you is that modern day stock trading is tulips: the lion’s share of the value derives from a temporarily stable, shared, _correct_ perception that someone else will buy it back from you.

The reality is that general investors are the greater fools in this arrangement. The prevalence of preferred stock is a tell that there are owners and there are “owners”. What we should do is recognize this and admit that the big initial investors and employees themselves are the owners, because they are the group small enough to actually realize liquidation value (should it ever be necessary). The public investors have no realistic claim on that value, so their shares should be more clearly labeled as dividend rights, which would cause them to be priced as such.

As a comparison point, CoreWeave’s most recently reported operating margin was 16%.

This deal can't just be financial engineering, since that wouldn't make sense. They must be getting something out of this, i.e. compute.

Google is buying compute because they need it. That explanation works a lot better to me than one where Google is doing this purely for unrealized future gains on a minority stake in SpaceX.

the ironic thing is if the parties involved were bullish on xAI winning or near term ODCs undercutting compute costs this deal wouldn't have been attractive. But as it is, Google probably only slightly overpays for boring ground-based datacenter space they actually need to hit internal goals, and it looks even better if IPO investors in a stock they hold pick up some of the the tab.

Even if your 94x multiple held perfectly (a big if), Google's "return" here is unrealized appreciation on an illiquid, minority stake. They can't spend it. And if they try to sell post-IPO, the act of selling a large block would push the price down, shrinking the very gains you're describing.

Meanwhile, the $11B/year in cash going out the door is very real and liquid and hits Google's income statement immediately. So the actual trade is: guaranteed cash expense now, in exchange for speculative paper gains later on a stake they can't easily exit. Even if you assume bad faith on Google's part here, no CFO in their right mind would see this situation as an easy 5:1 return.

The simpler explanation is the one Google gave: they need bridge compute capacity because Gemini Enterprise demand is outrunning their own datacenter buildout, and SpaceX has 110K GPUs available now.

This deal has been pushed hard to be included prematurely in the indexes to the point that Nasdaq changed the rules.

The accusation is that these changes were made so that index funds will buy this stock automatically far earlier than they would have previously. Given the… uh… astronomical asking price, it looks like SPCEX is meant for Elon stans and institutional index investors to be the bag holders.

Tesla won a lot of by being the first mass produced electric car.

Yeah the fact that China overtakes Tesla is a huge problem with Tesla and forces them to spread out. From all Musks hussles, only Tesla Cars and Space-X Starlink make money.

These two business are good running businesses, given. But these are not Trillion Dollar valuation companies.

Without the hype for these two things, nothing else would be possible.

But satellite cooling already exists (Starlink v2 satellites dissipate heat at over a kilowatt I believe), so that’s why other people find it plausible.

Starship is at minimum a 2030 project at this point.

And even producing the volume of chips needed for the type of growth space data centers would need to have to justify this would be another decade if construction started now on those fabs.

I’m aware of the guidelines. Another guideline should be “check yourself for accuracy before you reach for the keyboard”—especially since it’s easier than ever. Giving false information that, if practiced and not disclaimed, could land someone in jail is irresponsible.

> Anthropic is paying SpaceX $1.25 billion per month (approximately $15 billion annually) to use the computing infrastructure at the Colossus and Colossus II data center clusters in Memphis, Tennessee. This massive infrastructure deal gives Anthropic access to over 220,000 NVIDIA GPUs (mostly H100 and H200 chips) for large-scale AI inference.

At the end of the day, some RIAs in the Bay Area made bank on folks churning their retirement accounts. Some influencers got clicks. Otherwise, this is a nothing burger.

As long as there are active investors in the market conducting price discovery. Which there always will be, just pointing out that someone has to care, even if you don’t

At least until it doesn't. If this spacex venture succeeds because it got propped up by index funds, then that's a decent indicator that more will follow.

It stands to reason that active investing will be more valuable as a result

SpaceX IPO price already has many years of extremely high growth priced in. Comparing it to Facebook's or Google's IPOs is like apples to oranges.

I said this: >fraud is any intentional misrepresentation

Did you not read my post? It looks to very inline with what you stated fraud is in your many definitions. Clearly I read the definition, I was aiming to simplify to make dialog possible.

My definition still aligns with yours.

And I still see it as fraud, and so would others. Seems you don't. and thats ok.

To say I should read fraud as though I couldn't look up the definitions, and then copy/paste one that literally contains what I said is disingenuous and straw Manish & ad hominem (and hostile) don't you think? Maybe thats why you call something borderline unethical as though it's a feat of engineering. As though we can now reward & celebrate unethical acts.

Then sure, yes you are correct.

https://martinalderson.com/posts/xais-new-rental-business/: seems to be a post on the frontpage of HN at the moment on what I am currently saying.

I used to think heat would be a problem, too, but I've come around. It's a consideration, but it's doable. Remember we already have some pretty high power sats up there, so it's not something we haven't already been working around.

IMO the big cash drain will end up being maintenance, as in, you can't do it. If you have a box or a power supply fail on the ground you can swap it out. Anything in orbit would have to be replaced.

Last time I did the math, launch costs were well balanced against permitting delays (mediated by interest rates). The break even rests almost entirely on radiator mass efficiency (which is, admittedly, a function of launch costs).

Like, if everyone’s terrestrial datacenter projects start getting blocked, and demand for AI continues, the price a rational buyer would pay for in-orbit compute could get ridiculous enough to break even on current kit. And current kit in launch vehicles, radiators and solar panels is advancing.

I don’t think the thesis is met yet. But it’s less ridiculous than I thought it was before I sat down with pen and paper.

This is a series of transactions in which money flows from Google to SpaceX. There is no flow of money from SpaceX to Google. So it's not a circle.