The Potential of Space-Based Data Centers Is Huge. It's Not Enough to Make SpaceX Stock Appealing.

SpaceX's (SPCX) recently announced partnership with Nvidia Corporation (NVDA) brings Elon Musk's firm one step closer to establishing data centers in space. And NVDA is certainly a good partner to have, since it makes top-notch, highly reliable chips. But while space-based data centers may one day be very lucrative, they probably won't be launched for many years, and there's a good chance that they won't get off the ground at all. 

Meanwhile, even though SPCX stock has plunged in recent weeks, its valuation is still extremely high, and it's facing tough competition in both AI and the satellite-internet space. Finally, the many failed goals that Musk set for Tesla (TSLA) and the poor rollout of Tesla's robotaxis do not bode well for SpaceX's future. 

Considering all of these negative factors, SPCX stock does not look especially enticing.

The Deal Between SpaceX and Nvidia

SpaceX announced on Aug. 4 that its Starmind AI1 satellites would utilize Nvidia’s latest Rubin GPUs and Vera CPUs. SpaceX hopes to eventually incorporate the satellites into space-based data centers.

The Positive and Negative Aspects of Space-Based Data Centers

According to McKinsey, the highly respected consulting firm, space-based data centers can potentially provide “unconstrained energy scaling and higher solar efficiency" at similar costs as Earth-based facilities. More specifically, solar energy would not be intermittent in space, and it would be roughly eight times more efficient there. Additionally, land constraints, permitting, and environmental issues would be far less problematic there than on Earth. Finally, much less infrastructure is needed in space, as batteries, backup power, and cooling towers are among the systems that are unnecessary there.

On the down side, in order for space-based data centers to become as cheap as land-based ones, the cost of satellite launches has to fall significantly. But the prices that SpaceX charges for satellites have fallen a great deal already and are expected to fall below the $500 per kilogram level that McKinsey says is necessary for space-based data centers to become cost-competitive. Still, it's unclear if SpaceX, which charged $1,500 per kilogram as of February, can actually reach that level and generate profits from its launches.

Meanwhile, other major practical issues need to be overcome. Among these problems are shielding chips from radiation, “maintaining acceptable computing uptimes, and resupplying a facility with new components,” according to The Breakthrough Institute. 

Major scientific innovations usually are not implemented very quickly, so it will likely be many years before data centers are launched into space. And of course it's possible that all of these hurdles won't be overcome, preventing space-based data centers from becoming a reality.

A Very High Valuation and Tough Competition

Currently, SPCX has an extremely high price-to-sales ratio of 75.81 times.

Meanwhile, the company will face tough competition in the satellite internet and AI sectors. In satellites, Amazon (AMZN), Viasat (VSAT), AST SpaceMobile (ASTS), and Jeff Bezos' Blue Origin are among the firms in the process of launching sizable numbers of satellites in order to provide data on Earth. Viasat is already active in the sector, while the remaining three companies will reach that point in the not-too-distant future. All of those firms seem like formidable competitors for SPCX.

In AI, SpaceX has to take on heavyweights Alphabet (GOOG) (GOOGL), Anthropic, and OpenAI.

Tesla's Execution Issues Bode Badly for SpaceX

Musk has a history of overpromising and underdelivering at Tesla, while the automaker's robotaxi launch has been quite underwhelming. Given that history and SpaceX's huge valuation and tough competiiton, along with the tough obstacles that need to be overcome before space-based data centers become a reality, betting on SPCX stock seems like a risky bet.