alt Hacker News> That's nice way to say "invested in AI that turned out to be flop nobody wants to pay for so they are selling spare capacity"
Both takes are true. xAI invested in capacity that was supposed to yield frontier-model-maker margins. Grok failed to generate enough interest. So now they're selling it.
That's absolutely a good business, in a way that's more certain than the frontier-model one. But it's also lower margin, which doesn't support the sort of valuation SpaceX is going for.
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Datacenter is an ok business, but as you say it shouldn't be getting the same growth multiple (P/E) as a high margin rapidly growing software business.
There is also a question of how sustainable this datacenter rental demand is. It would seem unexpected if Anthropic and Google continue renting from SpaceX for more than a few years, and both contracts can be cancelled with 90 days notice.
Why do we think frontier model vendors are high margin?
What I don't understand is how it's even a good low-margin business. Maybe I'm missing something but:
Data centers (before recently) are low margin businesses because all the inputs are commodities: you buy power (joules), power (PDU), cooling hardware, physical racks, etc.. from the same vendors as everyone else. Worse, your biggest potential clients have the scale to just build it on their own and cut you out because of their scale and because you don't bring anything unique (outside of maybe physical proximity to an interesting market)
xAI has all the same commodity inputs plus another huge upfront capital expense (GPU/storage/networking), and their customer base is exclusively the well-funded companies who would normally just build it on their own.
I assume that they can't get better deals from nvidia than (e.g.) Microsoft because of their scale, so the unit cost of their inputs is the same or worse than their clients.
So the whole game is hoping that they hope to charge more now because people can't build fast enough and try to recoup their upfront costs before either a) other capacity comes online and b) the installed hardware becomes obsolete.
I'm being earnest -- it seems like they're trading one tiny margin service (datacenter) for another tiny margin service, with the added difficulty that there's an additional 10 figures of upfront expenditures and their viability depends solely on paying everything off before the price floor drops. Maybe it's staunching the bleeding, but it seems like not a great move