xAI is looking more like a datacentre REIT than a frontier lab

hawkice

They have developed an LLM, so they are an AI lab, but the quality of that model suggests they're not a frontier anything.

mandeepj

or, could be they pivoted to cover the expenses?

TSiege

> And Google is a major shareholder in SpaceX, so they certainly have incentive to juice the valuation of the IPO. Google own 5-6% of the shares of SpaceX. SpaceX is seeking a valuation of $1.77T which means Google's shares would be worth $88.5B-$106.2B. I'm not a skeptic of AI/LLMs but this makes me deeply suspicious of these circular deals. What happens when the music stops?

HoldOnAMinute

Technology has a very short life. The difference is that a REIT might contain an office buildings that can be used for any business, but a data center is filled with carcasses that start rotting and stinking from the day of installation.

9cb14c1ec0

So we know what they are renting these GPUs for. I'm really curious about the input costs of their power generation. Is there actually enough margin in these deals for xAI to cover their depreciation cost? Edit: from the footnotes: > Colossus actually runs largely on its own on-site gas turbines, which comes out even cheaper: at a simple-cycle heat rate of ~10,000 Btu/kWh and Henry Hub gas at ~$3.50/MMBtu, the fuel bill is only around $90mn a year. OK, that's crazy. How can I get into renting GPUs to hyperscalers?

xnx

Same idea expressed by a commenter here 2 days ago: https://news.ycombinator.com/item?id=48426082

deaton

It makes sense. They've long since fallen behind the big 3 in quality of their models. There's no good reason at this point to keep burning money on Grok rather than making back some of that money renting out their Colossus data center.

hmontazeri

> While this doesn't include opex[2] and depreciation, if the deals continue for 18 months, xAI recoups all the capex they spent and still has many hundreds of MW of GPUs available. With the giant compute shortages likely to persist into the medium term, even older H100s are likely to be extremely useful even 18 months out. if the bubble doesn't burst until then...

john_strinlai

for people, like me, who aren't familiar with the acronym: REIT = real estate investment trust

throwaway5752

xAI is more than half of SpaceX revenue with the Google sublease. SpaceX is looking like a datacenter REIT. Moreover they're leasing compute - the actual infra around it is much less important - and how long does anyone expect heavily utilized GPUs to run? How likely is SpaceX to be able to re-lease this compute capacity? It will be broken down or out of date in 2-3 years. This should be essentially ignored in the long term for SpaceX business prospects, and is low margin business that barely justifies a 10x earnings multiple let along a 100 revenue multiple for the xAI unit.

trothamel

I suspect that this is the start of a play for SpaceX's orbital datacenter project - if they're really planning on launching as many satellites as they've said (and Starship is going to massively lower the cost of launch), they won't be able to fill them with Grok. So perhaps it's best to become the infrastructure provider to the other AI Labs.

zoogeny

If xAI is a datacenter REIT, it is a special kind that has a promise that no other datacenter provider could dream of: LEO datacenters. As far-fetched as that may sound, the biggest profit center for SpaceX in my understanding was Starlink. xAI already has extremely high-bandwidth connections from Earth to LEO available. Connecting that to solar powered orbital datacenters seems doable in realistic timeframes, especially once Starship comes online and gives them a significant boost in launch capacity. If that ends up being viable and profitable, there is no realistic competition for decades. In this view, xAI earning a reputation as a reliable AI hyperscaler is just another tactic in that strategy.

nonethewiser

Weren't we just talking about how SpaceX is valued based on some profits from starlink + tons of speculation? Yet when we learn of this new $26B in yearly revenue (2.2B/month from Google and Anthropic)the conversation does not return to that discussion. It transforms into: "xAI's tech sucks" "Google/SpaceX is Structurally Bad for the Economy" etc This is called motivated reasoning. We get new information and instead of the obvious thing, updating prior conclusions, we just find a different way to react negatively. The negative reaction will be achieved. The narrative here is completely polluted by people who dislike Elon/SpaceX.

qaq

Basically xAI is pulling a Palantir. They try to reposition datacenter capacity lease revenue to have a multiplier of fast growing frontier lab.

Nuzzerino

Elon is brilliant when it comes to hardware. But unfortunately with xAI, he went on a firing spree, PayPal Mafia style, just like with Twitter when he bought it, shortly before doing another hiring drive, and failing to hire software engineers at scale. The datacenter deals came after. But now, the man who promised the world an AI system that defends free speech and is “pro-human”, is instead selling to his competitors and lowering the daily app usage limits of his own Grok by an order of magnitude (really). If you’re dealing with the world’s richest man, you can predict that money will come before other concerns despite other rhetoric. Interesting strategy though! Edit: To be fair, they did decide that hardware was "the bottleneck" according to an interview I saw last year. But I firmly believe they underestimated the software problem (and their app was/is riddled with them).

bluegatty

Space X is a bet on AI, which is not 'data centre leasing' - it's a short term profitability bump and foregoing the entire AI dream. Not a good look. But the short term numbers may oddly provide the emotive juice necessary to fuel the gig "hey, look at their massive revenues!"

karl_gluck

Is this HN user runako’s comment[1] from 2 days ago turned into an article? I guess it’s very possible multiple people are coming up with the same idea at the same time but given this was submitted by the author it seems kinda rude not to mention it. [1] https://news.ycombinator.com/threads?id=runako#48426082

outside1234

EDIT: A data center REIT where 1/5th of the datacenter falls apart each year and needs to be rebuilt . (aka "not a good REIT investment") Because the GPUs go out of date.

maxdo

It’s a vertical company they did compute very good , their top model bounce between top tier and -1 -2 gen. They were top tier only once though on paper briefly . If tomorrow thy will hit top tier , that do have know how to expand . They can even buy back from Google or anthropic if they agree.

otterley

It's not a datacenter REIT. Datacenter REITs don't sell compute. They sell space, power, and cooling in which compute lives. I get the point the author is trying to make (in that SpaceX's most valuable asset is its compute capacity), but it's not quite the right analogy. SpaceX is basically Elon's holding company for everything-but-Tesla at this point. If you're betting on SpaceX, you're betting on a conglomerate.