Geoffrey Seiler, The Motley Fool
5 min read
Technology consultant Gartner recently predicted that 80% of neocloud companies will no longer exist by 2030. That assessment has sent the stocks in the segment into a tailspin and could actually be the catalyst for the companies to collapse. Neocloud companies are spending a huge amount of money on AI infrastructure, most of which is funded by debt. If there is a fear that the sector could collapse because of Gartner’s forecast, affordable funding could dry up, causing the industry to implode.
If this were to happen, my prediction is that SpaceX (NASDAQ: SPCX) would be the biggest winner. Here’s why.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
The ultimate neocloud company
SpaceX is arguably a neocloud company itself. In May, it received a large commitment from Anthropic, which agreed to pay SpaceX $1.25 billion a month through May 2009 for access to more than 300 megawatts of computing power coming from roughly 325,000 Nvidia graphics processing units (GPUs). That deal was worth about $45 billion, although Reuters reported in late September that the deal had been upped to $84.5 billion.
Those aren’t the only commitments that SpaceX has grabbed this year. Alphabet will pay it $920 million a month for access to 110,000 Nvidia GPUs through June 2029. SpaceX also announced another $1.11 billion-a-month hosting deal from an unnamed party beginning in December.
SpaceX has been aggressively building out its AI infrastructure for both its own use and to rent out to customers. Chief Executive Officer Elon Musk said the company was on track to add 440,000 GPUs by the end of November, with the hope of an additional 220,000 units by the end of the year. It is also working with Apollo Capital Management and several banks to secure funding to buy $40 billion worth of GPUs from Nvidia.
This is where SpaceX has a huge advantage compared to other neoclouds. The company has a much lower cost of capital compared to others in the sector. It is investment-grade, and the GPUs will be used as collateral, so it will be able to finance its spending at a much lower interest rate. The company’s high stock price and valuation are also an advantage, giving it potent currency to help fund its build-out.
This dynamic should also make SpaceX a preferred choice among customers and banks, who may become wary of having exposure to a leveraged neocloud start-up. This should help SpaceX benefit from a flight to quality.
