SpaceX’s first quarterly earnings report as a public company has upended the popular image of Elon Musk’s flagship venture. The company generated the bulk of its revenue from satellite internet and renting out AI compute, not from launching rockets. The space business contributed only a little over 10 percent of total revenue, and SpaceX remained its own biggest customer for launches. The numbers effectively confirm a shift that had been building for months: SpaceX is becoming a telecom and cloud-infrastructure company wrapped in a rocket company’s brand.

Key facts from the report

• Starlink connectivity generated $4.2 billion in revenue and was the only segment with an operating profit.
• The space sector did not break $1 billion in revenue, contributing just over 10 percent of the total.
• AI-related infrastructure spending reached $15.8 billion in the second quarter.
• Data center leasing generated more revenue than the rocket business.
• SpaceX has commercial deals with Google, Anthropic, Reflection AI, and Cursor.
• Insider lockups start expiring on August 6.

Connectivity and compute dominate revenue

SpaceX’s largest business segment is what the company calls connectivity — namely Starlink, the satellite internet service. Starlink generated $4.2 billion in revenue in the quarter, making it the only segment to post an operating profit. During the earnings call, President Gwynne Shotwell outlined plans for a direct-to-phone service intended to compete with AT&T, Verizon, and T-Mobile. If fully realized, that would expand Starlink from a fixed-wireless and mobility product into a broader consumer telecommunications challenge to the established carriers.

At the same time, SpaceX is rapidly building a neocloud business that leases data center capacity and GPU compute to AI companies. Leasing data center space brought in more revenue than rockets, and the company spent $15.8 billion on AI-related infrastructure in the second quarter. By contrast, spending on the space and connectivity sectors was roughly $1 billion each. The scale of that investment puts SpaceX in direct competition with specialized cloud providers such as CoreWeave and Nebius. Analysts project that spending on the neocloud business could climb to $65 billion next year, up from earlier estimates.

A pivot born from xAI's struggles

SpaceX’s AI infrastructure push began with Colossus 1, a data center in Memphis that Musk originally built for his AI company xAI. xAI, which Musk has since folded into SpaceX, struggled to run the complex. It encountered latency problems that made training in-house models difficult, and it used a mix of newer and older chips that created bottlenecks. So SpaceX decided to rent out the capacity instead. Musk now says only 10 percent of the compute SpaceX builds will go to Grok, xAI’s chatbot.

SpaceX has signed deals with Google, Anthropic, Reflection AI, and Cursor, an AI company Musk subsequently chose to acquire. CFO Bret Johnsen said those deals put the company on a trajectory, including contribution from Cursor, to reach $100 billion of annualized revenue run rate, or ARR. Musk was even more bullish, saying the target is not a question mark and the actual figure might be higher.

The economics of data centers

Revenue, however, is not profit, and building data centers is extremely capital-intensive. The bare-metal business of renting compute has significant drawbacks. Hardware inevitably becomes obsolete, construction projects face delays and cost overruns, and compute itself is becoming a commodity, forcing companies to compete on price. As more data centers are built, supply increases and pricing power erodes. SpaceX is entering a crowded field where all of its rivals face the same pressures.

Musk has claimed that he took SpaceX public because he wanted to build data centers in space. The terrestrial experience so far has been rocky: Colossus 1 had to be converted from an in-house AI training facility into a rental operation. Building data centers in orbit would be an order of magnitude harder, something that has never been attempted at scale. Scientists and engineers have raised questions about heat dissipation, latency, maintenance, and cost.

Space data centers and grand promises

SpaceX has proposed an orbital data center constellation of as many as 1 million satellites in a filing with the Federal Communications Commission. The application is light on technical details — there is no clear information about satellite size, deployment schedule, or power systems — which has led many observers to view it as a public-relations exercise rather than a concrete engineering plan. Musk has also released drawings of the satellites and described a Musk-owned chip producer called Terafab that would produce one terawatt of chips every year. A billion Optimus robots would do the work, at least once the robots can handle physical tasks reliably.

In Musk’s telling, Starlink will deliver a majority of the world’s internet, and space data centers will transform the cloud. Skeptics note that these pronouncements follow a familiar pattern. The Hyperloop, which Musk proposed as a high-speed transportation system, was never built. Complex infrastructure promises have a way of slipping from the timeline. As the saying goes, it is all vaporware until it ships.

Rockets still matter — mostly to SpaceX

The space segment of SpaceX’s business remains relatively small. The company launches rockets primarily for itself, mainly to deploy Starlink satellites. External launch customers are limited, and the space sector did not break $1 billion in quarterly revenue. SpaceX’s own launch manifests are the main driver for its rocket production. The company’s explosive growth in valuation has been fueled more by future AI revenue than by launch contracts. In that sense, the rockets are not the moneymaker; they are a logistical backbone for the connectivity and compute operations.

Tesla and political connections

SpaceX also serves as a key customer for Tesla. It has purchased $295 million in Tesla Megapack battery storage, and it has been buying Cybertrucks, Tesla’s much-hyped pickup. Tesla stock, meanwhile, is down 25 percent since January of this year. The relationship between the two Musk companies has grown tighter as SpaceX builds out power-hungry data centers that need battery backup and grid infrastructure.

Musk’s political spending has also become a factor. He has donated large sums to Republican-aligned political action committees, including $100 million ahead of the midterms. Analysts argue his political connections could help SpaceX win expedited permits for energy and data-center projects, although terrestrial data centers remain controversial across the political spectrum because of their impact on electricity grids, water supply, and land use.

Lockups and stock pressure

SpaceX’s insider lockup period expires on August 6 — the day after the earnings report. Short-sellers expect insiders to sell, which could push the stock even lower. The stock has already been under pressure since its IPO. A change to Nasdaq rules allowed SpaceX to be included in index funds, meaning any losses will be felt by passive investors. The lockup expiration is the next test for a company whose narrative has shifted from space exploration to AI infrastructure.

Source:The Verge News