Scottish Mortgage: SpaceX could be ‘the monopolistic provider of AI to the world’

Managers Tom Slater and Lawrence Burns said SpaceX's scope for growth has broadened dramatically following its combination with xAI.

Baillie Gifford manager Tom Slater believes SpaceX could become ‘the monopolistic provider of AI to the world’ following its merger with xAI.

Taking questions from investors yesterday, the Scottish Mortgage (SMT) lead manager said the scale of opportunity from SpaceX ‘continues to broaden dramatically’.

In February, Elon Musk merged the rocket company with his artificial intelligence start-up xAI and social media platform X in a deal valuing the combined entity at $1.25trn — making it the most valuable private company in history.

Musk said the move was needed to launch data centres into space, build factories on the moon, and colonise Mars. On this first ambition, Slater agreed that space could be the answer to a serious power constraint on AI expansion. 

‘Our use of AI is expanding dramatically, but the amount of power that we’re generating on Earth is not,’ he said.

‘If we move AI compute to space, you can dramatically grow the amount of power that you’re using − through solar panels, through always being in daylight, and through not needing batteries to store that energy.’

‘If you look at SpaceX’s planned launch pattern, you’re going to be able to put huge amounts of power and huge amounts of AI compute into space in the coming years, and nobody else can do that.’

Slater added that the company is talking about generating energy equivalent to the entire output of America’s electricity grid every two years in space.

Earlier this year, SpaceX filed a request for regulatory approval for a constellation of up to one million satellites designed to operate as orbital data centres. Musk has suggested the infrastructure could become effective within two to three years, while OpenAI’s Sam Altman has called this timeline ‘ridiculous’.

Sceptics question whether the mission will ever be economically viable − every component of a satellite constellation, from compute hardware and solar panels to the large radiators required for cooling, needing to be launched into space, not to mention the conundrum posed by repairs. Even if costs do fall, these components do not yet exist on a commercial scale. 

In Slater’s view, ‘if the question is, is it cheaper to run a data centre on Earth or in space today, the answer is on Earth’. But he added that ‘you have to look at the trend lines’.  

While the cost of terrestrial infrastructure is rising against unprecedented demand, the cost of launch is falling exponentially, with SMT expecting this to drop by 80-90% in the coming years.

‘Then if you start building these satellites in a factory you benefit from all the efficiencies and cost declines you see in that environment,’ Slater added. ‘So, you can see a situation where these lines cross. The cost of a data centre on earth goes up, the cost in space goes down, and the moment that they cross, then that becomes this huge opportunity which only one company can have access to.’

Co-manager Lawrence Burns added that orbital AI is only one element of the investment case. The ‘beauty’ of SpaceX is the range of opportunities it touches, including global broadband, orbital transportation, micro-gravity manufacturing and its position in American missile defence.

Back in December, after a tender offer that valued SpaceX at $800bn, SMT’s holding ballooned from 8.2% to 15.3%. This edged the trust’s private assets above its 30% limit – an issue managers noted will soon become moot if Musk proceeds with an IPO anticipated for later this year.