As SpaceX Struggles with Break Issue Price, It Pitches Billions in AI Computing Power to the Pentagon

SpaceX is negotiating with the U.S. Department of Defense regarding the provision of data center computing power, with the potential agreement value reaching billions of dollars. This marks a further deepening of ties between Elon Musk's company and the Pentagon.

According to the Wall Street Journal, citing people familiar with the matter, the two parties are discussing arrangements for SpaceX to provide cloud computing capacity to the Department of Defense. Negotiations are ongoing and could ultimately fall through. This potential agreement would become one of the largest commercial collaborations between the two sides to date.

If the deal goes through, it will have a direct impact on the cloud computing market landscape. Currently, Amazon, Microsoft, Google, and Oracle are all major cloud service providers for the Pentagon. SpaceX's entry means that competition in this market will significantly intensify, particularly in the fast-growing segment of defense AI computing power.

These negotiations have once again placed Musk's political-business relationships under the spotlight of public opinion. The Pentagon has long relied on SpaceX for rocket launches, as well as the operation and management of communication and missile-tracking satellites.

Some national security officials have publicly expressed concern about the Pentagon's over-reliance on services provided by Musk's companies. Musk's substantial political donations during Trump's 2024 presidential campaign have also continued to raise questions about conflicts of interest. In response, Trump administration officials have denied these criticisms.

Following the news, SpaceX's stock price briefly rebounded quickly but then continued to decline, finally closing down 5.43% on Friday.

SpaceX Bets on Cloud Computing

SpaceX is positioning cloud computing as a key strategic direction.

The company has signed similar computing power supply agreements with Anthropic and Google, respectively, and plans to significantly expand its cloud computing business. In recent weeks, SpaceX employees have discussed offering computing power to AI clients at prices lower than those of existing suppliers like CoreWeave, directly participating in market competition.

In terms of computing infrastructure, SpaceX recently completed the acquisition of Musk's xAI and achieved a listing, incorporating the Grok AI model and its data centers into its business portfolio.

To rapidly scale up computing power, SpaceX quickly built a large data center in Memphis. Musk stated in the company's public filings that its construction speed is faster than that of competitors and costs are lower.

One of the company's strategies is to install gas turbines on-site for self-generated power, but this move has triggered a lawsuit alleging violation of environmental regulations. Additionally, SpaceX has previously pitched the concept of deploying data centers in space to investors.

From a business logic perspective, renting out computing power has proven to be more lucrative in the short term than selling the Grok AI model. It is reported that agreements with Anthropic, Google, and startup Reflection AI could collectively bring SpaceX hundreds of billions of dollars in annual revenue.

Pentagon Scrambles for AI Computing Power

The Department of Defense is heavily investing in AI infrastructure construction.

The Pentagon is seeking $30 billion in funding to support a new project called the "Artificial Intelligence Arsenal," with a focus on procuring high-end AI chips. This project has been outlined in documents related to the Department of Defense's fiscal year 2027 budget request and is currently under discussion and review by Congress.

Regarding supplier policy, the Pentagon has stated its desire to reduce reliance on any single technology company. The Department of Defense has recently approved multiple companies, including SpaceX, Amazon, Google, Microsoft, and Oracle, allowing them to provide AI models and related technologies in classified environments.

A dispute with Anthropic earlier this year further reinforced internal vigilance within the department regarding the risks of vendor lock-in. Currently, Amazon is the primary supplier of computing power for the Pentagon and is reportedly spending $50 billion to expand its service capabilities for government agencies, especially the Department of Defense.

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