Yesterday Elon Musk’s SpaceX, a conglomerate of a profitable defense space contractor, a social media company and a disastrously loss making intelligence simulation (AI) unit had its initial public offering at the stock market.
The banks involved in the launch did their usual thing and within a day the stock price increased some 19% from its offering baseline.
Unfortunately the total value of the company is only less than half of what its stock price says.
The original SpaceX has become a somewhat solid business. The civil Starlink internet access business, and its secret military variant which is also provided by SpaceX, are profitable enough to finance additional future space endeavors.
Adding the former Twitter to it was to bail out those who had lost half of their investment when they joined Musk in buying the tweeting blue bird business for a way to expensive $44 billion.
Adding xAI was done to obfuscate the enormous losses Musk’s AI company will make in the foreseeable future. The marketing hook for adding xAI to SpaceX is the idea of providing AI computing power in space.
I doubt that this will ever happen at scale. Sure, there is sufficient energy available if you put up large size solar collectors. But one will also need to cool and heat those computers in space which is, without an atmosphere, not a trivial problem. There is also a lot of radiation in space which tends to destroy electronic circuits unless one provides those with heavy shielding. What are the transport costs for putting 100,000 GPUs and the necessary support systems into space?
It may well be that xAI that will one day break the whole SpaceX business. Despite the hype around them all U.S. AI providers, Open AI, Anthropic, xAI, Google and Meta, have yet to find profitable use cases for their products.
AI models require an immense amount of computing power for training as well as for interference, i.e. for answering a users questions. So far all AI products currently on the markets have been heavily subsidized. Given that these models are unpredictable in their results and accuracy there is doubt that many user will be willing to pay for what their usage really costs. Sure, there is room for some high end niche products but these companies have yet to identify a sufficiently price-able mass market.
Promotions of AI excellence don’t necessarily help their cases:
KPMG report contained AI hallucinations on benefits of . . . AI (archived) – FT
A KPMG report on how AI is being used by businesses across the world exaggerated adoption of the technology with bogus case studies that appear to have been based on AI hallucinations.
The October report, “Redefining excellence in the age of agentic AI”, made numerous false claims about the use of AI by organisations including the Swiss bank UBS, the UK’s National Health Service and the public transit groups Swiss Federal Railways and Transport for London.
The inaccuracies were identified as AI hallucinations by the research group GPTZero and verified by the FT.
While I find it amusing to follow the hilarious development of the Large Language Model AI sector I am sorry for the enormous waste of money which it entails. It could have been used for much better purpose.