Data Centers In Spaaaace!

Pigs in Spaaaace!

The AI bubble has been kept inflated by journalists uncritically reporting whatever CEOs say as they frantically pump the stock. Right now, you can observe a wonderful example of this by searching the Web for "orbital data centers". My recent search turned up pages of links, including SpaceX’s Lofty IPO Valuation Hinges on Big Bet on Outsize Growth from Bloomberg's Bailey Lipschultz, Sana Pashankar, and Loren Grush:

To buy into SpaceX’s audacious $1.5 trillion valuation in a listing next year, investors will need to have faith in Elon Musk’s equally galactic vision for his rocket and satellite maker, from orbital data centers to lunar factories to human settlements on Mars.

I chose one that ought to be more credible than Musk from Scientific American. Jeremy Hsu's Data Centers in Space Aren’t as Wild as They Sound reports that:

In early November Google announced Project Suncatcher, which aims to launch solar-powered satellite constellations carrying its specialty AI chips, with a demonstration mission planned for 2027. Around the same time, the start-up Starcloud celebrated the launch of a 60-kilogram satellite with an NVIDIA H100 GPU as a prelude to an orbital data center that is expected to require five gigawatts of electric power by 2035.

To do Hsu justice, he did point out a few of the problems. But follow me below the fold for more.

Mind The GAAP

Senator Everett Dirksen is famously alleged to have remarked "a billion here, a billion there, pretty soon you're talking real money".

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Oracle is talking real money; they're borrowing $1.64B each working day. Mr. Market is skeptical that the real money is going to be repaid, as Caleb Mutua reports in Morgan Stanley Warns Oracle Credit Protection Nearing Record High:

A gauge of risk on Oracle Corp.’s (ORCL) debt reached a three-year high in November, and things are only going to get worse in 2026 unless the database giant is able to assuage investor anxiety about a massive artificial intelligence spending spree, according to Morgan Stanley.

A funding gap, swelling balance sheet and obsolescence risk are just some of the hazards Oracle is facing, according to Lindsay Tyler and David Hamburger, credit analysts at the brokerage. The cost of insuring Oracle Corp.’s debt against default over the next five years rose to 1.25 percentage point a year on Tuesday, according to ICE Data Services.

Mutua reports that:

The company borrowed $18 billion in the US high-grade market in September. Then in early November, a group of about 20 banks arranged a roughly $18 billion project finance loan to construct a data center campus in New Mexico, which Oracle will take over as tenant.

Banks are also providing a separate $38 billion loan package to help finance the construction of data centers in Texas and Wisconsin developed by Vantage Data Centers,

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But notice that only $18B of this debt appears on Oracle's balance sheet. Despite that, their credit default swaps spiked and the stock dropped 29% in the last month.

Below the fold I look into why Oracle and other hyperscalers desperate efforts to keep the vast sums they're borrowing off their books aren't working.