xAI’s Neocloud Pivot Eats Up SpaceX Capital Expenditure

Elon Musk’s xAI has been lagging in its fight with fellow large language model providers OpenAI and Anthropic for consumer and enterprise market share, with its Grok chatbot up against ChatGPT and Claude. SpaceX’s SPCX second-quarter earnings reveal it may be giving up that fight altogether as adoption of Grok stalls.

The earnings report, which is the most detailed picture to date of the financial inner workings of an LLM provider, explains xAI’s pivot to become an AI neocloud company by renting out access to AI infrastructure. But with expenses in the vertical exploding 105% in the second quarter, that’s an expensive proposition.

“Frankly, the only way for [xAI] to make money right now is in data centers, and they’ve been building very fast,” says Morningstar equity analyst Nicolas Owens. The company is building out its Colossus II data center in Tennessee and Mississippi, and it’s expanding its Colossus I center in Memphis.

“Right now, it’s a gold rush for compute capacity, and they’ve said as long as there’s demand, they’re going to keep building,” Owens says. But that building is coming at a huge cost to SpaceX. It spent more on AI in the second quarter alone than in all of 2025.

During the quarter, SpaceX’s AI capital expenditures more than doubled to $15.8 billion from $7.7 billion. Last year, xAI’s total capex spend was $12.7 billion. Looking at the entirety of SpaceX’s 2026 capex across segments, xAI spend accounted for $23.5 billion, or 82.7%, of the company’s $28.4 billion.

“It’s still really early days for [SpaceX’s] AI business,” Owens said. “I think it’s going to be a decade before they turn a profit on this, because they’re building as fast as they can and spending hand over fist for data centers.”

So far, there are some signs the pivot is paying off. On an adjusted EBITDA basis, xAI improved by leaps and bounds, moving from a loss of $609 million to a gain of $1.1 billion. Nearly all of that growth came from renting out GPU access, as the S-1 filings disclosed. Clients included Anthropic, which had signed a deal to become a major compute customer and agreed to pay $1.25 billion per month to rent GPU servers at Colossus I. SpaceX’s S-1 filing also revealed that Google signed a contract to rent access for $920 million a month.

“On the AI compute side, we’re able to deploy capital in such a way that we’re getting less than a one-year payback,” said SpaceX’s CFO Bret Johnsen during the Tuesday earnings call.

SpaceX investors endorse the pivot amid fears that, despite its acquisition of the agentic coding startup Cursor, xAI’s Grok can’t compete with Anthropic and OpenAI’s LLM offerings. “It’s an area SpaceX has never gone into, and it’s the one I am the least confident in,” says Michael Mealling, general partner at Starbridge Venture Capital, which is an investor in SpaceX. “I just don’t see the adoption rate on Grok that would suggest it’s going to unseat Claude and some of the bigger models, even some of the Chinese models that are coming out.”

Mealling says SpaceX is uniquely primed to become a major data center force because it can bring space tech development techniques and problem-solving to the vertical. He points out that heat dispersal, power distribution, and fire management are concerns space tech shares with data center development. “There’s a tremendous amount of capex and opex when it comes to data center operations that can be pulled out if you come at it from the mindset SpaceX does,” he explains. “A huge amount of this cross-interdisciplinary stuff can be done. So many of these are issues the space sector has been dealing with since the 1950s.”