SpaceX considered as a leasing company

Buying picks and shovels in a gold rush is an investment cliché that dates back to the dotcom bubble, when people used it as a justification for avoiding frothy internet commerce businesses like Amazon and instead concentrating on the hard physical asset companies which were providing the infrastructure of the internet. Like Enron, or Global Crossing.

These days, the proverb is often applied to the AI gold rush, and in particular the companies building the data centres that power scale-obsessed frontier labs. And the numbers look pretty persuasive.

Possibly the most interesting thing in the SpaceX IPO prospectus (if not the most spectacular) was a little nugget of information about its data centre business. Because Elon Musk has a “dual monetisation strategy” — in case the whole Mars thing doesn’t work out — SpaceX had to tell us a bit about the current rental market for data centre chips. Alphaville’s emphasis in bold below.

Compute Services Agreements with Third PartiesWe believe our compute infrastructure and related strategy provides us with substantial flexibility in how we allocate and monetize capacity. We have the ability to use compute resources to support our proprietary AI applications (such as Grok 5, which is currently being trained at COLOSSUS II), while also providing access to select compute capacity to third-party customers. For example, in May 2026, we entered into Cloud Services Agreements with Anthropic PBC (“Anthropic”), an AI research and development public benefit corporation, with respect to access to compute capacity across COLOSSUS and COLOSSUS II. Pursuant to these agreements, the customer has agreed to pay us $1.25 billion per month through May 2029, with capacity ramping in May and June 2026 at a reduced fee. The agreements may be terminated by either party upon 90 days’ notice. The customer will retain ownership and intellectual property rights in its content, AI models, and related data. This structure allows us to monetize unused compute capacity in our infrastructure, while still permitting reallocation of the capacity for our own internal initiatives if needed in the future. We have sufficient capacity to provide compute for our own AI models, including support of our training and inference demands, and to satisfy the obligations under these agreements. We expect to enter into additional similar services contracts. We believe this opportunity highlights the increasing importance of large-scale, frontier-level AI infrastructure and positions us as a differentiated provider of high-performance compute capacity to both internal and third-party AI workloads. We believe our dual monetization strategy provides multiple pathways to generate returns on invested capital.

Compute Services Agreements with Third Parties

We believe our compute infrastructure and related strategy provides us with substantial flexibility in how we allocate and monetize capacity. We have the ability to use compute resources to support our proprietary AI applications (such as Grok 5, which is currently being trained at COLOSSUS II), while also providing access to select compute capacity to third-party customers. For example, in May 2026, we entered into Cloud Services Agreements with Anthropic PBC (“Anthropic”), an AI research and development public benefit corporation, with respect to access to compute capacity across COLOSSUS and COLOSSUS II. Pursuant to these agreements, the customer has agreed to pay us $1.25 billion per month through May 2029, with capacity ramping in May and June 2026 at a reduced fee. The agreements may be terminated by either party upon 90 days’ notice. The customer will retain ownership and intellectual property rights in its content, AI models, and related data.

This structure allows us to monetize unused compute capacity in our infrastructure, while still permitting reallocation of the capacity for our own internal initiatives if needed in the future. We have sufficient capacity to provide compute for our own AI models, including support of our training and inference demands, and to satisfy the obligations under these agreements. We expect to enter into additional similar services contracts. We believe this opportunity highlights the increasing importance of large-scale, frontier-level AI infrastructure and positions us as a differentiated provider of high-performance compute capacity to both internal and third-party AI workloads. We believe our dual monetization strategy provides multiple pathways to generate returns on invested capital.

Since this was published, more details about this deal have slipped out. It seems that Anthropic has agreed to take on more or less the entire compute of the Colossus I data centre near Memphis. Depending on whether you believe Epoch AI or Global Data Center Hub, this cost between $7bn and $13bn to build and kit out with GPUs.

It uses around 350MW of electricity, which costs about $150mn at US wholesale prices; let’s allow the same again for other costs like insurance, staffing and maintenance. And let’s be really conservative and allow a three year depreciation life for the GPUs. That would mean that all told, the running expenses and depreciation for Colossus I will be somewhere between $3bn and $4.5bn.

That means that if it is being rented out for $1.25bn a month, the return on investment is likely to be more than 100 per cent.

You can do a little ready reckoner to see the effect of different assumptions, but they’re not really going to make a practical difference; this is an asset which likely cost no more than $13bn to make, and should generate $15bn of rental payments in the first year.

In other words, it’s a very profitable business, and consequently, we should guess that most other data centre projects look pretty good on the numbers right now. On the most recent earnings conference call, SpaceX’s CFO Bret Johnsen confirmed that their AI capex was seeing a payback period of less than one year.

Nice work if you can get it. But in many ways, it seems a little bit too nice, in a way that will be familiar to students of financial history.

Leasing businesses often show up during technological revolutions. For example, there was a bubble in computer leasing stocks in the 1970s, famously described in “The Money Game” by Gerry Goodman

“My solution to the current market,” the Great Winfield said, “Kids. This is a kid’s market. This is Billy the Kid, Johnny the Kid, and Sheldon the Kid.” “Aren’t they cute?” the Great Winfield asked. “Aren’t they fuzzy? Look at them, like teddy bears. It’s their market. I have taken them on for the duration. I give them a little stake, they find the stocks, and we split the profits,” he said. “Billy the Kid here started with five thousand dollars and has run it up over half a million in the last six months.” “Wow!” I said. I asked Billy the Kid how he did it. “Computer leasing stocks, sir!” he said, like a cadet being quizzed by an upperclassman. “The need for computers is practically infinite,” said Billy the Kid. ”Leasing has proved the only way to sell them, and computer companies themselves do not have the capital. Therefore, earnings will be up 100% this year, will double next year, and will double again the year after that. The surface has barely been scratched. The rise has scarcely begun.”“Look at the skepticism on the face of this dirty old man,” said the Great Winfield, pointing at me. “Look at him, framing questions about depreciation, about how fast these computers are written off. I know what he’s going to ask. He’s going to ask what makes a finance company worth fifty times earnings. Right?” “Right,” I admitted. Billy the Kid smiled tolerantly, well aware that the older generation has trouble figuring out the New Math, the New Economics, and the New Market. “You can’t make any money with questions like that,” said the Great Winfield. “They show you’re middle-aged, they show your generation. Show me a portfolio, I’ll tell you the generation.”

“My solution to the current market,” the Great Winfield said, “Kids. This is a kid’s market. This is Billy the Kid, Johnny the Kid, and Sheldon the Kid.” “Aren’t they cute?” the Great Winfield asked. “Aren’t they fuzzy? Look at them, like teddy bears. It’s their market. I have taken them on for the duration. I give them a little stake, they find the stocks, and we split the profits,” he said. “Billy the Kid here started with five thousand dollars and has run it up over half a million in the last six months.” “Wow!” I said. I asked Billy the Kid how he did it. “Computer leasing stocks, sir!” he said, like a cadet being quizzed by an upperclassman. “The need for computers is practically infinite,” said Billy the Kid. ”Leasing has proved the only way to sell them, and computer companies themselves do not have the capital. Therefore, earnings will be up 100% this year, will double next year, and will double again the year after that. The surface has barely been scratched. The rise has scarcely begun.”

“Look at the skepticism on the face of this dirty old man,” said the Great Winfield, pointing at me. “Look at him, framing questions about depreciation, about how fast these computers are written off. I know what he’s going to ask. He’s going to ask what makes a finance company worth fifty times earnings. Right?” “Right,” I admitted. Billy the Kid smiled tolerantly, well aware that the older generation has trouble figuring out the New Math, the New Economics, and the New Market. “You can’t make any money with questions like that,” said the Great Winfield. “They show you’re middle-aged, they show your generation. Show me a portfolio, I’ll tell you the generation.”

And computer leasing has always looked like a fantastic business. Except when it doesn’t, as in the case of OPM Leasing, the company which popularised the phrase “Other People’s Money”.

The trouble with computer leasing is always in the break clauses; the client is prepared to pay a premium to lease equipment because it really needs the computer services, and for some reason it can’t get them any other way.

But the client obviously doesn’t actually want to be paying out enough to build someone else a new data centre every year, so they are likely to always be looking for alternatives. And when they find another way to get the compute that they need, the lease payments dry up quite quickly.

In other words, lease revenue of this kind is something you should expect to have for a good time rather than a long time.

The very fact that it’s so profitable tends to attract market entry. As Nassim Taleb puts it, you often get gluts that aren’t followed by shortages, but it’s very rare to get a shortage that’s not followed by a glut. And the historical record suggests that when the scarcity starts to be relieved, it very quickly becomes a good idea not to have leveraged too much, and not to have invested on the basis of valuations that depended on returns that couldn’t be sustained.

That’s true for SpaceX, but it’s also true of every other data centre project financed by private capital.

For shovels to be a great business, you need two things — people who are prepared to pay almost anything for shovels because they are convinced that they are about to strike gold, and a shortage of shovels.

The future profitability of the AI companies is almost impossible to forecast. But the question of whether the price of rented compute is sustainable at anywhere near the current levels might be a lot easier to answer.