Key Points
Space Exploration Technologies isn't best known as an AI company, but its neocloud business is growing rapidly.
SpaceX's rise in the neocloud space could present challenges for CoreWeave.
CoreWeave stock has been under pressure lately. Investors are concerned about the company's heavy debt load, plans for additional large capital expenditures to continue building out its artificial intelligence (AI) data center footprint, and surging interest expenses.
Making matters worse, the company is facing ramping competition in the neocloud space. Space Exploration Technologies (NASDAQ: SPCX) built its name around its reusable rocket technologies, orbital launch services, and its Starlink satellite communications network, but the company is also rapidly scaling its neocloud business. That could create additional pressures for CoreWeave.
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SpaceX has rapidly become a neocloud leader
SpaceX's recently published third-quarter report showed that sales for its artificial intelligence businesses surged 830% higher year over year to reach $7.56 billion. Meanwhile, its space segment's sales increased 6% to $1.77 billion, and its connectivity segment grew revenue by 69% to $5.25 billion. In other words, the company's AI businesses now generate more money than its space and connectivity segments combined.
SpaceX's AI revenue includes contributions from Grok and other sources, but the large majority of its segment sales in the quarter likely came from renting out compute to customers.
For comparison, CoreWeave posted revenue of roughly $2.58 billion. The company will likely see a substantial sequential quarterly sales increase, but SpaceX's neocloud business is likely generating substantially more revenue.
Extremely high demand means neocloud providers currently enjoy very strong pricing power, but that doesn't mean the space is immune to competitive dynamics. As the emerging powerhouse in the neocloud space, SpaceX has strong positioning that could eventually pressure CoreWeave. SpaceX also has much more solid financial footing, potentially giving it the ability to explore pricing options that would prove seriously problematic for CoreWeave.
SpaceX's rise could make it harder for CoreWeave to secure the level of access to next-generation processors it wants from Nvidia. On the one hand, Nvidia's substantial stake in CoreWeave suggests that the neocloud specialist will remain a preferred customer. On the other hand, Nvidia actually holds a substantially larger position in SpaceX.
That doesn't necessarily mean Nvidia would deprioritize CoreWeave or divest its stock, but the graphics processing unit (GPU) leader also famously isn't wed to its investment positions -- having completely exited holdings in companies including Applied Digital and SoundHound AI in high-profile moves. If Nvidia finds itself weighing the significance of its relationship with CoreWeave against that with SpaceX, it's hard to imagine many scenarios in which the former comes out on top.
SpaceX's rise in the neocloud space doesn't necessarily mean CoreWeave is doomed, but it could create additional stress points that complicate the scaling and GPU lifecycle models used to suggest strong opportunities, despite the business's large debt load.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends SoundHound AI. The Motley Fool has a disclosure policy.