SpaceX Is in Talks on a Multibillion Dollar Defense Contract. Here Is What It Means for Investors

In a move that could help validate SpaceX’s (NASDAQ:SPCX) enormous investment in artificial intelligence (AI), the company is reportedly discussing a multi-billion-dollar computing contract with the Department of Defense (DOD), as originally reported by The Wall Street Journal.

The terms of the agreement, while not yet confirmed by the Pentagon or SpaceX, would allow the Defense Department to use SpaceX’s data centers to run AI models. This could follow similar deals SpaceX has inked with Alphabet (NASDAQ:GOOG) and Anthropic, and place it among an exclusive group of cloud-computing providers that are supporting the Pentagon’s AI operations.

Although the deal remains tentative and, in The Journal’s words, “could fall apart,” the development may reveal something important for SpaceX investors. Let’s take a closer look.

Image source: The Motley Fool.

Why investors should pay close attention to this deal

To really understand the significance of this deal, we should step back and remember how closely SpaceX’s future is now tied to artificial intelligence.

Until Feb. 2, 2026, SpaceX was best known for launching rockets and managing its satellite-based internet service, Starlink. But in early February, SpaceX acquired xAI, forming a massive entity that’s now valued at about $1.6 trillion.

The acquisition not only brought two of Elon Musk’s businesses under the same roof but also provided xAI with a larger capital base to help it scale faster. The idea is that eventually, the AI business will become SpaceX’s major growth engine, even if it’s burning cash right now. Indeed, in SpaceX’s pre-IPO roadside show, the company claimed AI will unlock a $26.5 trillion market opportunity, whereas the market opportunity for the other two businesses is about $2 trillion.

Here’s the kicker, however: xAI generated an operating loss of about $6.4 billion in 2025. Although the rest of SpaceX’s operations helped offset some of that damage, the company still posted a net loss of about $4.9 billion for the year.

This is where the potential deal with the Pentagon comes in. If the Pentagon becomes a multi-billion-dollar customer, SpaceX’s AI segment could start carrying some of the financial load investors expect it to shoulder. At the very least, it could help offset this segment’s heavy losses, bringing the space company closer to profitability.

And this isn’t just any old customer, either. This is the DOD, a government agency. Once SpaceX is approved to handle its workloads, which, mind you, could contain sensitive or classified information, walking away from it won’t be easy, nor will it be cheap. Indeed, the high switching costs alone could turn this contract into a pretty durable, long-term revenue stream -- one that could increase in value if the agency decides to purchase more computing power over time.

Does the deal with the Pentagon make SpaceX a screaming buy right now?

I wouldn’t call SpaceX a screaming buy right now, nor even a murmuring one. And it has everything to do with SpaceX’s valuation right now.

The stock has been trading at a premium since its mid-June market debut. It currently trades more than 40% below its all-time high; even so, SpaceX trades at more than 80 times sales.

At the end of the day, SpaceX investors are being asked to believe in many things that seem outlandish at first glance. Lunar settlements, missions to Mars, orbital data centers. Some of these ambitions may eventually materialize; others could remain fantasies. For now, I would continue watching SpaceX from the sidelines, at least until its valuation comes back down to earth.

Steven Porrello has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.