SpaceX Built AI Data Centers So Fast, Some Ran Without Backup Power for Months. Now It Faces a $920 Million Deadline.

SpaceX (NASDAQ:SPCX) has been building its AI business at warp speed. It turns out to be much more challenging to rapidly build reliable data centers than expected. Some of its facilities ran without backup power for months. That recently led the company to make some changes, including reshuffling its leadership team to ensure it can meet a looming deadline for a $920 million-a-month compute deal with Alphabet's (NASDAQ:GOOG)(NASDAQ:GOOGL) Google.

Here's a look at what went wrong and how SpaceX is racing to fix the problem.

Image source: The Motley Fool.

Building too fast

Engineering and reliability issues have surfaced at SpaceX data center sites in Tennessee and Mississippi. According to a recent report by The Information, several sites operated without backup cooling and power systems as the company pushed to expand capacity as fast as possible. That publication has previously reported issues at SpaceX data center sites, including that its Macrohand facility in Tennessee had to rely on over 100 mobile chillers and recorded uptime well below the company's 99.9% internal target. Meanwhile, the company used temporary gas turbines at its Mississippi data center longer than expected due to supply chain issues in delaying 41 permanent units. Temporary outages of the power and cooling systems have interrupted AI model training.

The company is investing heavily to expand its AI infrastructure as fast as possible. It spent about $15.8 billion on AI-related capex in the second quarter alone, double the first quarter's total. The $23.6 billion in first-half capital spend is a staggering $20 billion more than it invested in the year-ago period. That heavy investment spending is one of the reasons why SpaceX's AI division is dragging down its profitability ($3.7 billion in losses during the first half of this year). However, that heavy investment has enabled the company to scale its compute capacity from 0.4 gigawatts to 1.4 GW over the past year. That helped power a more than 210% surge in its AI revenue during the second quarter, which topped $2.5 billion. The company aims to increase its compute capacity to 2 GW by year-end, with more growth expected in 2027.

Why is it building so fast?

SpaceX needs to build data centers at warp speed because it's under a looming deadline. Google agreed to pay the company $920 million a month at full capacity for access to around 110,000 Nvidia GPUs. SpaceX must deliver these GPUs by Sept. 30. After a one-month grace period, Google may terminate the agreement, accept fewer GPUs, or reduce its payments in proportion.

Speed is a massive competitive advantage in the AI age. The faster a company can bring AI data center capacity online, the faster it can start earning revenue. It's why data center developers are turning to rapidly deployable solutions, including advanced fuel cells from companies like Bloom Energy (NYSE:BE), to accelerate their development plans. For example, Bloom delivered a fully operational fuel cell system to Oracle in just 55 days, more than a month ahead of schedule. That led Oracle to expand its strategic partnership to deploy up to 2.8 GW to accelerate the build-out of AI infrastructure.

How SpaceX is fixing its problems

SpaceX's reliability issues have forced it to make a couple of notable changes. It delayed plans for new data centers outside its Memphis hub, including proposed projects in Texas. That will give it some time to address its engineering and supply chain issues. The company is also developing a foundry in Texas to manufacture turbine blades and vanes. The lack of these components has caused major constraints in new gas turbine production. By manufacturing these components in-house, Elon Musk believes SpaceX could bring new gas turbines online up to 18 months faster, which he called a "profound game changer."

The company also shook up the management team responsible for its data centers. Several data center executives have left the company over the last few months. SpaceX has been replacing them with executives from its rocket and Starlink operations.

SpaceX doesn't want this opportunity to go to waste

SpaceX sees a galactic opportunity in AI. Roughly 90% of the $28 trillion total addressable market opportunity it identified at its IPO relates to AI. Speed is its competitive edge in capitalizing on this opportunity, which is why it's building data centers as fast as possible. However, customers like Google also require reliability, which is why the company is shaking up its data center leadership team and making other moves to improve reliability and speed. Failing at either speed or reliability poses a meaningful risk that investors should monitor, as it could jeopardize its Google contract and future AI ambitions.

Matt DiLallo has positions in Alphabet and Bloom Energy and has the following options: short October 2026 $150 puts on Bloom Energy. The Motley Fool has positions in and recommends Alphabet, Bloom Energy, Nvidia, and Oracle. The Motley Fool has a disclosure policy.