SpaceX and Google Already Have a $100 Billion Connection. Their Next Project Could Propel Their Partnership Even Further

As Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) expands its artificial intelligence (AI) models and looks for more data center capacity, the company is reportedly in talks with SpaceX to explore the idea of developing orbital data centers in space.

This potential technology is still in its infancy, so nothing is set in stone right now, but if Alphabet and SpaceX were to collaborate on such a project, it would further intertwine these two leading tech companies.

Here's why it matters for both companies and what investors should know.

Image source: Getty Images.

The $100 billion thread connecting SpaceX and Alphabet

You may recall that in 2015, Alphabet invested in SpaceX and now holds a 6% stake in the company. SpaceX is gearing up for its in initial public offering (IPO) at a valuation of as much as $2 trillion -- making Alphabet's stake worth an estimated $100 billion.

That would be a huge gain for Alphabet if it sold its stake after SpaceX went public. Or, it may choose to hold onto its position and see if the rocket company's valuation goes even higher.

Either way, the tie-in between the two companies has played out in a way neither one likely anticipated: Both companies are helping to shape a world increasingly focused on AI, and they could build on their past partnership to further their AI goals.

An out-of-this-world idea with real-world benefits

Launching data center satellites into space for artificial intelligence computing may sound like science fiction. Still, Alphabet, SpaceX, and other tech companies think the idea is viable enough to at least begin exploring.

The hope is that the orbital data centers would be powered by free solar energy and avoid taking up large swaths of land on Earth -- something that's been a point of contention for people who live near data centers.

The technology is still in its developmental stage, and there are plenty of hurdles to overcome. Managing heat from data centers and space radiation are two problems in particular.

But SpaceX appears to be focused on the idea, and the company filed paperwork earlier this year for potentially launching as many as 1 million orbital data centers into space. Separately, Alphabet is working with a company called Planet Labs to have 81 satellite clusters in space for AI data centers, which the company calls Project Suncatcher.

Aside from starting projects that sound like a Ryan Gosling movie, Alphabet is hoping to be on the cutting edge of AI data center infrastructure. The emphasis on moonshot projects like this comes as data center capacity demand grows, and the resulting energy demand from data centers could spike as much as 165% by 2030.

Alphabet wants to keep pace in an increasingly competitive AI race

Other AI companies are exploring orbital data centers, too, with SpaceX recently saying that Anthropic has "expressed interest" in developing multiple gigawatts of orbital AI compute capacity.

Alphabet is already a leading AI stock, with the company selling artificial intelligence services through Google Cloud, creating a top AI model in Google Gemini, and infusing AI into Google Workspace, its ad business, and other services.

The company is making as much as $190 billion in capital expenditures this year alone, mostly for AI, so it's not surprising that Alphabet is exploring all potential data center options right now, no matter how long-term the outlook is. Alphabet Chief Executive Officer Sundar Pichai said last year that orbital data centers may seem like a normal thing in a decade or more.

Alphabet investors don't need to do anything on this latest news. Still, it's worth keeping a close eye on any further connection between Alphabet and SpaceX, as well as advancements in data centers. With Alphabet's 6% stake in SpaceX, anything that's good for the rocket company could be good for Alphabet investors, too.

If orbital data centers, ahem, take off, then SpaceX's early moves could look prescient, and Alphabet's early investment in SpaceX will become an even wiser bet.

Chris Neiger 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.