SpaceX, amid being mired in a stock price slump, is pitching billions of dollars' worth of AI computing power to the Pentagon.

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SpaceX is in negotiations with the U.S. Department of Defense to provide data center computing power, with the deal potentially reaching several billion dollars, further deepening the ties between Elon Musk’s company and the Pentagon.

According to sources cited by The Wall Street Journal, the two sides are discussing arrangements for SpaceX to provide cloud computing capacity to the Department of Defense. Negotiations are ongoing and could ultimately break down. If successful, this potential deal would be one of the largest commercial collaborations between the two parties to date.

Once the deal is finalized, it will directly impact the cloud computing market landscape. Currently, Amazon, Microsoft, Google, and Oracle are the main cloud service providers for the Pentagon. SpaceX’s entry means competition in this market will intensify significantly, especially in the rapidly growing segment of defense-related AI computing power.

The talks have once again put Musk’s political and business relationships in the public spotlight. The Pentagon has long relied on SpaceX for rocket launches as well as for the operation and management of communications and missile-tracking satellites.

Some national security officials have publicly expressed concerns about the Pentagon’s excessive reliance on Musk's companies, and Musk’s large political donations to Trump’s 2024 presidential campaign continue to raise questions about potential conflicts of interest. In response, Trump administration officials have denied these criticisms.

After the news was released, SpaceX’s stock price initially rebounded rapidly but then continued to decline, ultimately closing down 5.43% on Friday.

SpaceX Bets on Cloud Computing

SpaceX is now making cloud computing a key strategic direction.

The company has signed similar computing power supply agreements with Anthropic and Google, and plans to rapidly expand its cloud computing business. In recent weeks, SpaceX employees have discussed offering computing power to AI customers at lower prices than existing providers like CoreWeave, directly engaging in market competition.

In terms of computing infrastructure, SpaceX recently completed the acquisition and listing of xAI, another Musk-owned company, bringing the Grok AI model and its data centers into its business portfolio.

To quickly boost computing capacity, SpaceX is rapidly building a large data center in Memphis. Musk said in company filings that its construction speed surpasses competitors and costs are lower.

One of the company’s strategies is to install gas turbines onsite to generate its own electricity, a move that has led to a lawsuit alleging environmental violations. In addition, SpaceX has promoted the concept of deploying data centers in space to investors.

Commercially, leasing computing power has proven to be more lucrative in the short term than selling Grok AI models. Reportedly, agreements with Anthropic, Google, and the startup Reflection AI may bring SpaceX tens of billions of dollars in annual revenue.

The Pentagon Seizes AI Computing Power

The Department of Defense is making heavy investments in AI infrastructure.

The Pentagon is seeking $30 billion to support a new project called the “Artificial Intelligence Arsenal”, focusing on acquiring high-end AI chips. The project has been described in the DoD’s 2027 budget request documents and is currently under discussion in Congress.

In terms of supplier policy, the Pentagon says it wants to reduce its dependence on any single tech company. The Department of Defense has recently approved multiple companies, including SpaceX, Amazon, Google, Microsoft, and Oracle, to provide AI models and related technologies in classified environments.

A dispute with Anthropic earlier this year further heightened the department’s awareness of supplier lock-in risks. Currently, Amazon is the Pentagon’s main provider of computing power and is reportedly spending $50 billion to expand its services for government agencies, especially the Department of Defense.

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