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The math at market price
At normal market pricing, a $50 billion gigawatt earns $10 to $15 billion a year, so it pays back over four to five years, and a sixth year lifts returns well above 20%. A few months ago, that was the expectation.
Why payback is a year
The shortage of compute is so acute that frontier labs pay three, four, or five times market pricing, because they believe they are on the verge of major breakthroughs. That pricing is what shortens the payback to about a year. Anthropic would buy more compute from SpaceX today if it could, and so would OpenAI. No one expects the one-year payback to last.
Paying for six gigawatts
SpaceX expects 2 gigawatts of compute by the end of the year and 5 to 10 next year, closer to 10. For comparison, Anthropic and OpenAI together began this year with about 5 gigawatts. Adding 6 gigawatts would cost $300 billion. Paying for it means borrowing, raising dilutive equity, or getting Nvidia to backstop the purchase, and Nvidia shareholders don't want an unlimited backstop in case the spot price turns.
Why is a gigawatt the unit for data centers?
Chips draw electricity, and the power a site can obtain is often what limits how many of them it can run. Data centers also need cooling and electrical equipment, which add to the draw beyond the chips themselves. Developers therefore describe projects by how many gigawatts they can connect to the grid. A gigawatt is a billion watts, roughly the output of one large nuclear reactor.
Why do compute shortages push prices above market?
The most advanced AI chips come from a small number of factories, with TSMC in Taiwan making most of the leading ones. Building a data center and connecting it to the power grid takes years, so supply cannot rise quickly when demand jumps. Buyers who need capacity soon bid against each other for what exists. Lawrence Berkeley National Laboratory reported about 2,600 gigawatts of generation and storage waiting in US interconnection queues at the end of 2023.
How does a chip supplier backstop a customer's purchase?
A backstop is a commitment to cover a shortfall, such as agreeing to buy unused capacity or guaranteeing a loan. It lowers a lender's risk, so the lender accepts a lower interest rate. It resembles vendor financing, where a supplier helps customers pay for its own products. Vendor financing was common among telecom equipment makers in the late 1990s.
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