SpaceX has confidentially filed for an initial public offering (IPO) that could raise up to $75 billion, making it potentially the largest stock market listing ever. The aerospace company, which recently acquired Elon Musk's AI startup xAI, is targeting a valuation of $1.75 trillion. But as SpaceX prepares to go public, industry experts are raising a cautionary flag: the company's ambitious plan to launch up to 1 million orbital data center satellites mirrors a similar venture that Microsoft quietly abandoned after spending years and significant resources .

What Happened to Microsoft's Undersea Data Center Dream?

In 2015, Microsoft launched "Project Natick," an ambitious effort to deploy data centers on the ocean floor off the coast of Scotland. The company believed that seawater cooling and access to offshore wind and tidal power could solve the energy constraints plaguing traditional data centers. Technically, the project succeeded. Microsoft proved that underwater data centers could work and met all its technical targets. Yet the company abandoned the initiative more than two years ago .

The reason was not technical failure but economic reality. Customers showed no interest in scaling underwater data centers. Instead, they continued expanding conventional land-based facilities that offered cheaper and faster upgrades as artificial intelligence (AI) development accelerated rapidly. The sealed, "locked-for-life" design that Microsoft used, which SpaceX plans to replicate in orbit, has limited flexibility. AI chips improve dramatically every year, but a satellite or undersea data center might only be replaced every five to seven years .

"While we don't currently have datacenters in the water, we will continue to use Project Natick as a research platform to explore, test, and validate new concepts around datacenter reliability and sustainability," stated a Microsoft spokesperson.

Microsoft Spokesperson

Why Are Experts Worried About SpaceX's Orbital Plan?

Five data center specialists told Reuters that what derailed Microsoft's underwater ambitions is a cautionary tale for SpaceX. Although the two projects operate in vastly different environments, they share critical similarities. Both rely on modular units that are expensive to deploy and cannot be easily expanded, repaired, or upgraded. These capabilities are considered essential by the AI industry as it evolves .

"These problems are likely to be more severe in space than under the sea," explained Roy Chua, founder of industry research firm AvidThink, pointing to unresolved questions over how to cool data centers in orbit, high rocket launch costs, and the effects of the harsh space environment on AI chips.

Roy Chua, Founder of AvidThink

The economic hurdles are substantial. Deploying data centers in space would be far more expensive than building on land. Analysts at MoffettNathanson estimate that Musk's plan to place 1 million AI satellites in orbit would cost trillions of dollars. For space-based data centers to become commercially viable, launch costs would need to plummet from today's low thousands of dollars per kilogram to the low hundreds of dollars per kilogram .

How SpaceX Plans to Overcome These Challenges

• Starship Development: SpaceX's next-generation rocket, Starship, is designed to be fully reusable and carry far larger payloads than the company's Falcon rockets. However, Starship is years behind schedule and has experienced explosive setbacks during 11 suborbital test flights since 2023. MoffettNathanson estimates that achieving Musk's goal would require 3,000 Starship launches per year, or roughly eight per day .
• Cost Reduction Strategy: Musk says he will overcome technical and financial hurdles, including radiation exposure, heat management in a vacuum, and the need for frequent hardware replacement, by sharply lowering launch costs and developing more resilient AI chips .
• Demand Projection: Musk argues that demand will not be an issue because Earth's energy resources will quickly be depleted as AI becomes necessary to support a world where robots outnumber humans, all cars drive themselves, and space travel becomes routine. He estimates that within two to three years, the lowest cost way to generate AI compute will be in space .

Musk's case hinges entirely on Starship's success and dramatic reductions in launch costs. Yet independent satellite industry analyst Tim Farrar expressed skepticism about the underlying premise. "The problem is not whether something can work, but whether it makes sense economically versus simply building more capacity on the ground," Farrar noted .

What Do Industry Leaders Actually Think About Space-Based AI?

Even prominent technology executives are unconvinced about the near-term viability of orbital AI infrastructure. Nvidia Chief Executive Jensen Huang stated that the economics of space-based AI data centers remain unattractive. "We should definitely work on the ground first because we're already here," Huang said, describing orbital AI infrastructure as a longer-term engineering challenge rather than a near-term solution .

Industry research director Claude Rousseau at Analysys Mason, who tracks satellite markets, believes space data centers do have a future, but a limited one. "I strongly believe that there'll be no way in the foreseeable future that space-based data centers can replace ground data centers," Rousseau stated. Instead, he suggested that orbital data centers would more likely serve niche applications, such as processing data for military satellite constellations and space stations .

The International Space Station already hosts experimental systems designed to process data in orbit and reduce reliance on downlink bandwidth, demonstrating that some space-based computing has practical applications. However, this remains far removed from Musk's vision of 1 million AI satellites powering global computation .

SpaceX's IPO filing represents a watershed moment for the space industry, potentially unlocking tens of billions in capital for ambitious projects. Yet the company's orbital data center strategy carries significant execution risk. Microsoft's experience shows that even technically successful ventures can fail if economics and customer demand don't align. As SpaceX prepares to go public, investors will need to weigh Musk's optimistic timeline against the sobering lessons of recent history .