SpaceX's ambitious plan to deploy artificial intelligence data centers in orbit faces mounting skepticism from industry experts who point to a strikingly similar failed venture by Microsoft as a cautionary tale. As the company prepares for what could be the largest initial public offering in history, valued at up to $1.75 trillion, the viability of one of Elon Musk's most futuristic revenue ideas is increasingly under question .

What Happened to Microsoft's Underwater Data Center Experiment?

In 2015, Microsoft launched "Project Natick," an innovative underwater data center positioned off the coast of Scotland. The facility was designed to use seawater for cooling and operate largely independently once anchored to the seabed. The concept promised significant cost savings, since cooling represents one of the most expensive aspects of running data centers. The project also incorporated wind power, adding a sustainability angle that seemed promising .

However, the project ultimately failed. According to industry sources, the underwater data center was abandoned due to lack of client demand and unviable economics. Customers preferred traditional terrestrial facilities because they could be deployed faster and upgraded with newer hardware as technology evolved. This flexibility proved far more valuable than the theoretical cooling advantages .

Why Are Experts Comparing Musk's Plan to Microsoft's Failure?

The parallels between Project Natick and Musk's orbital data center vision are striking and troubling. Both projects rely on expensive, modular units that cannot be easily upgraded or repaired once deployed. Roy Chua, founder of industry research firm AvidThink, explained the core problem: "These problems are likely to be more severe in space than under the sea" .

"These problems are likely to be more severe in space than under the sea," said Roy Chua.

Roy Chua, Founder of AvidThink

The issue becomes even more critical when considering artificial intelligence hardware evolution. AI chips are advancing rapidly, with new architectures and optimizations emerging constantly. Once Musk deploys orbital data centers, they would be "locked-for-life," meaning a breakthrough in AI chip design could render the expensive satellites obsolete before they ever generate meaningful returns .

How Massive Are Musk's Space Data Center Plans?

Musk's vision extends far beyond a modest pilot program. According to company graphics, each data center satellite would dwarf the International Space Station. The ultimate goal involves deploying one million of these satellites into orbit. The sheer scale of this ambition creates multiple layers of financial and logistical challenges .

• Deployment Cost: Ars Technica editor Eric Berger estimated the barebones cost of launching one million satellites at least $1 trillion, while analysts at equity research group Moffett Nathanson suggested the actual cost could be multiple trillions of dollars
• Launch Cadence Required: Moffett Nathanson calculated that SpaceX would need to launch its Starship rocket 3,000 times per year, or eight times per day, to deploy the full constellation. Last year, the company completed 167 total rocket launches
• Starship Development Status: The Starship rocket, essential to this plan, remains years behind schedule and has exploded during many of its 11 flight tests, with none yet reaching Earth's orbit

These numbers underscore the gap between Musk's vision and current operational reality. Even if SpaceX secures the capital from its IPO, the company would face an unprecedented manufacturing and launch challenge .

What Do Industry Experts Actually Believe About Space Data Centers?

Skepticism runs deep among those who study the data center industry. Rousseau, a research director at consulting firm Analysys Mason, offered a blunt assessment: "I strongly believe that there'll be no way in the foreseeable future that space-based data centers can replace ground data centers" .

"I strongly believe that there'll be no way in the foreseeable future that space-based data centers can replace ground data centers," said Rousseau.

Rousseau, Research Director at Analysys Mason

If space data centers have any viable future, experts suggest it would be limited to niche applications, such as military operations or providing computing power to space stations. This represents a far cry from Musk's promise that orbital facilities will become the foundation of a new computing paradigm .

How Does This Affect SpaceX's IPO Valuation?

The IPO's $1.75 trillion valuation is partially built on the promise of these space-based data centers and other ambitious projects. However, financial analysts at PitchBook assign zero revenue to Musk's AI data center plans and his proposed Moonbase Alpha lunar colony. Instead, the valuation relies primarily on existing revenue streams from Starlink satellite internet, commercial launch services, and other established businesses .

PitchBook estimates that SpaceX earned $7.5 billion in profit last year on nearly $16 billion in revenue. The firm projects that growth from Starlink, launch services, and a nascent satellite phone service could boost profit to $60 billion and revenue to $150 billion by 2040. At that level, a $1.5 trillion valuation would be "expensive but not irrational," according to the analysis .

The critical question for investors is whether the company can deliver on its most speculative promises. The space data center plan, which captured significant attention during Musk's merger of SpaceX with his xAI artificial intelligence company in February, now faces serious credibility challenges based on historical precedent .

Steps to Evaluate SpaceX's Ambitious Claims

For investors considering the IPO, several practical approaches can help assess the company's prospects:

• Separate Core Business from Speculation: Distinguish between SpaceX's proven revenue streams (Starlink, commercial launches) and speculative ventures (space data centers, lunar bases). Evaluate the IPO valuation based primarily on demonstrated business performance rather than future moonshot projects
• Track Starship Development Progress: Monitor Starship's test flight results and timeline. The rocket is essential not only for data center deployment but also for NASA's Artemis lunar program. Delays or failures directly impact the company's ability to execute any large-scale space infrastructure plans
• Study Historical Precedents: Research Microsoft's Project Natick failure and other ambitious infrastructure projects that faced unexpected obstacles. Understanding why similar ventures have struggled can provide context for evaluating Musk's orbital ambitions

SpaceX remains a remarkable achievement in commercial spaceflight, with genuine accomplishments in satellite internet deployment and launch frequency. However, the company's most audacious plans face real technical and economic headwinds that even a record-breaking IPO may not overcome .