xAI, Elon Musk's artificial intelligence company that merged with SpaceX in February 2026, posted a $6.4 billion operating loss in 2025 and continued heavy spending in early 2026, according to SpaceX's IPO filing released ahead of the company's Nasdaq debut on June 12, 2026. The losses have raised concerns among analysts about whether the AI unit can justify its role in SpaceX's $1.75 trillion valuation, even as the company has already secured major compute contracts worth billions annually.

The financial picture is complex. SpaceX's underlying rocket launch and satellite business was profitable as recently as 2024, but the company reported a net loss of $4.27 billion in the first quarter of 2026 alone, compared to $528 million in the same period a year earlier. Much of that deterioration stems from xAI's infrastructure spending. The company carried an accumulated deficit of $41.3 billion as of March 31, 2026.

Yet supporters of the company argue these losses reflect strategic choice rather than fundamental weakness. SpaceX's revenue climbed 33 percent to $18.7 billion in 2025, up from $14.1 billion a year earlier. The company has also moved quickly to monetize its AI infrastructure through major contracts with tech giants.

What Are xAI's Major Revenue Contracts?

In the weeks leading up to the IPO, SpaceX announced two significant compute capacity deals that underscore the company's strategy to offset xAI's losses through infrastructure rental agreements. These contracts represent the first major revenue stream from the AI business and signal how quickly the company believes it can turn the unit profitable.

• Anthropic Agreement: The AI safety company agreed to pay $1.25 billion per month to rent the entire output of the Colossus 1 data center until May 2029, providing xAI with roughly $15 billion in contracted annual revenue from a single customer.
• Google Deal: Google agreed to pay SpaceX $920 million per month for compute capacity at xAI data centers in a 32-month deal running from October 2026 through June 2029, covering access to approximately 110,000 Nvidia GPUs and generating roughly $11 billion in annualized revenue.
• Combined Impact: The two contracts together represent approximately $26 billion in annualized compute revenue, secured in under four months and demonstrating rapid monetization of the Colossus infrastructure.

However, both agreements carry significant caveats that temper enthusiasm. Each contract includes 90-day termination clauses after December 2026, meaning either party can exit with relatively short notice. Additionally, Google has characterized its arrangement as "bridge capacity" rather than a permanent commitment, suggesting the tech giant views the deal as temporary infrastructure support rather than a long-term partnership.

Why Do Analysts View xAI as a Risk to SpaceX's Valuation?

Investment research firm Morningstar has been particularly critical of xAI's role in SpaceX's $1.75 trillion valuation. The firm argues that the AI unit "poses a material threat of value destruction," noting that Grok, xAI's chatbot product, has yet to win meaningful market share against established rivals like OpenAI's ChatGPT and Anthropic's Claude.

Morningstar values SpaceX at $780 billion, roughly 45 percent below the IPO valuation, and suggests that sustaining the higher share price would require revenues above $100 billion by 2030, implying compound annual growth of more than 40 percent. The firm's analysis highlights a central tension in SpaceX's investment thesis: the company is being valued as if xAI will become a major profit center, yet the AI business remains unproven in the consumer and enterprise markets where it competes.

The losses also reflect the enormous capital requirements of building AI infrastructure at scale. xAI spent heavily in the opening months of 2026 as it expanded its AI infrastructure, according to the IPO filing. This spending pattern is typical for companies building large language models and data centers, but it means xAI will need to generate substantial revenue from its compute contracts to offset the ongoing investment required to remain competitive.

How Are Supporters Defending xAI's Strategy?

Proponents of SpaceX's AI strategy counter that the losses reflect necessary investment in a high-growth market rather than structural problems with the business model. They point to the rapid success in securing major compute contracts as evidence that the market recognizes the value of xAI's infrastructure.

Supporters also emphasize that SpaceX's core rocket launch and satellite business remains highly profitable and dominant. SpaceX conducts more rocket launches annually than the rest of the world combined and counts over nine million Starlink subscribers. The company's unique position in space infrastructure, combined with its ability to build and operate large-scale data centers, creates a competitive advantage that few other companies can replicate.

From this perspective, investors are paying for future growth rather than current profits. The argument goes that xAI's infrastructure, powered by SpaceX's satellite network and launch capabilities, will eventually generate returns that justify the current investment. The Anthropic and Google contracts, secured before the IPO, are presented as early validation of this thesis.

Steps to Understanding xAI's Role in SpaceX's Future

• Monitor Contract Renewals: Watch whether Anthropic and Google renew or expand their compute agreements after the 90-day termination clauses expire in late 2026. Renewal would signal confidence in xAI's infrastructure; non-renewal would raise questions about the unit's long-term viability.
• Track Grok's Market Performance: Follow user adoption and revenue metrics for Grok, xAI's chatbot product. The company has not disclosed meaningful market share data, but any significant growth in Grok users or enterprise customers would support the bull case for xAI.
• Assess Infrastructure Utilization: Pay attention to how fully SpaceX utilizes its Colossus data center capacity. If the company struggles to fill available compute resources with paying customers, it suggests demand for AI infrastructure may be weaker than the IPO valuation assumes.
• Evaluate Profitability Timeline: Look for company guidance on when xAI is expected to reach profitability. A clear path to positive cash flow would reduce concerns about value destruction, while continued heavy losses would validate skeptics' concerns.

The xAI question will likely dominate investor discussions about SpaceX in the months ahead. The company's IPO filing makes clear that the AI unit is central to management's growth strategy, yet the unit's losses and unproven market position create genuine uncertainty about whether the current valuation can be sustained. The answer will depend heavily on whether the company can convert its infrastructure advantages into durable, profitable revenue streams.