SpaceX stock slipped in early trading Wednesday after a report said the Elon Musk led space and artificial intelligence company is preparing to make a major move into debt markets.
Bloomberg reported that SpaceX is seeking to issue $40 billion in new debt to purchase Nvidia chips for its data centers. The proposed financing would represent a sizable expansion of the company’s borrowing as it builds its AI computing operations.
According to the report, the financing would be divided between $10 billion in bank loans and $30 billion in investment grade debt. Bond investment giant PIMCO is looking at the deal, while Apollo Global is leading the financing.
Yahoo disclosed that it is a portfolio company of funds managed by affiliates of Apollo Global Management. The report did not provide additional terms for the proposed loans or investment grade debt.
The new borrowing would support a data center business that has become a major source of revenue for SpaceX. Its Memphis, Tennessee, data centers, known as Colossus 1 and Colossus 2, are generating billions of dollars each month in recurring revenue from AI compute services.
SpaceX Chief Financial Officer Bret Johnsen updated investors last month on the size and trajectory of the company’s AI compute operations. His comments pointed to AI hosting agreements as an important contributor to the company’s overall annual recurring revenue target.
“We’re on track, or we believe we’re on track, to hit $100 billion ARR,” Johnsen said about SpaceX’s overall annual recurring revenue target. The company expects AI compute deals to help fuel that growth.
Johnsen also described another hosting agreement that SpaceX had recently completed. “What I would tell you, an update to that is that just earlier this month we closed another hosting deal, and that translates into about $1.11 billion a month starting December 1st of this year, which is another roughly $13 billion of ARR.”
That business gives SpaceX an additional source of recurring revenue beyond the operations that have traditionally driven the company. SpaceX has historically relied on rocket launches and its Starlink internet service as its principal revenue engines.
Yorkville Ives analyst Dan Ives, a notable SpaceX bull on Wall Street, said the proposed financing would provide “firepower for [SpaceX’s] AI buildout.” At the same time, he acknowledged the debate surrounding the company’s expanding debt burden.
“The debate is whether a company this early in its public life should carry that much leverage. We think the contracted backlog in AI and the cash generation of Starlink give SpaceX the capacity to service it, and we would rather see this compute financed and deployed than deferred,” Ives said in a note published Wednesday morning.
Ives has an Outperform rating on SpaceX shares and a price target of $225. His position favors moving ahead with the computing expansion rather than delaying deployment because of concerns about leverage.
The reported $40 billion package would place substantial financing behind SpaceX’s demand for Nvidia chips. Of that total, three quarters would come through investment grade debt, while the remaining $10 billion would be provided through bank loans.
The stock’s early decline came as investors considered that financing plan alongside the company’s growing AI compute revenue. The report paired the prospect of heavier borrowing with management’s expectation for significant recurring revenue from hosting agreements.
Interest in SpaceX shares was already elevated earlier in the week. Morgan Stanley analyst Adam Jonas wrote that the stock was “cheap” and said the time to buy was ahead of the upcoming Starship 15 launch.
Jonas said the Starship 15 launch would likely be scheduled for late October or November. His assessment added another bullish Wall Street view shortly before the report about SpaceX’s proposed debt package and Nvidia chip purchases.
For SpaceX, the central figures are immense on both sides of the ledger. The company is reportedly considering $40 billion in new debt while targeting $100 billion in overall annual recurring revenue, with one recently completed hosting deal expected to contribute roughly $13 billion in ARR.