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Six months ago, SpaceX was the rocket and satellite internet company most people knew it as. Today, it’s also one of the companies the Pentagon is reportedly negotiating with to help run its AI infrastructure, a shift that would have sounded strange even a year ago.
According to reporting from the Wall Street Journal, SpaceX is in talks with the Department of Defense over a multi-billion dollar contract that would let the Pentagon run AI models on SpaceX’s data centers. Nothing is finalized, and by the Journal’s own account, the deal could still fall apart. But the fact that it’s being discussed at all says a lot about how quickly SpaceX’s business has changed this year.
How SpaceX Became an AI Company, Basically Overnight
Until early February, SpaceX’s business was straightforward: rockets and Starlink, its satellite internet service. That changed when SpaceX acquired xAI, Elon Musk’s separate artificial intelligence company, merging the two into a single entity that went public in a June IPO under the ticker SPCX, reportedly valued in the range of $1.6 trillion at the time.
The pitch to investors was ambitious even by Musk-company standards. In pre-IPO materials, SpaceX reportedly told prospective investors that AI represents a $26.5 trillion market opportunity, dwarfing the roughly $2 trillion combined opportunity it sees in satellite internet and space launches. In other words, the company that made its name landing rockets is now betting its long-term future is mostly about AI infrastructure instead.
That bet comes with a real cost attached. The xAI side of the business reportedly posted an operating loss of around $6.4 billion in 2025, and even with the rest of SpaceX’s operations helping offset some of that, the combined company still posted a net loss of roughly $4.9 billion for the year. Since going public, the stock has fallen significantly, trading well below its post-IPO peak amid concerns about how expensive the shares are relative to the company’s actual revenue.
Why a Pentagon Deal Would Actually Matter
This is where the potential Defense Department contract comes in, and why it’s being watched closely rather than treated as just another headline.
SpaceX has already signed cloud-computing agreements with companies including Google and Anthropic, leasing out data center capacity to AI developers who need computing power. A Pentagon contract would be a different kind of customer entirely. Government contracts, especially ones involving sensitive or classified workloads, tend to come with high switching costs once an agency is set up and accredited to use a specific provider. That stickiness can turn into a durable, long-term revenue stream in a way that’s harder to walk away from than a typical commercial deal, for better or worse.
For a business currently burning significant cash on its AI ambitions, a large, sticky government contract is exactly the kind of thing that could start offsetting those losses over time, rather than requiring the company to keep funding an expensive bet purely on faith that it eventually pays off.
It’s also not without friction. Handing a government agency’s AI workloads to a company controlled by one individual has already drawn scrutiny from some officials concerned about concentrating that much sensitive infrastructure under a single person’s control, separate from any questions about SpaceX’s technical capability to do the work.
The Bear Case Investors Are Weighing
None of this automatically makes SpaceX’s stock a straightforward buy, and it’s worth understanding why some analysts remain cautious even with a potentially major contract in the pipeline.
The valuation is the central issue. Even after falling roughly 40% or more from its post-IPO high, SpaceX has reportedly traded at somewhere around 80 to 90 times sales, an extremely high multiple that assumes a huge amount of future growth is already baked into the current price. For comparison, most established tech companies trade at a fraction of that multiple.
Investing in SpaceX right now essentially means betting on a collection of ambitions that range from plausible to speculative: continued AI infrastructure growth, government contracts materializing at scale, and longer-term ideas like orbital data centers that remain unproven. Some of these bets may pay off. Others may not. A single potential Pentagon deal, even a multi-billion dollar one, doesn’t resolve that broader valuation question on its own.
The Bottom Line
A Pentagon AI contract would be a meaningful, credibility-building win for SpaceX’s push into artificial intelligence, and it’s a reasonable thing to watch if you’re following the company or considering the stock. But a deal that’s still being negotiated, with terms unconfirmed and acknowledged by reporting as something that could still collapse, is not the same thing as a deal that’s actually been signed.
For anyone considering the stock specifically, the honest takeaway is that this is a genuinely high-risk, high-uncertainty situation, not because the technology is unproven, but because so much of the current valuation depends on ambitions that haven’t been realized yet. This is general information, not investment advice, and any decision about a specific stock like this is worth researching thoroughly, or discussing with a licensed financial advisor, rather than acting on a single contract headline.
