To The Moon

$SpaceX(SPCX)$  AI ambitions are facing a major test. The issue is no longer just whether Elon Musk can build enough computing power to compete in the AI race. It is whether he can secure the electricity, permits and infrastructure needed to deliver that expansion.

Following the US midterm elections, political uncertainty has increased. Texas’s incoming governor, Gina Hinojosa, has signalled support for tighter controls on data centres, raising concerns about the pace and cost of SpaceX’s AI infrastructure plans.

However, Deutsche Bank believes the market may be overestimating the risk.

There are three important developments worth watching.

1. Texas regulation: A delay risk, not necessarily a complete shutdown

Texas has become one of America’s most attractive destinations for data centres because of its land availability, energy resources and business environment.

But the rapid growth of AI infrastructure has created concerns about electricity prices, water consumption and pressure on the power grid.

Governor Greg Abbott had already called for stricter oversight, including a review of new data-centre grid connections. His proposals include requiring large facilities to contribute to power generation and grid infrastructure costs, alongside tighter water-use requirements.

The political situation has now become more complicated following Gina Hinojosa’s election victory.

Deutsche Bank believes stricter scrutiny is more likely than an outright ban. Nevertheless, additional approvals, higher construction costs and longer timelines could affect future expansion.

2. SpaceX’s $24 billion project shows its strategy

One particularly important development emerged on November 9.

SpaceX is planning a $24 billion supercomputing facility at Starbase, Texas, including a natural-gas power plant to supply electricity to the data centre.

This is significant because it suggests SpaceX wants greater control over its own computing infrastructure and energy supply rather than depending entirely on the existing electricity grid.

The project is also seeking a property-tax incentive, with a public hearing scheduled for December 9.

However, building its own power plant does not automatically remove regulatory obstacles. Environmental approvals, local planning requirements, water use and other permits will still matter.

The project demonstrates ambition, but investors should distinguish between a proposed development and operational computing capacity.

3. Deutsche Bank sees an unexpected opportunity

Deutsche Bank maintains a Buy rating on SpaceX with a $250 price target.

Its November 6 research argues that concerns about political retaliation against Musk are largely overstated. SpaceX’s core launch and satellite contracts involve federal agencies such as NASA and the Space Force, making them difficult to replace.

More importantly, the bank believes most of SpaceX’s planned computing capacity in 2027 will be outside Texas, at an estimated 8–10 gigawatts.

This could reduce the immediate impact of Texas restrictions, although expansion plans for 2028 and beyond remain less certain.

There is also an interesting supply-and-pricing argument.

If stricter regulation slows the construction of competing data centres, available AI computing capacity could become more valuable. Deutsche Bank believes SpaceX could benefit through stronger pricing power, particularly because some of its customer agreements allow cancellation within 90 days.

In other words, tighter supply could potentially improve SpaceX’s revenue opportunities.

However, this depends on competitors actually facing meaningful delays and customers continuing to pay premium prices for computing capacity.

4. Could space become the next alternative?

Musk has also suggested that data centres in space are becoming attractive.

The idea is ambitious: use Starship to deploy large computing infrastructure powered by solar energy, potentially reducing dependence on terrestrial land and electricity grids.

Deutsche Bank sees potential, forecasting that orbital data-centre deployment could reach 500 megawatts by the end of 2029.

But this remains a longer-term possibility rather than a proven commercial solution. Launch costs, radiation protection, cooling, maintenance and the economics of replacing equipment in orbit remain significant challenges.

I would not include orbital data centres in a near-term investment valuation without much stronger evidence.

My investment view: Opportunity, but execution matters

I see three competing forces shaping SpaceX’s AI strategy:

• Regulation could slow construction and increase infrastructure costs.

• Limited computing supply could strengthen pricing power for companies able to deliver capacity.

• Independent power generation and expansion outside Texas could reduce reliance on local grid restrictions.

Deutsche Bank’s bullish argument is reasonable, but it is not risk-free. SpaceX still needs to demonstrate that its ambitious capacity targets can be delivered on time, at an attractive cost and with sustainable customer demand.

The $24 billion Texas project is particularly important because it highlights both sides of the story: SpaceX has the ambition and resources to build its own infrastructure, but it still needs regulatory approval and successful execution.

My conclusion: I would not automatically treat Texas regulation as a reason to abandon the SpaceX AI investment story. However, I would also avoid assuming that tighter rules will automatically make SpaceX more profitable.

The real question is whether SpaceX can expand faster and more efficiently than competitors while maintaining strong returns on its enormous infrastructure investment.

For discussion purposes only, not financial advice.