Key Points
Space Exploration Technologies (NASDAQ: SPCX), better known as SpaceX, has been receiving a lot of attention for its deals to sell compute capacity to artificial intelligence (AI) companies, including Anthropic and Alphabet. So far, it holds contracts worth about $28 billion in annual revenue.
In its in initial public offering (IPO) registration statement with the Securities and Exchange Commission, SpaceX said the total addressable market for its AI businesses is $26.5 trillion. That includes a $2.4 trillion infrastructure market, where SpaceX eventually plans to extend from terrestrial data centers to solar-powered orbital data centers, and a huge opportunity to sell enterprise AI applications.
But things change quickly at SpaceX, and it’s reportedly pursuing an opportunity in a $1.6 trillion market that could prove even more valuable than its AI operations. Here’s what investors need to know.
The most promising business inside SpaceX could be getting bigger
SpaceX had a net loss of $5 billion on $18.7 billion of revenue in 2025, but a look under the hood reveals several different stories. The company’s launch services and AI segments generated significant operating losses last year, but its Starlink connectivity business generated $4.4 billion in operating income. Both subscribers and profits more than doubled from the prior year, even as it lowered its average pricing.
The next move for Starlink could be an expansion into wireless phone service. The company is reportedly planning to launch a mobile service for U.S. consumers in the near future, taking on telecom giants AT&T, Verizon, and T-Mobile.
SpaceX has held talks with Charter Communications for a potential mobile phone partnership, according to reports. Doing so could give it access to Charter’s internet infrastructure and its mobile virtual network agreement with Verizon.
Ultimately, SpaceX sees the potential for the internet and wireless phone service market to reach $1.6 trillion, according to its IPO filing. And it has the potential to offer the service at a relatively high margin. Starlink’s operating margin is about 40%, and that could climb higher as it scales operations and reduces launch costs. Athough the operating margin on wireless communication businesses is considerably lower (about 20% for the three big U.S. carriers), SpaceX could find that supplementing its network, or partner network, with its satellite connectivity could allow it to generate higher margins.
Meanwhile, it’s unclear how profitable the AI segment can be. Although management boasts a tremendous return on its invested capital from its infrastructure-as-a-service deals, it might not have a long-term competitive advantage. The cost and viability of orbital data centers will determine if SpaceX can scale its operations and how profitable it will be.
At the same time, SpaceX’s own AI development efforts appear to be taking a back seat, as it has fallen behind leading AI labs and has seen limited consumer traction. It will likely remain a niche player in the sector, weighing on operating margins. Despite the vast addressable market, SpaceX doesn’t appear well-positioned to capture a significant share.
As such, I see much more potential for profit in the connectivity business than in AI.
How big could the business get?
There’s little doubt SpaceX has a very compelling product with its satellite internet business. However, leveraging that into a full-on wireless business is more difficult. It needs to build out a terrestrial wireless network to offer a competitive service. That takes both time, money, and access to limited, government-controlled spectrum licenses.
To that end, SpaceX acquired 65 MHz from EchoStar and participated in the recent Federal Communication Commission (FCC) auction for some of EchoStar’s forfeited licenses. However, its participation was limited to filling in just a few key gaps, not indicative of plans to build an entire network.
To put SpaceX’s spectrum position into perspective, T-Mobile, AT&T, and Verizon have 375 MHz, 314 MHz, and 279 MHz in population-weighted spectrum licenses, respectively. The next significant FCC auction is next year, so it will take a long time for SpaceX to catch up and build out a network.
But SpaceX does offer a key supplementary service to wireless carriers: satellite connectivity in remote areas. In fact, SpaceX’s posturing may simply be a negotiating tactic to secure better terms or longer-term partnerships. SpaceX currently partners with T-Mobile in the U.S.
In that case, it could continue to expand the profitable Starlink business and receive a nice profit boost from carrier deals before pursuing the wireless space directly. New York University professor Aswath Damodaran projects it could generate $120 billion at a 60% operating margin by 2036. That’s a 10-fold increase in 10 years, and it seems like a reasonable estimate based on the strength of the satellite connectivity business.
Unfortunately, investors are currently paying a premium price for the rest of the company, including its AI operations. If you expect an investment in SpaceX to produce reasonable returns at its current price, you must also expect the AI business to prove more profitable in the long run than its connectivity business. Right now, the connectivity business holds more promise.
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Adam Levy has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.
