- SpaceX and xAI merger sparks concerns over EchoStar’s exposure to Elon Musk’s venture
- Investors worry xAI's cash burn rate could reduce the value of SpaceX shares EchoStar receives for its spectrum
- TD Cowen analysts say space-based data centers are an unnecessary moonshot for EchoStar shareholders
Like the KPop Demon Hunters’ song says, EchoStar shares went up, up, up ever since the company announced the sale of spectrum to AT&T and SpaceX, more than tripling in value over the past six months. But in recent days, shares were down almost 10% – and analysts say at least part of that is due to the fact that SpaceX and xAI merged into one big $1.25 trillion Elon Musk conglomerate.
Why is EchoStar’s stock getting dragged into the SpaceX/xAI story? This is a doozey, so let’s dig in.
Recall that last September, EchoStar agreed to sell AWS-4 and H-block spectrum licenses to SpaceX for about $17 billion. EchoStar then followed that up with another deal in November to sell the company’s unpaired AWS-3 licenses for about $2.6 billion in SpaceX stock, for a combined value of $11 billion in SpaceX equity.
Reports started surfacing in December that SpaceX was preparing an IPO for mid-2026, further driving up EchoStar shares. All told, analysts figure EchoStar’s stake in SpaceX pencils out to around 3%, give or take.
Put another way: EchoStar’s valuation has risen since September because SpaceX’s valuation has gone up and EchoStar is receiving about $11 billion in SpaceX shares, which have roughly doubled in value over that time, noted Tim Farrar, principal at TMF Associates.
Musk has said one of the reasons behind the merger of SpaceX and xAI is to enable data centers in space. (It’s worth noting that in the same post, he talked about factories on the Moon taking advantage of lunar resources to manufacture satellites and deploy them further into space, so maybe … take it with a shaker full of salt?)
“I think the concern right now is that all the money raised in the SpaceX IPO will go to pay for xAI data centers on the ground (not many will be launched into space in the next couple of years) and if xAI continues to make enormous losses and struggles to keep up with other AI companies after the IPO, then this may worry SpaceX investors and perhaps even cause the valuation to go down (because SpaceX will then have to raise even more money to fund xAI),” Farrar told Fierce.
According to TD Cowen analysts, data centers in space are an unnecessary moonshot (pun intended) for EchoStar shareholders.
“All said, we view the news as a net-negative for EchoStar investors,” wrote TD Cowen analyst Gregory Williams in a note for investors. “While there is widespread speculation of moving data center compute to space to free up power and cooling constraints, which would be a natural synergy for a SpaceX/xAI merger … we are massively dismissive of this becoming reality.”
Williams went on to list several reasons for the cynicism, including that data throughput to/from space would be far more limited and far more costly than terrestrial dark fiber.
“We don’t pretend to be experts in space engineering, but these are consensus issues in which we’re not aware of answers,” he said. “On a more skeptical side, we could see this as a classic Musk business maneuver to divert cashflows from a high performing public company to support struggling passion projects, as was seen in an earlier Tesla/SolarCity dispute. In any case, should data centers in space actually work, an EchoStar investor doesn’t need to be involved in that unknown today.”
Meanwhile, EchoStar’s spectrum transactions still await regulatory approvals while EchoStar has told vendors it’s not going to pay them, in part because of a “force majeure” event that was spurred by the FCC’s investigation into its spectrum holdings last year. Tower and other contractors are urging the FCC not to approve the spectrum transactions unless they have stipulations that EchoStar pay its vendors.
EchoStar’s Ergen gaga for Musk
When it comes to AI, it’s not at all clear who the winners and losers are going to be, which is why EchoStar investors are skittish. Where xAI ends up in the battle of large language models (LLM) remains to be determined, Williams noted.
However, in the space industry, it’s clear from EchoStar Chairman and CEO Charlie Ergen’s public statements that he believes SpaceX is a safe bet.
“Ergen has said he’s investing based on his belief in Musk’s ability to develop enormous new markets, not specifically because he wants to be invested in making rockets and satellites (or go to Mars!). He has to hope that EchoStar investors continue to want to do the same,” Farrar said.
That would be ideal if he doesn’t want to see EchoStar’s valuation continue to go down, down, down.