SpaceX Political Risk Overblown, AI Compute Squeeze Could Boost Revenue: Deutsche Bank

SpaceX Political Risk Overblown, AI Compute Squeeze Could Boost Revenue: Deutsche Bank

TREE NEWS reports: Deutsche Bank analysts led by Edison Yu published a research note on November 6 arguing that concerns about political retaliation against SpaceX following the U.S. midterm elections are largely overblown. The report maintains a “Buy” rating on SpaceX with a $250 price target, implying more than 100% upside from the November 5 closing price of $123.62. While the bank acknowledges several political variables—most notably the incoming Texas governor’s tough stance on data centers—it contends that SpaceX’s core business is well-insulated from congressional interference and that a tighter AI compute market could actually benefit the company.

Limited Congressional Leverage

The report notes that SpaceX’s rocket launch and satellite communication contracts are signed with federal executive agencies such as NASA and the Space Force, leaving Congress with few direct channels to intervene. Moreover, in many business areas, there are no viable alternative suppliers. The bank cites the example of Starshield’s use in Ukraine, arguing that any congressional attempt to cut related budgets would ultimately harm U.S. national interests rather than SpaceX. In the AI compute domain, the report mentions a rumored compute cooperation agreement between the government and SpaceX, with the Department of War (DoW) as the counterparty. Additionally, if SpaceX and Tesla seek a merger, Congress cannot directly block it because antitrust matters fall under the purview of the FTC and DOJ, though congressional hearings could delay the process.

Texas Governor’s Stance Is the Most Immediate Variable

Deutsche Bank identifies the policy stance of Texas’s incoming governor as the most substantive political risk. The governor-elect said in a CNN interview that while Texas has always been a pro-business state, “this must be a partnership that benefits Texans… we need to stop what we’re doing with data centers until we establish these protections… I don’t hate data centers, I hate the way they’re taking advantage of Texas, and that will stop when I’m governor.” The bank interprets this as likely leading to stricter scrutiny of data center projects rather than an outright ban. It expects the vast majority of SpaceX’s 2027 compute capacity (8-10 GW) to be deployed outside Texas, so near-term estimates are not materially affected. However, expansion plans for 2028 and beyond face uncertainty, with Louisiana and other regions potentially becoming alternatives. On the cost side, stricter Texas regulations could push construction costs for new compute capacity above $35 per watt.

Tighter Compute Supply Could Be a Tailwind

The report highlights a counterintuitive dynamic: if Texas policies slow overall U.S. compute expansion, SpaceX could benefit. The company has demonstrated faster and cheaper compute buildout than competitors, and its neocloud contracts include 90-day cancellation clauses that allow it to capture upside when spot prices surge. Deutsche Bank believes that if industry-wide compute supply is constrained, SpaceX could significantly raise prices over the next few years, driving revenue and EBITDA higher while reducing capital expenditures. The bank describes this as a “peculiar dynamic” where fundamentals improve but investors might assign a lower “AI valuation multiple.”

Regarding policy uncertainty in Texas, Elon Musk recently remarked that “data centers in space now look quite attractive,” bringing orbital data centers (ODC) back into focus. Deutsche Bank notes that investors are generally skeptical about the commercial viability of orbital data centers, but rapid reusability of Starship and large-scale domestic production of solar panels and radiators will be key to unlocking ODC economics. The bank’s base case forecasts 500 MW of ODC deployment by the end of 2029.

In the rocket launch business, commercial space launch licensing and public safety regulation are federal responsibilities handled by the FAA, so the Texas governor cannot directly interfere. However, the report warns that the governor could create friction for Starbase expansion through land use rights, state-level permits, incentive adjustments, and potential legislation on beach closures.

Key Takeaways for Investors

• Political risk for SpaceX appears overstated; core contracts are with federal agencies and lack viable alternatives.
• The Texas governor’s stance on data centers is the most immediate risk, but impact on 2027 estimates is limited; watch for expansion delays beyond 2028.
• A tighter AI compute market could allow SpaceX to raise prices and improve margins, though it may compress valuation multiples.
• Orbital data centers remain a wild card; Starship’s reusability and domestic production of key components are critical.
• Merger with Tesla faces no direct congressional block but could face delays from hearings.