Alphabet Inc. (GOOGL) shares surged to a record high Wednesday, climbing nearly 4% to close at $402.02 after reports surfaced that the tech giant is negotiating a landmark deal with SpaceX. The news, which suggests Google intends to launch its own orbital data centers, sent the company's market value to $4.87 trillion.
The potential partnership adds a powerful new growth narrative for a company already dominating in AI and cloud computing. While some analysts have recently questioned the stock's high valuation, the prospect of expanding its infrastructure into space provides a fresh, long-term catalyst. "The company is coming rather close to be priced for perfection with all the growth potential for the years to come being already reflected in the stock price," a Seeking Alpha analyst wrote on May 14, arguing the stock was overvalued even before this news broke.
The rally extends a period of strong performance for the search giant, which has seen its stock price increase 23% in the last three months, handily outpacing the S&P 500's 7% gain in the same timeframe. The company's first-quarter results underscore this momentum, with revenue growing 21.8% year-over-year to $109.9 billion and diluted earnings per share jumping 81.9%. While the stock trades at roughly 30 times earnings, in line with its historical average, its price-to-free-cash-flow ratio stands at a lofty 73, largely due to massive investments in AI infrastructure.
This move into space infrastructure represents a significant strategic step for Google as it seeks to build new revenue streams. A deal with SpaceX, which commands a near-monopoly on commercial launches and is privately valued at over $1.25 trillion, would be a capital-intensive endeavor but could secure Google a foothold in the nascent market for space-based data processing.
Growth Beyond Search
While advertising still accounts for over 70% of Alphabet's revenue, its growth is inevitably slowing as it saturates the market. To maintain its trajectory, Google has been aggressively expanding its other businesses.
Google Cloud has emerged as a key growth engine, with revenue soaring 63.3% in the first quarter to $20 billion. The company's enterprise AI solutions have become the primary driver for the cloud division for the first time, with revenue from products built on its GenAI models growing nearly 800% year-over-year. The potential for orbital data centers, while speculative, would represent a logical, if ambitious, extension of this cloud infrastructure empire.
Beyond the cloud, the company is nurturing other significant revenue streams. Its "Subscriptions, Platforms & Devices" segment grew 19% to $12.4 billion, driven by YouTube Premium and Google One AI plans. Furthermore, Alphabet announced it will begin selling its custom Tensor Processing Unit (TPU) chips directly to customers, opening a new hardware revenue stream that could generate billions by 2027.
The Final Frontier for Data
A partnership with SpaceX would be a formidable alliance, pairing Google's data center expertise with the world's leading launch provider. SpaceX, which may go public as soon as June at a valuation that could exceed $1.5 trillion, is one of the few private companies with the capacity to execute such a project.
The venture capital market has been captivated by a handful of "mega-startups" like SpaceX, OpenAI, and Anthropic, whose valuations have dwarfed those of previous generations. These companies require immense capital to fund their ambitious projects, from AI model training to data center buildouts. An orbital data center would be among the most capital-intensive projects imaginable, but it offers the promise of a new frontier for high-speed, secure data processing, potentially serving government and commercial clients with needs that cannot be met on Earth.
For Google, the investment could solidify its position as the world's leading infrastructure provider for the next generation of computing. While the risks are astronomical, the potential rewards are equally vast, offering a compelling justification for its premium valuation as it charts a course beyond the digital domain and into space.
