Analysis-SpaceX's orbital data centers could face same hurdles as Microsoft's abandoned undersea project

LOS ANGELES, April 1 (Reuters) - SpaceX on Wednesday filed for an IPO that Elon Musk says will bankroll an effort to turn the rocket maker into an AI powerhouse, launching up to 1 million data‑center satellites into orbit to bypass power and water limits on Earth.

Microsoft had a similar ambition to escape land‑based computing constraints in 2015, when it lowered a shipping‑container‑sized data center onto the seabed off Scotland, aiming to cut energy use through natural seawater cooling and tapping offshore wind and tidal power.

Microsoft's "Project Natick," once touted as a potential breakthrough for the data‑center industry, successfully met all its technical targets but underwater data centers were abandoned more than two years ago due to a lack of client demand and unviable economics, two sources with knowledge of the project told Reuters.

Asked for comment, a Microsoft spokesperson said: "While we don't currently have datacenters in the water, we will continue to use Project Natick as a research platform to explore, test, and validate new concepts around datacenter reliability and sustainability."

Five data center specialists told Reuters that what went wrong for Microsoft is a cautionary tale for SpaceX because although both projects are a world apart geographically, they share key similarities: they both rely on modular units that are expensive to deploy and cannot be expanded, repaired or upgraded - features considered critical by the AI industry.

"These problems are likely to be more severe in space than under the sea," said Roy Chua, founder of industry research firm AvidThink, pointing to unresolved questions over how to cool data centers in orbit, high rocket launch costs and the effects of the harsh space environment on AI chips.

SpaceX did not respond to a request for comment. SpaceX, which acquired Musk's AI startup xAI in February, could raise up to $75 billion when it goes public, making it potentially the largest IPO in history. ⁠The holdings of xAI include social media company X, formerly Twitter, and AI chatbot Grok.

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Although Microsoft proved that undersea data centers could work, customers were not interested in scaling them, instead expanding conventional land‑based facilities that allowed cheaper, faster upgrades as AI development accelerated, the two people with knowledge of the project said, asking not to be named due to the sensitivity ⁠of the matter.

The sealed, "locked‑for‑life" design - which SpaceX would replicate in orbit - has limited flexibility, since AI chips are rapidly improving every year, while a satellite or undersea data center might be replaced only every five to seven years.