By Avi Salzman

SpaceX envisions a future where AI data centers float effortlessly through space, powered by carbon-free solar panels.

For now, the company's data center ambitions are earthbound, and operating them is very resource-intensive. It's causing problems that have exposed the company to legal claims and could hinder its growth.

xAI, Elon Musk's artificial intelligence operation that was absorbed into SpaceX, built a data center in Memphis called Colossus that it says contains the world's largest supercomputer. The company is building two other data centers in the Memphis area, with the whole operation costing tens of billions of dollars.

To get the data centers up and running fast, Musk trucked natural gas turbines to the site, creating his own makeshift power system that didn't go through the traditional regulatory process for power plants. But communities nearby complained that the plants were spewing pollutants. The NAACP sued in April, saying the natural gas turbines exposed black neighborhoods to harmful chemicals and violated the Clean Air Act. It's trying to get the turbines shut down. The suit is ongoing, and SpaceX says it "intends to defend itself vigorously in these actions."

Those emissions aren't the only risk factor for SpaceX. The company amended its IPO prospectus this week to warn investors that access to water -- or lack thereof -- is becoming a concern for the company. Its growth plans are "increasingly constrained" by power and water issues, the company said.

Data centers use water primarily for cooling their servers, which heat up quickly as they process enormous amounts of information. In Memphis, xAI had said it would build a water recycling plant that can reuse wastewater, instead of relying on the region's aquifer, which provides drinking water for residents. But in April the company said that facility is now on hold as it prioritizes other projects. Musk said the company wants to finish its second data center before turning to the recycling project.

In the revised IPO filing, SpaceX said "water scarcity, drought conditions, competition for local water resources, or regulatory restrictions on water use" might limit its data center plans or make them more expensive. The company didn't respond to a request for comment on the recycling plant, its water use, and why it amended its prospectus to include the water concerns.

Data centers have faced broad pushback in recent months over their water use, which can be particularly controversial in regions that already face droughts or other water constraints. By 2030, the "associated water footprint" of data centers is on track to hit 9.3 trillion liters, equivalent to the minimum annual water needs of all 1.3 billion residents of sub-Saharan Africa, the academic arm of the United Nations said in a report this week.

The total water use associated with AI may be much higher than just what the facilities use to cool chips. Bank of America said in a report this week that about 75% of the water consumption associated with the data centers happens off site -- at the power plants that generate the electricity and the factories that make the materials that go inside.

People who choose to buy into SpaceX's IPO next week are betting largely on its data center operation, which makes up much of its expected future growth. For now, that operation is subject to serious risks here on earth.

Write to Avi Salzman at avi.salzman@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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June 05, 2026 15:25 ET (19:25 GMT)

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