Musk's Terafabulous vision

Elon’s most famous ventures look like the stuff of science fiction, but his latest—and perhaps most ambitious plan of all—is less flashy: Vertical integration.

Terafab may sound like a character in Super Mario Bros, but it’s actually Musk’s planned mega-factory being built in Austin, Texas to power Tesla, SpaceX, and xAI. The goal there is to produce AI chips at a massive scale to support the entire Elon-verse vision, including self-driving systems, humanoid robots, and even space-based data centers.

As per usual, Musk was humble about the project, calling it the “most epic chip-building exercise in history by far.”

Zoom out: Demand for AI chips is exploding, and Musk’s various ventures rely on huge data centers to power his vision. Right now, the AI titans are depending on companies like Nvidia and TSMC being able to scale production, and creating his own chip supply chain could be an enormous boost to Musk’s businesses. But analysts argue Musk’s plan to house chip design, fabrication, and production all under one roof will be expensive, and difficult to pull off.

Spend money to make money

Musk said in the announcement Saturday that he’s aiming to scale roughly 1 terawatt of computer power per year, which Bernstein analyst Stacy Rasgon said could require up to $13 trillion in spending to accomplish.

So, who gets all that money?

Mizuho analyst Jordan Klein wrote that Musk will need Dutch firm ASML’s lithography machines to actually make his own chips. He’ll also require water-fab-equipment from KLA, as well as manufacturing and packaging equipment from the likes of Applied Materials, Lam Research, and TE Connectivity, according to Klein.

Klein cautioned against investors seeing Terafab—and the subsequent stock winners—as a done deal. But if Terafab does happen, it could be a cash cow for equipment makers.

“This Terafab project with both SpaceX and Tesla is expected to cost up to $25 billion to produce at TSLA’s Giga Texas, making it the largest semiconductor fab in human history,” explained Dan Ives in a note yesterday.

That’s a whole lot of chips.—LB