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Interestingly, Mesh was founded by three former SpaceX employees who helped develop the Starlink optical communication links that keep thousands of satellites interconnected. So, why is Musk — who is simultaneously building the world's largest multibillion-dollar semiconductor manufacturing facility and an 11-million-square-foot orbital data center factory — seeking to own a company founded by his former employees? The answer appears to be optical interconnects, a critical technology that connects all three.
As AI continues to grow in capability and user base, so do the enabling AI clusters, many of which now comprise tens to hundreds of thousands of processors. The hardest problem in scaling an AI cluster has evolved beyond making the chips faster to moving data between them. Training and inference tasks on frontier AI models are split across thousands of GPUs using parallel-computing techniques, requiring the processors to exchange enormous volumes of data every fraction of a second.
While per-chip compute capacity has raced ahead, the bandwidth linking those chips has not kept pace, a mismatch the industry refers to as the "I/O wall." The processors mostly communicate via copper interconnects , which currently dominate AI clusters. However, copper presents inherent limitations. As per-lane signaling climbs toward 200 gigabits per second (Gbps), attenuation, crosstalk, and the skin effect all worsen at higher frequencies, driving up power and corrupting the signal until passive copper becomes impractical beyond a meter or two.
To overcome these constraints, the industry is increasingly turning to optical networking, bringing the technology closer to the processor. Optical links use transceivers to convert a chip's electrical signals into light for transmission over fiber, then convert them back into electrical signals at the receiving end. They can carry far more data over much longer distances while consuming less power than equivalent high-speed copper connections, making them increasingly essential as AI clusters grow larger. Chipmakers and networking vendors are racing to deliver faster 800G and 1.6T optical transceivers while shortening electrical paths with co-packaged optics , which place the optical engine alongside the switch ASIC (application-specific integrated circuit).
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This shift has transformed optical interconnects from a supporting technology into one of the industry's most strategically important AI infrastructure markets, attracting billions of dollars in investments and resulting in major partnerships for new and existing industry players. One such player is Mesh, the optical hardware startup that has drawn the interest of the world’s richest man.
Elon Musk has been one of the most aggressive players in the AI industry. After co-founding OpenAI, he went on to launch a proprietary company, xAI, before turning his focus to building data centers. In less than two years, xAI deployed the Colossus supercomputer with over 200,000 Nvidia Hopper- and Blackwell-generation accelerators. Colossus 2 , with a long-term target of 1 million GPUs, is already operational. For Musk, however, buying the chips was not enough. Why not build them, too?
Characteristic of the world's richest man’s preference for complete vertical integration, SpaceX — in collaboration with Tesla and xAI — is now building Terafab , a vertically integrated, multi-billion-dollar semiconductor manufacturing facility aimed at producing chips capable of delivering an unprecedented over 1 terawatt of AI compute capacity annually. Located in Austin, Texas, the colossal facility aims to consolidate every stage of chip production under one roof, handling everything from logic and memory fabrication to advanced packaging and testing. An ambitious project that we've also analyzed for its feasibility .
The facility's output will serve to meet the chip needs of the broader AI industry, as well as those of Musk’s xAI, self-driving vehicles, Optimus humanoid robots, and SpaceX's orbital AI data center plans. Musk says 80% of Terafab's total compute output is ultimately destined for Earth orbit to support SpaceX's orbital data centers.
“But there aren't any data centers floating around in space,” observers may point out. Introducing Gigasat , Musk's 11-million-square-foot fix for that reality. Gigasat is yet another massive facility under construction, this time for manufacturing everything needed for SpaceX’s AI1 satellite , the company's most likely world-first orbital data center with 150 kW of compute.
The custom AI ASIC state of play (May 2026) — Broadcom deals, Google TPUs, Meta MTIA & beyond
SpaceX unveils 11-million-square-foot Gigasat factory, a new manufacturing facility for space-based data centers
AI data centers require 36 times more fiber than standard servers
Key considerations
- Investor positioning can change fast
- Volatility remains possible near catalysts
- Macro rates and liquidity can dominate flows
Reference reading
- https://www.tomshardware.com/tech-industry/big-tech/SPONSORED_LINK_URL
- https://www.tomshardware.com/tech-industry/big-tech/elon-musk-receives-ftc-greenlight-to-buy-mesh-optical-as-interconnects-emerge-as-ais-tightest-bottleneck-the-move-will-expand-musks-growing-stack-of-critical-ai-infrastructure#main
- https://www.tomshardware.com/my-account
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Informational only. No financial advice. Do your own research.