SpaceX Rallies For Third Straight Day, Becoming World's Fifth Largest Stock

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2:08The Bloomberg Businessweek Daily Podcast with Carol Masser and Tim Stenebeck on Bloomberg Radio. Bailey Lipschultz is Bloomberg News IPO reporter. I think a lot of people who have been tuning in over the last week might think he lives in midtown Manhattan at Bloomberg headquarters, but no, he's actually joining us from New Jersey today. he did get out of the office, which I'm glad he did. It looks like he's in the office. It does. That's the magic of television. The magic of the magic of a green screen. I don't know actually how to turn off the zoom just so it's clear. Any meeting I have, people were like, are you in an elevator?

2:43Are you Bloomberg? And I'm like, no, I'm doing something else. Well, no matter where you are, Bailey, we're glad you're with us. Sorry, go ahead on this valuation question because I'm beating this drum a lot. But I'm wondering who's buying shares in this company right now. Well, we're seeing kind of a mix of things, right? So today was the first day for call options, well, put options, but options writ large to be able to be purchased. So similar to what we saw with GameStop, to an extent, if people are buying and rushing to buy out of the money call options, that can artificially and in real life move the stock price higher, even though no one's actually buying the underlying stock from that perspective, because people have, market makers have to buy the stock.

3:22That's one thing to keep in mind. The second thing is we've seen volume slow down, but they're still quite high. So you have news of this cursor deal planning to close pretty much ASAP. This builds on yesterday being the first day with levered ETFs. So it's going to be interesting to me where the stock trades tomorrow because you obviously had the euphoria from Friday. You had all of the overseas investors who maybe weren't awake in their Saturday night, Saturday mornings to buy the stock on our Friday regular trading. So they lined up potentially Monday morning. So as we get to Wednesday, we get to a little bit more normalized, as it were, trading.

3:57But still, this is, again, a stock that can move quite a bit. Yeah, well, it's moving quite a bit today. It was up as much as 17 % earlier. It's now down. It's now up only four and a half percent. So it's moved a lot just today. Yeah, kind of telling. Right. I mean, there were so, as you say, you know, so much pent up demand, right, that people wanted a piece of it. But as the days go on, then we start to be like, OK, kind of show me the money. I don't know. Show me the earnings. Like, I don't know. What is it? Well, I think that's something we track with a number of stocks. Recon IPOs, this is kind of not a new phenomenon.

4:28It's definitely something we've seen in the last few years. Tim, just think back to when Sarah Bross went public. It pretty much shot out of the gates and came back a bit to earth and then kind of found its footing and found what the market was willing to pay for it. So that's what we've been seeing. And it's not necessarily a negative sign. It's certainly something we've been keeping a track of. When you look back to Circle, it's trading about where it closed day one, and that's T plus a number of months. So the big question going forward is you have the FTSE Russell buying on the near term horizon.

4:55You have that NASDAQ 100 buying early next month. So investors are positioning for that. What happens when they're adding to that and you do get the forced buying? And what happens when we're a month out from the IPO and you maybe don't have a catalyst? Well, maybe a catalyst is when we start to hear from banks initiating coverage, Bailey. When, you know, so many banks were involved in this. I know there are some restrictions on when they can initiate coverage. what do you look for from the analyst community? Well, that'll be the first few days on the other side of the 4th of July holiday, just so you can mark your calendars now.

5:30Wall Street will look at this and certainly buy the Elon dream, but I expect to see some skepticism just looking at Tesla, where again, it is probably the most debated stock, even from the sell side, people whose banks make money off of the company selling equity and selling debt and selling other instruments. But it's certainly gonna be, Tim, something we've never seen before, just because, I don't know, how do you model for the total addressable market of the moon? What does the asteroid mining opportunity look like to some of these analysts? I think that's going to be a thing to keep an eye on, in addition to the fact that, again, this is the company that's going to have to spend a lot of money to realize that dream.

6:06Well, there's total addressable market. I mean, anybody can throw a number out there, Bailey, but whether or not it can actually be done, we've talked so much about the Starship rocket, right, And how much is kind of weighing on that being successful in kind of supporting his, you know, action and plan and mission, no pun intended, to, you know, launch data centers in space? Like, there's a lot that has to happen. Oh, no doubt. And I think people who are willing to bet on Elon Musk, I hope, realize that. Again, if you look at Tesla's valuations, north of one and a half trillion dollars, smaller than SpaceX right now.

6:42But that's still predicated on Optimus being something we all live and use. It's also partly predicated on RoboTaxi being how people actually get to work instead of buying cars. And if you buy a car, you buy a Tesla and use their insurance. That has a lot of hopium built into it. And we're seeing that with SpaceX. Again, the downside for SpaceX fundamentally is space is very hard. Rockets are very hard. The upside is if you succeed, they're a decade ahead of the next closest competitor. So how large is that moat? And does it only grow? And again, we've seen we've never seen something like this in terms of the bulls and bears presumably taking their own sides.

7:18But anyone who's betting against the company has to look at the last three days and say, I actually don't know where this is going to go. Right. It's the bet against Elon, too. Right, Bailey? I mean, we talk about this all the time. I mean, how long have we covered him? How many questions have there been? How many timelines or deadlines did he miss? And yet he has really changed so much dramatically. If you think about space exploration, even EVs, we could question at this moment in time where there's been kind of a pushback because of policy. But you really changed the discussion around them.

7:52No, and I mean, again, the market can stay irrational longer than you can stay solvent. So eventually people are right. I mean, hey, a number of short sellers in January 2021 were right about GameStop. They just closed down shop because they couldn't close their positions. So it's certainly that's a big dynamic as well. Bailey dropping the quotes that are supposedly attributed to John Maynard Keynes. But who knows if they are? I love it. Bailey Lipschultz. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app.

8:31Or watch us live on YouTube. Well, in terms of what's moving markets over the last few months, war certainly has done that. Also at the center of it all is AI spend, especially when it comes to those semiconductors. Yeah, this goes to a story that really caught my attention on my morning read. And it was a macroscope column. It's written by Bloomberg Simon White. First line in the column, the financialization of GPUs is a nascent risk to the economy and market. So let's get to it. Simon's been kind enough to stick around in our London News Bureau over in Bloomberg. It's a little bit later there.

9:05He is Bloomberg Macro Strategist. Simon, thank you so much. I think drove my team crazy saying, I want to do the story this morning. I want to do the story. History doesn't repeat itself, but it often rhymes. And that is true, too, for financial markets. Walk us through your thinking when it comes to GPUs, what we're seeing, the spend, the build out, and what's going on in markets. Well, thanks for having me. So these are the latest innovation in finance, which, as you said, there is some early parallels, if you like, to what happened in the early days of the financial crisis. But essentially, we're talking about here, the centre of the new economy, the AI economy, is these GPUs.

9:46So they are much more expensive than CPUs. And that is the kind of architecture that AI needs to run on. And you need to build these vast data sensors, and these cost a lot of money to fund. So we have this new innovation, which is debt-backed by these GPUs. So, you know, the financial markets are doing what it's done before. It did it with mortgages in the years up to, you know, 2008, where it takes something that is essentially illiquid and untradeable and makes it liquid and tradable. So it's very early days. We've seen something in the region of maybe only a few billion of these deals over the last few years, but this year to date so far, there's already been$65 billion of these deals.

10:29So relatively small amount, but some of the deals are getting really big sized. So you've got neoclouds as they're called. So companies like CoreWeave that provide GPU as a service and they need to basically get funding to build these massive data centers. And the way they're trying to inveigle investors is to collateralize the debt with the GPUs. So they're basically, the GPUs they've got, they're basically collateralizing the debt. And this is, as I say, the aim to try and draw on investors and make them more comfortable with the risk that they're taking. Yeah. And this comes what, you know, we now have initial trading volume strong for NVIDIA's new bonds.

11:09Prices have remained near where the$25 billion worth of debt was sold at. This is something we talked about, these new seven-year notes. We talked about it yesterday, but it's trading today. Simon, you mentioned it worked with mortgage-backed securities up until the financial crisis, and we all saw what happened then. I don't want to say that that's going to happen again. We have no idea. But is that what happens in a cycle when these new products emerge? Well, there's a great quote from Jim Grant, I think said it, he said, progress in science is cumulative, and in markets and finance, it's cyclical.

11:46And so over time again, we see the same things happening over and over again. So 100%, I agree with you, it's very early days. But given where we've seen what Wall Street tends to do, it takes actually quite a good idea. And so it makes a lot of sense. financialise these very expensive assets. They're expensive to run. They have a lot of downtime. So that really makes the whole thing much more efficient. But unfortunately, Wall Street has a tendency not to be able to hold back. So we'll see again what actually happens here. But if you start to have a situation where you've got this debt-backed GPUs, GPUs-backed in this debt, as I say, we have a forward curve already.

12:26We're about to have a futures market in GPUs. That means you You can essentially short GPUs. That'll be on the cards lately. So, again, all the parallels that, you know, we took a mortgage. A mortgage used to sit on a bank's balance sheet. There's very little you could do about it. But then they started to package it into these MBS and then repackage them again into CDOs and all the other alphabet soup of things. And, you know, it's not impossible over the coming years that we see something similar happening to GPUs, just given the amounts of money involved. Hey, you know, when we think about asset backed securities, mortgages had homes, you know, declining in value, as we know.

13:01But having said that, GPUs, we often talk about this cycle where, you know, they get better, they get improved. People want to buy the newest, the latest. So those assets that are backing actually are declining in volume. Is that part of the problem? That's a very key point. Essentially, you've got assets that are kind of rotting, if you like, very fast. So the GPUs, I mean, Mike Burry, the famous short investor from The Big Short, ironically, in the housing crisis, did a big piece on depreciation of GPUs. And he is basically his idea is that a lot of the hyperscalers and people that hold vast amounts of the GPUs are not really accounting for their depreciation.

13:44depreciation. So it's a very controversial subject. But regardless, whether it's, you know, three to four years, they last or it's 78 years, they're very fast depreciating assets. So that means that you have to have these very aggressive pay down schedules on the loans. But then you've got an extra risk, if you like, right, because, you know, you've got this, they can very quickly become technologically obsolescent, like a house. It's very difficult to suddenly go, we've got a much better house. All the houses that exist already are obsolescent. Whereas obviously with chips, you know, that's not impossible.

14:16You know, someone comes up with a new way of using them. Or the other side of the thing is the demand. We've already seen some demand. I mean, your previous guest talking about Cursor, you know, pointed at token maxing, you know, already we're hitting some sort of demand destruction. So all these things really add to the risk new, but inherently very risky. All right. Good stuff. And something to certainly throw into the narrative as we continue to cover certainly the AI spend and AI build. Simon, again, thank you so much. Simon White, he is Bloomberg macro strategist joining us from our Bloomberg News London Bureau.

14:48Stay with us. More from Bloomberg Business Week Daily coming up after this.

14:56What if data didn't sit still? What if intelligence moved with us? Not buried in reports, but activated in real time, where lives are being shaped, where decisions are being made. It all starts with a question, where is the potential? Coatality turns data into clarity, intelligence into insight, insight into action. Because when intelligence moves, we all move forward. Coatality, intelligence beyond bounds. So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need.

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16:15So whether an AI agent supports a single user or your entire enterprise with Okta, you'll turn risk into opportunity. Secure every agent, secure any agent. Okta secures AI. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 p.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. PowerLaw Corporation, it's a closed-end fund that owns stakes in Elon Musk's SpaceX and AI firm OpenAI. It recently began publicly trading. The fund coming to market, capitalizing really on retail investors' clamor for exposure to the hottest private tech companies they all want in.

16:56We all want it. Do we? I don't know. Maybe not. The platform behind it is PowerLaw Capital Group. It's backed by Adcadian Ventures, a San Francisco-based venture secondary firm,$1.36 billion in assets under management. We've got a great voice here to tell us more. Mike Dinsdale, CEO and co-founder at PowerLaw. He's former CFO of DocuSign, DoorDash, Gusto. He joins us from San Francisco. Also with us, the Bloomberg reporter who brought PowerLaw to our attention, Anthony Hughes, Bloomberg News, U.S. equity capital markets reporter. He joins us here in the studio. All right. Welcome, gentlemen. Good to have you here.

17:30Mike, let's kick it off. Tell us about PowerLaw, why the recent move to go public. And I am curious, like, why better to invest in a closed-end fund versus, let's say, now investing in SpaceX, now that retail investors, everybody, can get exposure that way? Well, first off, thank you very much for having me. And to just play off the first part when you opened up, the answer is yes, I do think everybody wants to own PowerLaw. So we are the first venture-backed firm to list a closed-end fund. And to answer your question around why not just buy SpaceX, I think people should buy SpaceX. I think it's a phenomenal company and will continue to grow for decades.

18:07But what we offer is other names as well. You mentioned OpenAI. There's names like CalSheet, Databricks, Kraken. And so our thesis has been that we want to provide a product that resonates with the$25 trillion in U.S. retirement accounts that have been locked out of access to privates. and the massive wealth creation that's been happening in private companies, we want to unlock that for everyone. Mike, traditionally, when it comes to those companies that you mentioned, venture capitalists obviously have access to those and the investors who invest in those venture capital firms. Also, wealthy individuals who may be accredited investors, perhaps they have access through their wealth managers to like a, you know, allocation of alternatives that include secondaries or investments in some of those venture firms.

18:53Do investors in power law have to be accredited investors or can anyone buy into this? No, I mean, that's really what we were trying to solve for, that you're talking about the accredited set. But when you look at the U.S. population, and it's even more globally, about 90 percent of U.S. households are cut out of access to private companies because they're not accredited. So they don't meet that wealth threshold. And our vision long term is to build products that allow anybody to invest no matter what their net worth no matter what their portfolio size is but to be built into their retirement savings and into those plans and give access to private companies this is our first fund we get we're going to continue to launch uh subsequent funds to give access to different pockets of technology but always focused on giving access to private companies something that we've been building a firm for 16 years to gain access and we think that it should open up to all.

19:46Yes, Mike, it's Anthony here. I think one of the interesting things about the closed-end funds, and it's not just your fund, there's been several others that have listed recently and there's been a few around for a few years, but the trading has been quite volatile, I think, around the SpaceX IPO, and I think your fund and others have traded at pretty big premiums or premium to the underlying value of the assets. I guess I just wondered, like, how do you look upon that? How do you explain those big premiums? And I think that's a fair degree of volatility as well. Yeah, I mean, there are a couple of other competitors.

20:18And when I look at our competitors, you know, our differentiation is we're venture capitalists. We've been investing in technology companies. I've been the CFO of some that you mentioned. We're different in that we're not just looking at the obvious names, which are the big names that we're all talking about, but what's next as well. And so how do we build portfolios that gives access to the companies that are going to be the big megas over the next five years or 10 years? And so we're focused on that and making sure that our portfolios are balanced. Our competitors in sort of our estimation are we have respect for all, but we're the we're the first institutional venture backed group to do this.

20:52And we think that gives us a real advantage. And, Mike, I think perhaps around 100, 200 million dollars of your portfolio is actually in SpaceX. I mean, now that the company's public, what's your intentions for that that that holding? Yeah, I mean, ultimately, our value to our shareholders is to provide access to private companies. So as the lockup comes off, and we have an opportunity to liquidate that position, we will do so as long as it benefits our shareholders. But ultimately, our goal is to reinvest the capital into more private companies, because that's the value we provide to our shareholders.

21:23And what do you how do you define beneficial to your shareholders? Because a lot can happen between now and when the lockup periods expire. Sure. I mean, I think you start off by saying everyone can own SpaceX and certainly they can buy it now in the open market. And so at some point, just the value we're providing goes away. So, yes, we're providing a balanced portfolio of other names, but the actual value prop that we have as a firm goes away as we're holding public equities. And so as companies in our portfolio go public, we will look to sell them down over time so we can reinvest and have what we believe will be bigger returns from private companies that they may have heard of or may not.

21:59But at the end of the day, our goal is to build a portfolio that increases in value and gives access to private companies, something that we're uniquely positioned to do here in San Francisco. But, Mike, if SpaceX continues to soar, will you be if it's in the benefit of your shareholders to hold on to it? Would you or your investors, would you hold on to it? I mean, the answer is absolutely yes, we can. We can hold public equities. And so we would we would assess that. And if we think that it makes the most sense and it's the best gain, then we would do that. But at the same time, I do think, again, our value is to give access to privates.

22:32And so we always look to that first and then make the right decision based on where we think the value is long term. So Cursor is getting bought by SpaceX. We have potentially an IPO soon from Anthropic, another one from OpenAI, potentially more on the horizon. And is the pipeline after all of these IPOs and acquisitions strong enough to maintain a solid portfolio of private assets? Oh, absolutely. I mean, I think that we all focus on the big megas, which really are the three you just mentioned, SpaceX, OpenAI, and Anthropic. But think about companies like Databricks and Stripe and some of these others that really are hundreds of billions of dollars in market cap today.

23:12They will eventually go public. And then when you get down below that, I mean, there's hundreds of companies that we're looking at and tracking and considering for our portfolio. And Power Law, to be clear, is what we believe best of the best big tech. And our thesis is around concentration. And so our goal is to have 15 names only in that portfolio. But as we launch subsequent products, we'll focus those on other areas that we think matter, like AI, defense, space, things like this, that are starting to emerge. And there's the next batch of those companies coming that we're tracking, and we'll add those to future funds.

23:45Now, Mike, just back on SpaceX, I mean, what did you think about the debut of SpaceX? Were you surprised about how well it's gone? I mean, it really has, after a really large valuation increase in private markets, it's also managed to attract a big valuation in public markets as well, a higher valuation. I mean, were you surprised by that? I'm really not. I mean, I've been a big believer in SpaceX for a decade. And I think that Starlink and the unlock that provides to communications globally is really underestimated. I mean, it really is a stair step and SpaceX as a company is a one of one. So I think it went as well as I expected and I think it will continue to go up.