SpaceX Looks to Wall Street to Validate Extreme Market Valuation

0:00So 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. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business. IBM.

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1:56Scarlet Fu:Bloomberg Audio Studios, podcasts, radio, news. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. We mentioned IPOs. We mentioned SpaceX. George Ferguson is one of many of our BI analysts tasked with trying to get some fundamentals around this company because it's kind of a company that covers all these different industries. George is, of course, our senior industry analyst covering aerospace and defense.

2:36Scarlet Fu:George, you have this tall task of putting fundamentals to SpaceX when all anyone can remember is the total addressable market being, was the number 29 trillion 29 trillion 28 trillion north of 28 trillion doesn't matter at this point um george can you give us some sense of what profits will look like for spacex once it is sustainably profitable yeah so um so look i mean i should say or start by saying spacex is a company that's in a lot of flux right it's essentially building out i think the bigger portion of the story is it's building out an AI business. I'm not sure we totally understand what the AI business looks like for anybody.

3:17And when they're done, they're going to, I think, put these data centers in space. That's where they're trying to go. So, you know, we're not only a business that's, I think nobody fully understands what it's going to look like when it's done. They're going to go one step further and try to make it extraterrestrial. So we've put together a model, though, in the Bloomberg service, you can find it under BI space AEROG, an interactive model, or you can load the SpaceX ticker and type in MODL, MODL for your model. We essentially see a business that we think could go from$19 billion in revenue in 2025 to 160-ish billion revenue in 2030.

4:00So a big step. A lot of that is all about AI. And then we kind of see an operating income now. 2025, they reported negative$2.5 billion. We think that could swing to a positive almost $21 billion by 2030. The majority of that continues to be connectivity. That's their satellite business. It's going to be broadband from satellites, some direct to sell. That could be like a$14 to$15 billion operating income business by 2030. But AI is at that point sort of in full swing, you know, building profitability. And we could see maybe$6.5 billion contribution from AI in 2030 to that operating profit number.

4:47So those are the big moving parts. That space launch business is kind of a barely profitable, barely negative kind of business. It's not a not a big business but it also doesn't uh reflect all of its revenues and profits because any work done for internal spacex companies doesn't flow through the revenue statement in the space business and doesn't have a recorded expense because of the way they're going to do the accounting on that so all right how are they going to how are they going to finance all this stuff george yeah yeah so i mean that's uh of course the million dollar or maybe it's the billion dollar question.

5:23So we've wired in about$100 billion of debt out to 2030 that ended up raising their initial offering here. They refinanced a bridge loan and it was a$20 billion bridge loan. They just did it in the market last weeks or two. And they came in, they got$25 billion. So they upped it a bit and they had a rate that was close to six. So we've kind of wired in a 6 % rate for another$100 billion worth of debt. And I mean, that's one of the bigger challenges here, right? If the company isn't producing a lot of EBITDA to support that debt and keep investment grade ratings, you could have a bit of a breakdown in your ability to finance through debt into 2030.

6:07I would also note that in the S1, the authorization for shares were quite large compared to the shares that were actually issued. And so, you know, there's room to issue more A shares, which only have one voting stake. Elon Musk's B shares, he has a lot of those. Those have 10 votes. So there's room to do a lot more A shares and they had C shares in that mix as well. So I think you could see some additional equity issuance to continue to fund, build out of data centers, designing Starship and other interplanetary you know, transportation devices, things like that.

6:48Scarlet Fu:And Tesla eventually becomes part of SpaceX as well? You know, that's the rumor we keep hearing. You know, I don't know why they wouldn't have rolled it in initially, to be honest with you. It feels to me like these three companies do mesh to a degree, right? Space really gets you your lift you need for that connectivity business. And if you're really moving data centers to space, which I mean, Everybody complains about putting them in their neighborhood nowadays because of energy draws and such. I could see that being maybe a natural fit if you can find a way for that tech to work. I don't know how Tesla fits in there.

7:25I mean, when we saw the S1 for SpaceX, they had the Tesla trucks sort of driving around spaceports. I don't know, maybe they're going to drag rockets out to the launch with it or something, but I feel like it doesn't quite fit.

7:42Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. Support for the show comes from Public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge. On Public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English. Like, if the VIX hits 25, buy a put option on the S &P 500. Or, if my cash balance goes above$20 ,000, move the excess into my direct index. You approve the workflow and your agent handles the rest.

8:20Monitoring the market, watching for your conditions and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com slash market and fund your account in five minutes or less. That's public.com slash market. Paid for by Public Investing. Brokered services by Open to the Public Investing, Inc., member FINRA and SIPC. Advisory services by Public Advisors, LLC, SEC Registered Advisor. Complete disclosures available at public.com slash disclosures. So there's a lot of noise about AI, but time's too tight for more promises.

9:01So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. Not noise, proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business, IBM.

9:27Scarlet Fu:When you own your own business, you own every decision. Now own the card that rewards you for it. The Chase Sapphire Reserve for Business card brings the best Sapphire Reserve benefits to business owners who expect hardworking rewards. Designed to meet the needs of business owners at scale, this pay-in-full card elevates your travel experience and offers premium benefits and value toward business services that will take your business to the next level. Fuel your business and maximize rewards with 8x points on all purchases through Chase Travel, 3x points on social media and search engine advertising, annual partnership credits, and more.

10:02Scarlet Fu:Make every journey more rewarding with a$300 annual travel credit and access to a network of airport lounges, whether you're looking for pre-flight productivity or time to rest and recharge. Chase Sapphire Reserve for Business. It's the card that gives back all you put in. Learn more at chase.com forward slash reserve business. Chase for Business. Make more of what's yours. Accounts subject to credit approval. Restrictions and limitations apply. Cards are issued by JPMorgan Chase Bank N.A., member FDIC. You're listening to the Bloomberg Intelligence

10:48Scarlet Fu:Let's turn now to Washington and check in with our senior news editor, tech editor, I should say, Michael Shepard. He does cover tech and the intersection of policy as well, which is where I want to start, Michael, because we now have OpenAI beginning discussions about giving the U.S. government a stake in the company. The proposal, at least initially here from Sam Altman, the CEO, is a 5 % stake. This got my attention. Where did this come from? How did this begin? Well, this got a lot of people's attention, Scarlett. And this idea is not necessarily a new one. The real headline in the report from the Financial Times from overnight was the size of the stake, the 5%.

11:31We've previously reported, and other outlets have too, that the AI companies, especially OpenAI, have floated this idea of giving the government a piece of their business, giving them shares to seed what would be a public benefit fund, to redistribute some of the gains from the AI boom, and maybe address some of the concerns that all of this newfound wealth and economic dislocation brought by the technology, that that could somehow be softened. The blow from the AI rollout could be minimized by sharing the gains a little bit through this vehicle. And the administration has talked about this a little bit.

12:16President Donald Trump embraced the idea when asked by our own Anne-Marie Hordern last month on Air Force One. But the president offered no specifics beyond just saying that he had been in talks with some industry officials. And it's unclear whether negotiations are really active or advancing between the government and the company. It seems more right now that this is something the company is really trying to work out ahead of its IPO to come up with what the size of a stake could look like. What they're also envisioning is having other AI labs, such as Anthropic or Google's DeepMind, also offer stakes to the government.

12:57Now, whether those companies would share the same enthusiasm that Sam Altman has for it is unclear. Giving away a 5 % stake or selling a 5 % stake? Well, Paul, that is a great question because we can think back to almost a year ago when the U.S. used the Chips Act money that it had for – it set aside for Intel to actually purchase a stake in the chip maker. This would be different. The companies would actually give the stake as seed money for this public benefit fund. Bernie Sanders, the Vermont independent, has proposed a similar idea. He has called for actually creating this kind of a public benefit fund to be seeded with a 50 percent tax on the stock of these companies, a one-time tax.

13:52All those proceeds would go into this fund to then be redistributed with the American public. Republicans have rejected the idea. And even President Donald Trump, when asked specifically about the Sanders proposal, simply said, I had the idea first. And the size of what Bernie Sanders is asking for is far different from what we're seeing, at least through the Financial Times report, of a 5 % stake. All right.

14:18Scarlet Fu:So we'll continue to watch that space to see how things develop there. The other story we wanted to touch on with you, Michael, has to do with Apple looking to buy memory chips from China, which is interesting given that the companies being proposed here are on a blacklist, a Pentagon blacklist of Chinese entities that are believed to have ties to China's military. But Apple kind of always feels like it's in its own category. Well, it does. And again, this is something else. That's another bit of fallout from the AI boom. There is this unprecedented demand for memory to meet the needs of artificial intelligence, and that is putting the squeeze on makers of consumer electronics devices.

15:00Apple, of course, most prominently, but also Microsoft. And those companies have had to raise prices across their product lines because of the increased expense for the memory components that they put into the products that they make. Now, what Apple is hoping to do is add to its supply lines when it comes to memory. And right now, they turn to Samsung Electronics and SK Hynix and Micron technology for their memory needs. But their memory needs right now are insatiable. And those memory providers have been really trying to reorient some of their production lines to meet the AI demand. So what Apple is proposing to do is turn to CXMT and YMTC, two Chinese chip makers that specialize in memory, but that are also on a Pentagon blacklist because the U.S.

15:49believes they support China's military. And that really creates a political problem here for Apple. The company doesn't need permission from the government per se, say an export license or import license, to use this technology. Our reporting shows that Apple plans to use the memory it will buy from these two Chinese makers to go into products to be sold into China. So you would think, well, maybe that's not such a big deal. But the question really is how would it go down here in Washington? And many of the national security hawks, including the head of the House Foreign Relations Committee, yesterday responded to our report saying that this, from his view, would be a no-go.

16:31Well, that's why Tim Cook has remained at the company in large part to deal with some of these issues with governments. And where's President Trump on this? Because presumably if Tim Cook can get President Trump to sign off, then all is good. Well, Tim Cook has had that longstanding relationship with the president who refers to him jokingly and even lovingly as Tim Apple. And this relationship dates all the way back to the president's first term in office. And the question is, though, will there be a counter lobbying campaign by Micron, which really would not want to see Chinese chip makers perhaps taking some of their potential business away?

17:14And earlier this week, it did not go unnoticed that Micron made a$250 million pledge to the Trump Accounts Initiative, the one that also is backed by Dell Computers, founder Michael Dell. So we're seeing a lot of lobbying cross currents on this, Paul. It'll be interesting to see who gets to Trump and what ultimately he will have to say when it comes to giving some political cover to Apple and other device makers that might want this Chinese memory.

17:47Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. Support for the show comes from Public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English. Like, if the VIX hits 25, buy a put option on the S &P 500. Or, if my cash balance goes above$20 ,000, move the excess into my direct index. You approve of the workflow and your agent handles the risk.

18:25Monitoring the market, watching for your conditions, and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com slash market and fund your account in five minutes or less. That's public.com slash market. Paid for by Public Investing. Brokered services by Open to the Public Investing, Inc., member FINRA and SIPC. Advisory services by Public Advisors, LLC, SEC Registered Advisor. Complete disclosures available at public.com slash disclosures. The thing about AI for business, it may not automatically fit the way your business works.

19:07At IBM, we've seen this firsthand, but by embedding AI across HR, IT, and procurement processes, we've reduced costs by millions slash repetitive tasks and freed thousands of hours for strategic work. Now we're helping companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business, IBM.

19:31Scarlet Fu:When you own your own business, you own every decision. Now own the card that rewards you for it. The Chase Sapphire Reserve for Business card brings the best Sapphire Reserve benefits to business owners who expect hardworking rewards. Designed to meet the needs of business owners at scale, this pay-in-full card elevates your travel experience and offers premium benefits and value toward business services that will take your business to the next level. Fuel your business and maximize rewards with 8x points on all purchases through Chase Travel, 3x points on social media and search engine advertising, annual partnership credits, and more.

20:07Scarlet Fu:Make every journey more rewarding with a$300 annual travel credit and access to a network of airport lounges. whether you're looking for pre-flight productivity or time to rest and recharge. Chase Sapphire Reserve for Business. It's the card that gives back all you put in. Learn more at chase.com forward slash reserve business. Chase for Business. Make more of what's yours. Accounts subject to credit approval. Restrictions and limitations apply. Cards are issued by JPMorgan Chase Bank N.A., member FDIC. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app.

20:47Scarlet Fu:Listen on demand wherever you get your podcasts or watch us live on YouTube. In the big jobs report that we got this morning, by and large, it was weaker than expected. There's still job growth, but definitely a slowdown after the blistering pace for the previous three reports. Perhaps the job market is no longer overheating. That might be one interpretation. Let's go now to Ira Jersey for the bond markets interpretation. He is our chief U.S. interest rate strategist and joins us right now from Princeton. Ira, in the rates market, we see the two-year yield coming in down four basis points of 4.13%.

21:24Scarlet Fu:It's definitely on the short end of the curve, whereas at the long end, it's pretty much unchanged. What is being priced out following this June jobs print? Yeah, so basically a very early hike. So interest rate increase is being priced out here at least a little bit. It was more this morning. I think that now that traders are getting ready to go away for the long weekend, they're trying to square positions. So people who got pretty long or were long taking some profits here and kind of squaring things up as we get into the close. I think the jobs report was a little bit weaker maybe than some people are even suggesting.

22:04If you look at the revisions to the prior months, this would actually be a negative number. So, you know, where it's not particularly good. And importantly, you know, some people I know said, oh, look, the unemployment rate actually fell a tenth, but it fell for the wrong reasons. Right. It fell because more people left the market, left the job market and stopped looking for jobs. So you wind up in a situation where the participation rate fell, which means that you have less people participating in the economy. And I think that that's being a little bit overlooked by some folks. Ira, what did we learn from Fed Chairman Warsh yesterday from his comments in Portugal at that conference?

22:47So first and foremost, Paul, he really does not want to give any forward guidance, right? He mentioned that a whole bunch of times to our former colleague, Sarah Eisen. And, you know, I think Kevin Morsh is trying to go back to the pre-Ben Bernanke days where, you know, Alan Greenspan spoke for the entire committee. He was usually noncommittal. And the few times that he was, he was very deliberate. So, like, when he said, we're going to raise rates at a measured pace, for example, back in the early 2000s, that was a very Greenspanism and about as forward guidance-y as he ever got. And I think Kevin Morsh would like to do that.

23:25The thing, Paul, that I have a problem with Kevin Warsh's line of thinking is when he had said during the press conference a few weeks ago that he wants the market to lead the Fed. That's not how it works, right? The market tries to anticipate what the Fed is going to do. So we might wind up in a situation where maybe the Fed surprises the market more frequently than they have in the recent past since communication policy always adjusted rate expectations in real time.

23:55Scarlet Fu:OK, so clearly the job report today is moving the rates market. Not so long ago, oil was kind of the thing that moved the rates market. We see oil down for a third straight day. Is crude at all dictating the rates market or has that now faded as the Iran war turns into, you know, just never ending talks? So there's actually a point where the where when you look at inflation expectations and that's the the transmission mechanism for oil into the rates market. And you look at inflation break evens, so how the market is anticipating future headline inflation to be. That basically when you get under$75 a barrel kind of goes away and becomes much more exogenous on a forward basis.

24:39So I think it had really done a lot of the work back in the last couple of weeks. But certainly since the 20th or so of June, inflation break evens basically have been range bound since then. after having come down quite substantially following the, if you want to call it the ceasefire, who knows if it's really holding or not. But certainly oil coming down and being in the$75 range or so is not going to be anything that the rates market's going to care about. So then we turn a little bit more to fundamentals and we look at things like core inflation, which when we get that report later this month will be the next real volatility driver for the rates market, I think.