SpaceX’s $101 Billion Unlock Heaps Pressure on Battered Shares

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1:51Scarlet Fu:or watch us live on YouTube. SpaceX, the stock down about 8.5 % right now, but at its low, it was down about 12.5%. And that raises a lot of questions about the results and what we learned. Alexis mentioned a lot of AI spending. Let's bring in George Ferguson. He's our senior aerospace defense and airlines analyst joining us from Princeton. And George, it's tempting to chalk this up to investors we're not in the mood to hear of plans for more spending when they're not seeing how the spending is paying off just yet. But is this kind of decline that we're seeing an overreaction given the set of results that SpaceX published?

2:31Well, you know, we put out a report right around the IPO time talking about valuations for SpaceX. Right. And we we don't tell people to buy or sell. But what we said was, look, you had to get out to like 2029 and projections for a lot of growth and revenue. and then turning profitable in 2028 just to start to be able to compare to the other hyperscalers like Microsoft. So, look, I think that, you know, the challenge here is valuations are living, you know, in the stratosphere compared to some of their peers. And so you're challenged to kind of see, you know, what's the advantage of SpaceX over some of those other companies.

3:14And so I think there was selling going on in the stock prior to earnings call yesterday. Sorry, you know, for days and weeks before that. Yesterday was a bit of a, you know, a turnaround where there was a bit of a rally. But I think you're back to a sale. It's still, I think, the same story. They resold us the story that we heard at the IPO.

3:35Scarlet Fu:So what, I mean, in terms of the actual revenues and cash flows and so on from the quarter that just reported, They came in better than expected here. So, I mean, they are delivering on kind of what they're talking about. It's just a question of you. So much of the valuation hinges on, I guess, Elon's vision longer term. Yeah, I mean, you know, again, it's on this AI vision. But, you know, when I looked at the numbers yesterday, they were a bit better than consensus. Frankly, they were on top of the eyes numbers, to be honest with you, which so I'll blow our horn here for this. Maybe we're better seers.

4:11I don't know. But, you know, again, what we're talking about is really strong revenue growth. And I think Elon Musk laid out all the revenue opportunities in the call. But look, I'm an old industrial aerospace defense analyst. At some point, you've got to give me profit, right? And you're spaying$60 billion on these companies. You've got$93 billion of cash on your balance sheet. The spend is large. They doubled CapEx inside the AI business, and that's still very loss-making. At some point, you've got to turn this into a profitable enterprise. And right now, the vision looks like a lot of AI and CapEx for as far as the eye can see.

4:58And I think it's hard for people to put their arms around. Plus, there was no guidance, right? So, you know, so I don't even no one even gave us a handle to try to hold on to right now when we would start to see profits or, you know, at least losses starting to improve.

5:15Scarlet Fu:So this is something that you say you as a kind of an old school analyst would be looking for. And I suspect many investors in industrial companies are looking for something similar. But Elon Musk is trying to turn SpaceX into this next gen tech AI behemoth. a he-myth, and he casts his own spell over his shareholders. I just wonder how much overlap is there between SpaceX's investor base and Tesla's investor base, where he usually goes through this playbook and does very well because they want to hear about the hopes and dreams, and they're less concerned perhaps with the immediate payoff the way that old-school analysts and industrial investors might be.

5:53Yeah, look, again, old-school payoff, I get it. This is not an old-school payoff kind of company, right? But give us again some guardrails, I think, or give us a middle line to the road and let us know kind of where we are in the trajectory, where those profits come. And I think you saw it on the call, right? Elon Musk showed up in the beginning to discuss his version of the world and the company. And look, the tech is amazing. It's outstanding, right and the vision is grand right i love all of that the question always comes down to me uh and i think clearly to people in the markets uh at what price how do we put a price on this opportunity and and there's going to be fight in the marketplace like you said between the people that just love the vision and and you know love the tech and others that say when can you bring some cash because you've got heavy investments coming on here, right?

6:54Scarlet Fu:We also have a big lockup expiring tomorrow. How do you think that's kind of weighing on the shares? That's a lot of stock out there potentially, potentially coming on the market tomorrow. Yeah. I mean, look, you know, I think about this sort of maybe, you know, through my own sort of thought processes. I guess if I was internal, you know, I don't know. It depends how much your comp is wrapped in this. Would you start to sell out? Do you feel bad because it's well below the IPO price? Do you wait out things? But the trend definitely has been down. So that's, I think, a really hard calculus for people that have been locked up in this.

7:33Scarlet Fu:So how important do you think it is for Elon Musk and his management team to get the stock back above that 135 IPO price? Do you think that's something that they're concerned with? Look, so I think if I'm Elon Musk, I want to be able to attract more investors to my shares and losing money isn't a great way to attract investors so I think they I think they absolutely want to I don't know that they have a window here to influence that you know for another quarter until they have another sort of earnings call so I don't know so what they do I know there's rumors in the marketplace about merging with Tesla I can't say that I totally understand all the logic there I think they want to get it get it up.

8:15I think they want to be able to come back to the markets, the equity markets, and issue again. I'm not sure in the near term, though, what you do to change some of the trajectory here.

8:24Scarlet Fu:George, you mentioned they've got$100 billion of cash on the balance sheet. How long does that last, do you think, before they do have to hit the market? Yeah, look, I mean, I think it was like$93 billion. When I looked yesterday, they got this buy of$60 billion out there. I got to figure out how they're going to fund that. I think it was $15 billion in CapEx during the quarter, out to the AI businesses. I think this is not a technical answer. It doesn't seem like it's going to last long. Yeah. And it's just, I mean, it's a lot of cash, but they have a lot of needs. They have a lot of needs. Are they going to go dip back into the bond market again, do you think, George?

9:03Well, look, I think that's really going to get predicated on whether or not they can maintain their investment grade rating, right? Because Everyone I talk to about the investment-grade rating tells me it's a function of the cash on the balance sheet, right? Because you don't have a company here that's sort of a heavy cash generator. Yeah, and maybe the ability to tap markets again. Yeah. I think they'd rather go to the debt market. But again, I don't know how long that remains open as you're spending cash.

9:34Scarlet Fu:I think the big thing is going to be that if I'm a creditor, it's the actual equity value that's underneath me, supporting me. And that's the same thing it was with Tesla. Yeah, and now you're looking to stock again well below that 135 IPO price. Yep, yep. Stay with us. More from Bloomberg Intelligence coming up after this. When your options are limited, so are your opportunities. At SIBO, the global exchange that pioneered options trading, we offer more ways to move with the market. From VIX and SPX options to global market data solutions, SIBO helps investors diversify, manage risk, and stay ahead of whatever the market does next.

10:13Scarlet Fu:SIBO. Life is better with options. Your investments could be too. There are risks associated with SIBO company products. Review the disclosures and disclaimers at SIBO.com slash US underscore disclaimers. This is the Bloomberg Tech Minute brought to you by ChachiPT. Now with ChachiPT work. I'm Carol Masser. Globetrotters hunting for airfare bargains are in for a rude awakening as the days of stumbling across a cheap seat on a popular flight could soon disappear. Bloomberg's Juan Ha reports that airlines from Delta to Virgin Atlantic are adopting artificial intelligence to change seat prices more quickly by weighing dozens of variables in real time, helping capture more revenue while shrinking pricing gaps that once allowed travelers to find bargain fares.

10:57Scarlet Fu:Machine learning models can more accurately forecast demand by analyzing historical booking patterns, seat inventory, and seasonal trends, while also continuously tracking competitors' fares and capacity changes to update prices in near real time. The technology could lead to higher fares on busy routes as airlines pack flights closer to capacity, but may also result in lower fares on off-peak and lower-demand routes. That's the Bloomberg Tech Minute brought to you by ChatGPT. Put ChatGPT to work on your most ambitious ideas and projects. Get started at ChatGPT.com today by selecting Work Mode, available on Plus and Pro Plans.

12:05Scarlet Fu:We'll be right back. Adio. Start your free trial at adio.com slash iHeart. 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. Mandy Singh joins us here, Global Tech Research Head for Bloomberg Intelligence. It's Advanced Micro Devices, AMD. I thought the sales app was good, but people are calling it an underwhelming sales app. How can a chip maker have an underwhelming sales app? Well, I guess partly that has to do with the valuation and where I think this talk has run up.

12:49But, you know, you're being compared against NVIDIA. And that's where NVIDIA's data center sales is probably at this point, you know, 12, 13 times bigger than AMD's. Even though AMD grew, you know, over 100 % and they guided to triple digit growth going forward. But the fact that NVIDIA is still growing, you know, 75 % at their rate, which is 12 times bigger. It just goes to show that right now AMD is just holding share. It's not, you know, in any ways gaining share. And this market is lifting all boats. So AMD does have a role. And the other thing that I noted last night is, so they have this new architecture coming up in the second half.

13:35Everyone seems to be holding off for that. Like, why would they buy something that's going to be older generation three months from now? So that's the other thing. when you announce a new architecture, that doesn't happen with NVIDIA, by the way, because everyone feels their supply constraint with NVIDIA gear. But for someone like AMD, you've said, you know, you've got a much better chip coming three months down the line. So I feel there is some hold up in that aspect. Like no one wants to commit big when they know there's another something better coming.

14:08Scarlet Fu:So that strategy only works if you're the market leader, not if you're the number two. And it feels like Intel has Intel. It feels like AMD has been number two for a long time. It was the number two to Intel. It's now bigger than Intel. It's now the number two to NVIDIA. But as we've said, there's not enough supply to meet all this demand. So AMD should be in a good position. Is it because all the other companies have come out and decide to make their own chips, to go proprietary, that AMD's kind of left on the outside? I think that's also a long-term factor when it comes to AMD's prospects, you know, three years, five years from now.

14:42I mean, every hyperscaler has ambitions to make their own chip. Google has done that successfully. Others want to do the same. So from that perspective, I mean, yes, AMD has a deal with OpenAI, Anthropic. They have committed to Meta as well. In fact, they ended up giving some equity to Meta for that six gigawatt commitment. That just goes to show they're not playing from a position of strength like NVIDIA is. So they really have to course this, these hyperscalers, especially the new ones like OpenAI and Anthropic, and make sure they end up using AMD chips and not just, you know, other chip makers.

15:20So overall, I think the print was great. The valuation is rich. So they sort of met expectations. They didn't wow. And that's why you see that sort of reaction.

15:30Scarlet Fu:All right, we were just chatting with George Ferguson about SpaceX, and he was giving us the angle from the satellite side, which is good. I know you just published something regarding the AI part of the story here, because the stock's down another 8 % today, can't find a bid here. If you're buying this thing, you're buying it for the AI play, I would think. You are, and it's amazing how much they have pivoted to AI. In fact, they gave a$100 billion revenue run rate number by the end of this year. So this company is going from about$18 billion at the time of IPO to$100 billion run rate in a span of six months.

16:07And that's for their AI business? All AI driven. And that's where 70 % of that, like they could be the biggest neocloud out there by the end of the year, simply because they have that ramp up in CapEx. And that's where, you know, the investors may find holes in how are they going to raise money? If you are hyperscaler, you have the balance sheet to do$200 billion in CapEx. I mean, what SpaceX literally implied last night is they will do$200 billion in CapEx 2027. But investors are not buying it because they don't have the balance sheet, unlike the hyperscaler. So are you doing a debt raise? Are you doing an equity raise?

16:49How are you raising the funding? Or maybe NVIDIA is doing the backstop because they said we will rely solely on NVIDIA chips for this build out. And in fact, that's why AMD is down because they could have said, you know, we'll give AMD a 10 % share. That didn't happen with SpaceX plans last night.

17:07Scarlet Fu:Is that feasible that they're going to rely solely on NVIDIA for the build out? If NVIDIA is doing the backstop and saying they need the funding. In this case of SpaceX, the biggest apprehension is how is this company going to find the funding for$200 billion in CapEx, which Elon Musk said will have 10 gigawatt capacity by end of 2027. That definitely amounts to$200 billion plus just in purchases of NVIDIA chips and other components. How are you going to raise that funding? So that's where NVIDIA comes in with its balance sheet and saying, we're supporting all the NeoClouds. We will support SpaceX.

17:45Scarlet Fu:What is a NeoCloud again? I mean, it's just renting your data centers with GPUs, with power. So it's not a commodity business. Don't think right now all these, eventually it may become one, but right now sourcing the power, getting these servers online and getting it ready. There's a ton of demand. There's a ton of demand and it's not commoditized in any way. Stay with us. More from Bloomberg Intelligence coming up after this.

18:17Scarlet Fu:This is the Bloomberg Tech Minute brought to you by ChatGPT. Now with ChatGPT Work. I'm Carol Masser. Globetrotters hunting for airfare bargains are in for a rude awakening, as the days of stumbling across a cheap seat on a popular flight could soon disappear. Bloomberg's Juan Ha reports that airlines from Delta to Virgin Atlantic are adopting artificial intelligence to change seat prices more quickly by weighing dozens of variables in real time, helping capture more revenue while shrinking pricing gaps that once allowed travelers to find bargain fares. Machine learning models can more accurately forecast demand by analyzing historical booking patterns, seed inventory, and seasonal trends, while also continuously tracking competitors' fares and capacity changes to update prices in near real time.

19:04Scarlet Fu:The technology could lead to higher fares on busy routes as airlines pack flights closer to capacity, but may also result in lower fares on off-peak and lower-demand routes. That's the Bloomberg Tech Minute brought to you by ChatGPT. ChachiPT. Put ChachiPT to work on your most ambitious ideas and projects. Get started at ChachiPT.com today by selecting work mode. Available on Plus and Pro plans. Everyone's talking about how AI is transforming work, especially in sales. While the landscape shifts, one thing remains the same. The thrill of closing a deal. Whether it's a gong or a confetti machine, every team has its celebration rituals.

19:44Scarlet Fu:Adio is designed for that moment. It's customer signals into actionable insights, helping you close deals faster with revenue agents and automations working around the clock. You'll have everything you need to scale your go to market efforts. Elevate your wins with Adio. Start your free trial at adio.com slash iHeart. Amazon Health AI presents Painful Thoughts. I, um, I can't stop scratching my downtown. Yeah, but I'm not itching to go downtown and tell a receptionist I'm here to talk about my downtown, some things you'd rather type than say out loud. There's no question too embarrassing for Amazon Health AI.

20:26Scarlet Fu:Chat your symptoms and get virtual care 24-7. Healthcare just got less painful.

20:35Scarlet Fu: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. It's really earnings power that is driving the stock market. Certainly today with the S &P 500 making yet another record high. If we close at these levels, it'll be the second straight record close. And earnings is behind all of that. So let's talk to Geeta Ranganathan, our analyst on US media in Princeton, about the latest earnings from Walt Disney Company, the entertainment giant.

21:11Scarlet Fu:And Geeta, there's a lot to like in this earnings report, the stock is up about two and a half percent right now. Is it the entertainment division, which saw a 64 percent rise in profit that kind of drove everything? Or is it once again, the parks and cruises, the experiences arm, which saw a smaller increase in profit, but really has become the crown jewel of Disney's empire? Yeah, absolutely, Scarlett. And it's actually a bit of both. So, you know, the experiences division or the theme parks division, as you just pointed out, makes up less than 40 percent of total company revenue, but almost 60 percent of profit.

21:47So really, it is the crown jewel, as you rightly alluded to it. And, you know, again, the profit there was really strong. And I think coming in, investor expectations were really, really low. Profits were up 20 percent. Remember, consensus was at about 10 and a half percent increase. So, again, really strong numbers. and what it really did was allayed fears because Comcast, which just reported a few weeks ago, talked about weakness and a slowdown, a demand slowdown in their universal theme parks, especially in Orlando. And now seeing Disney come out with such strong numbers really shows that, you know, they're executing really well and demand continues to be strong as they head into the fiscal fourth quarter as well.

22:29But then as you, you know, again said, streaming, which is part of that entertainment division, is really the growth catalyst for this company. And it's all about streaming profitability and how far and how far ahead they can get on operating margin for the streaming business. And they proved that they did a really good job this quarter. And there's obviously a lot more growth levers going forward.

22:52Scarlet Fu:Geetha, this is the second straight quarter of better than expected profitability for the CEO, Josh DeMauro, who succeeded Bob Iger in that role in March. Talk about big shoes to fill. What's the early read from investors on Mr. DeMauro? I think they're really liking all what they see. You know, Josh obviously has a very clear strategy. He's he's made some pretty big changes. So just today, for instance, they announced that they got rid of their 50 percent stake in any global media. They got about one point two billion dollars in cash and they're going to deploy that towards share repurchases.

23:27then again you have this new deal they had to get out of their Sora deal after obviously Sora shut down but now they have today they announced this new deal with TikTok so again Josh is I think really kind of taking a hard look at all of the different businesses he obviously knows that they need to reduce their exposure to you know linear media linear TV but you know they're doing all that they can in terms of streaming and of course he's a parks veteran so he knows exactly you know how that business works. But it also looks like he's positioning Disney Plus to become this major hub for the entire Disney ecosystem, something almost akin to Amazon Prime for all things Disney starting in spring of 2027.