Earnings Special: SpaceX’s AI Splurge Puts a Damper on Debut Earnings After IPO

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1:02Carol Massar:Bloomberg Audio Studios. Podcasts. Radio. News. This is a breaking news update from Bloomberg. instant reaction and analysis from our 3 ,000 journalists and analysts around the world. SpaceX, the company out with its first report as a publicly traded company. Revenue exceeded Wall Street's expectations, reported$7.8 billion. The company reported an operating loss, though, of$1.26 billion from its AI business that's better than the consensus expectation. Shares have plunged since that IPO, erasing more than a trillion dollars in market value from their peak. All right, let's get to it with our team.

1:41Carol Massar:We've got a great team too. Mandeep Singh is with us right here in studio in our Bloomberg Interactive Broker studio is Bloomberg Intelligence Global Head of Technology Research. And out there in our San Francisco News Bureau is, of course, our own Ed Ludlow, host of Bloomberg Tech. Ed, let me just kick it off with you. What jumps out here? I know you're also on the live blog, but investors just kind of reading through.

2:03Ed Ludlow:Yeah, I mean, overall revenue and sales came in above consensus. But you go into this saying this was the first quarterly earnings for SpaceX since they became a public company and it will be their first earnings call. And there was a lot of acceptance that the consensus numbers out there, there was a bit of skepticism, right? They're a bit squishy because we don't have a whole lot of contemporaneous data. But it's really interesting. The status quo is still that Starlink is the driver on the top line and also sort of the cash cow. But they really improved the economics of this business in the quarter of, yes, it's a rocket company, but renting compute capacity to other technology companies.

2:44Ed Ludlow:That has proved to be a strong business for them. There's a lot of discussion in that, in what's a very limited earnings release. Mandif, I want to bring you in here. If you were to look at the three different segments, the reportable segments, Ed mentioned the cash cow and in terms of where the revenue is still coming from. In terms of growth, in your view, which segment is the most important? I mean, they reported a backlog number of 47.5 billion. That tells you most of the backlog is likely coming from AI. And what is not captured in this print is the Anthropic and Google deals. That's okay.

3:22That's what I was going to ask you. When you say a backlog, that means companies like anthropic and google coming to xai part of spacex and renting compute that's right yes and in fact we know uh some of the deal terms uh anthropic will be paying uh spacex about 1.25 billion dollars a month so next quarter when they report there will be at least uh 3.75 billion dollars from Entropic and another probably$2 billion plus from Google vendor report. So$6 billion bump just from these two deals next quarter.

3:59Carol Massar:That sounds pretty impressive. I think so. That's why that backlog number is very important because in that$47 billion is that Entropic deal and the Google deal. And there's one more company, I think, Reflection. Ed, what can XAI offer these firms that Mandeep mentioned that like a Google Cloud, a Microsoft Azure, an AWS or even a NeoCloud can offer?

4:24Ed Ludlow:Space that they're not currently using? So it's a commodity. A little bit. So like in Tennessee, XAI now, SpaceX AI set up a number of data centers in very quick order. Colossus 1, Colossus 2 and Colossus 3. What was explained to me in great detail by sources is that once they had built all of them, they were like, okay, how do we use this ourselves? And they realized that in Colossus One, which is a big tin can data center, they had multiple generations of NVIDIA GPUs all mixed together. Some were Hopper generation, some were Blackwell, some were even as old as the A100 generation. And so they decided the best use of that capacity was to rent it out with attractive economics for those renting it at a premium, many would say.

5:09Ed Ludlow:I think Mandeep's been over that really well in the past. And for them, they run it really operationally efficiently. It can be a high margin business, but it was all born out of the fact that for their own models and running them, not just training later generation models, they couldn't work out how to use that capacity for themselves to best effect. Yeah, I mean, the worries that we've had, Mandeep,

5:35Carol Massar:about this company and feeling like we didn't know some things? Should investors, I know we never give investment advice, but feel, all right, we're getting more information about the business that we can kind of figure out and cross with kind of where this company's going, the valuation. I mean, the valuation is still a little crazy, right? It is crazy. But what I think may work in their favor is this is a company that will likely have accelerating top-line growth at least for the next three or four quarters with margin improvement. And that is the type of story that investors typically like.

6:13I mean, we just saw what Palantir did today, you know, with their quarter, partly because of that accelerating top-line growth. And there is no doubt in my mind, given that$47.5 billion backlog number, SpaceX will have accelerating top-line growth, at least for the next three quarters. We're speaking with Mandeep Singh, our Bloomberg Intelligence Global Head of Technology Research. Also with us, Ed Ludlow out there in San Francisco. He's the host of Bloomberg Tech. I want to remind everybody, if you have questions about SpaceX's earnings, the company's report, send us a question, bloomberg.com slash ask radio.

6:49That's bloomberg.com slash ask radio. It's only for bloomberg.com subscribers. You can submit questions for us or for any of our guests this afternoon.

6:57Carol Massar:You know, I'm just looking at, you know, you pull up SpaceX, do the ticker, do, you know, CNBN. SpaceX says business growing across all three segments. SpaceX exceeds revenue estimates in the first quarter, first earnings since IPO. You know, SpaceX's first earnings offer a chance to reverse the stocks plunge. That was earlier in the day. Top of mind. I mean, Ed, come on back in, because I'm just thinking how much of what we didn't know. So this is kind of our first real picture of a lot of what the business is about. There was speculation certainly coming off the IPO and there was numbers and there were estimates.

7:32Carol Massar:But how much of this is like, oh, OK, so this is the business, at least now?

7:38Ed Ludlow:Yeah. Yeah. So what you can do is you can compare with the backward looking data we have from the IPO prospectus, the S1 and the amended versions of it. Just the two AI key points, because I think it's really interesting to get Mandiv's take on this, is AI is probably inflecting a little bit faster than the street expected. So the AI revenue is a$2.56 billion, right? Compare that to the first quarter, which is data we got in the prospectus, about$800 million. So that's quite a jump, sequentially quarter to quarter. And then on an adjusted EBITDA basis, which, you know, let Mandiv answer this one because I know how the street feels on adjusted EBITDA.

8:13Ed Ludlow:But AI adjusted EBITDA did turn positive, AI specifically. And so like right now with the knowledge that all of these other business lines are futuristic, orbital data center, the space economy and enterprise AI, what they have done is move pretty quickly on their AI infrastructure business. And, you know, Mandeep's outlined the deals that they did to get there. OK, let's let's just reset here a little bit because we're seeing shares of SpaceX down about six and a half percent after the company reported results. Starlink growth continues to be a revenue driver. Shares are slumping, though, as investors digest this.

8:48Mandib, what's the sort of, I don't know, from a guidance perspective, the expectations about what we'll hear on the call that's different from what's in the press release? Again, first time we've had a call for this company, so we can kind of only go with what Tesla has done in the past. But what do we expect in terms of guidance? I mean, when I look at the Starlink number, to me, that's slightly misconsensus in terms of number of subscribers. And given we talk about how that's the cash cow that's funding, you know, the other businesses, that is probably the number one question that I feel they're going to get on the earnings call.

9:25But along with that backlog, which I think will help them in the quarters, upcoming quarters, but clearly that Starlink business was slightly below consensus. All right.

9:38Carol Massar:We're going to continue watching Shares of SpaceX, as we mentioned. And definitely down right now about 8.5%. So giving kind of everything back that they got in the regular trading session. In the meantime, I want to, since we've got Elon, we have Elon here. Hey, Elon, thanks for calling in. We have Ed here and, of course, Mandeep. Let's also bring in AMD into the mix. Hey, it could happen. You don't ever know, right? I could see him calling. Careful what you wish for. I know. Let's take a look at shares of AMD because we've seen them under pressure as well. Down about 8 % as we speak. And this is after, let's just go to the red headline here on the Bloomberg.

10:13Carol Massar:The company sees third quarter revenue of$12.7 billion to$13.3 billion. Street estimate was$12.51 billion. Says data center sales to accelerate in the second half of 2026. Sees third quarter adjusted gross margin of about 56%. Street estimate was just a hair higher at 56.2%. And if you look back at the quarter that was, actually, let me give you one more on the third quarter. So the outlook sees third quarter revenue. Actually, I said this,$12.7 to$13.3 billion. Street estimate was$12.51 billion. But looking backwards, second quarter adjusted EPS was$0.04 better than the street was expecting. Second quarter adjusted operating margin was 27%, slightly above the 26.9 % the street was expecting.

10:56Carol Massar:And second quarter revenue was$11.54 billion. That, too, was above street estimate of$11.31. But again, that stock's down more than 7 % here. Yeah, down at this point, 8 % as we speak. You mentioned the numbers. I want to bring in Mandeep and Ed, who are watching this closely. Mandeep, your first reaction to AMD's report? I mean, it seems to be an inline print. And with all these stocks, the Whisper number is much higher than what you see in consensus. So to my mind, the fact that data center number is mostly inline or slightly 2 % above consensus is not enough. And you know NVIDIA is going to post a quarter that will be 11, 12 times bigger than AMD's number when it comes to data centers.

11:45So clearly they're not kind of catching up to NVIDIA in anywhere right now. Ed, what jumps out to you about AMD's report? Shares AMD down about 9%.

11:54Ed Ludlow:You know, there's no massive outperformance in the print. I just note that going into today's close, AMD is up 140 % year to date. And they're telling the story to investors that in the second half of this year, data center sales are going to accelerate. But there's nothing sort of outstanding in the sales outlook for the third quarter that kind of is additive to that sort of commentary. And the last bit, the only bit I see really is that they see gross margins of 56 percent in 3Q and consensus was a touch higher, 56.2. um that you know doesn't account necessarily for the drop-in after hours um it's also up what 140 percent year-to-date i have no idea that's kind of what i'm thinking right yeah i want to get back to uh spacex uh we're still watching what's happening with all of these companies and we're lucky to have both of you guys with us who can speak to amd and spacex shares of spacex down about six percent in the after hours i mentioned that we have bloomberg.com slash ask radio as a way for our subscribers to get in touch with us and ask questions, not just to us, but to Ed and Mandeep and all of our guests.

13:04SpaceX, it's a question about SpaceX coming in right now, guys. Sanjay out in Irvine, California writes that the fact that SpaceX's valuation is already high, does that make today's earnings more or less in line with the high expectations? I want to send that one over to Mandeep first. Valuations question. We talked with Max Chafkin earlier about the so-called Elon premium and the idea that Tesla is valued more than any other car maker, despite the fact that, you know, in terms of revenue, it doesn't even crack the top 10. Valuation question about SpaceX. What do you make of it? Yeah, I mean, at$1.5 trillion, you know, for a company of SpaceX size, there is a lot embedded in that number in terms of, you know, growth expectations and how investors see margins improving.

13:53So that's why, you know, even though I feel like they will do very well over the next three quarters in terms of top line driven by AI, but at this valuation and, you know, it IPO'd at even a higher valuation. So it's always hard to keep up with the expectations. And unless you come out and show positive surprises the way nvidia has done that constant consistently i think it will be hard for spacex just to kind of keep this multiple so they really have to grow into that multiple which i think they should be able to given the backlog number we are seeing i mean all the cloud companies had backlogs of 400 billion dollars plus you know when they reported and they had an excellent quarter, all of them, you know, Google, Amazon, and Microsoft.

14:44So from that perspective, SpaceX reporting a$47.5 billion backlog, if they keep growing that, I think will be positive for that SpaceX story.

14:53Carol Massar:I also want to mention, we're getting some additional headlines. SpaceX, second quarter AI segment, CapEx, a$15.83 billion versus an estimate on the street of$13.09 billion. I know, Ed, you were on the live blog, like looking for more insight when it comes to CapEx?

15:11Ed Ludlow:Yeah, no, I think they have positioned this in the CFO commentary about having a really strong liquidity position, right? They have the proceeds of the IPO, and then they immediately went to the corporate debt market. And so they have$100 billion to play with. But you, again, can go back to the prospectus on how capital expenditures were tracking in the first half of this year. The consensus number, again, there's a note of caution on all the consensus numbers because this is their first ever quarterly earnings as a public company. The expectation was they'd spend about$45,$46 billion this year.

15:49Ed Ludlow:A lot of that's still to come, right? It's really key information because across those nascent business lines, Starship as a launch system, orbital data center, and then the business of like actually selling um ai as a software at scale it's still going to take a lot of spending and is this is this report um are we getting the the information it's sort of an inside baseball question but is the information coming at a cadence that's on par with what we get from tesla no so um this i find this really interesting so you know tesla presents a pretty detailed shareholder deck each quarter and it is multiple pages long it has a lot of information for example the headwinds and tailwinds to the top and bottom line the macro impacts they felt any political impacts their sort of forward-looking strategy as it relates to software in different markets etc this is a very modest release where there's zero commentary from elon musk who's the CEO of SpaceX.

16:55Ed Ludlow:There's zero commentary from Gwynne Shotwell, who's the president and COO and de facto runs the company. Just the CFO commentary from Brett Johnson. And it's very modest. So there's a lot still to learn. There's not the same level of detail. There are fair questions like, will Elon Musk be on the earnings call? We have no definitive answer on that. One assumes so. What kind of role do Gwynne Shotwell and Brett Johnson play on the earnings call? Are they the stars of the show? Or is it like Tesla, where Elon is still the star of the show? We just don't know. And that's kind of fun.

17:27Carol Massar:So do we have an idea, Mandipa, how much cash they're burning through? I mean, they are investing 15 billion plus in CapEx every quarter, and they're not generating any free cash flow as of now. I mean, the Starlink business is the only one that seems to be generating free cash flow. And that seems to have missed consensus. So from that perspective, I mean, they have this challenge in terms of meeting expectations around free cash flow, unlike the hyperscalers that clearly have strong balance sheets to invest in, you know, CapEx. So from that perspective, I feel there is a ceiling to how much higher they can go in terms of CapEx increases.

18:17I do think they will raise the CapEx. But even at$60 billion run rate, how high can they go, given they don't have the balance sheet and the free cash flow that the other hyperscalers have?

18:32Carol Massar:Ed, come on in. You have a question.

18:35Ed Ludlow:So I have a question. I rely on Mandeep's expertise and his modeling. um so in the first half of the year spacex had about 3.5 billion dollars of operating cash flow but the capital expenditures for the first half of the year were like 29 billion dollars so you just do the operating cash flow minus the capex and that gives you a sort of an approximation on the negative free cash flow right overall am i doing the math right on that that's right yeah so i i see again like this is me doing math in my head and phone my high school teachers it weren't my strong point. But I see, let's say, let's say$25 billion of negative free cash flow in aggregate across those businesses in the first half.

19:19Yeah, I mean, look, I think what you will see is the cloud rental business is going to be a lot better margins. So that's the part that, you know, when you do the first half calculations and annualize it, you you're expecting maybe, you know, there will be negative$50 billion for the full year. But my guess is that cloud rental business is going to be positive in terms of the margin profile. Now, it's not going to be as high as the hyperscalers. So hyperscalers, as we have seen this quarter, they have mid 30 % margins when it comes to their cloud businesses. In the case of SpaceX, even in a best case scenario, that AI segment would have low to mid-teens margins, but at least it's positive.

20:08So from that perspective, if you see AI business at the end of the year around a$25 billion run rate with low to mid-teens margins, then it will offset some of that negative$25 billion burn that you've seen for the first half. And that's where I think there's a good story to tell in terms of margin improvement driven by that cloud rental business.

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