Will SpaceX and Tesla Merge? Elon Musk's $3.5 Trillion Masterplan

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0:30Anthony Cheung: Hello and welcome back to the Market Maker podcast and today we are talking all things reusable rockets and flying cars. Of course, yes, that's right. It's Elon's world. We just happen to live in it. We're going to spend some time breaking down SpaceX's recent blockbuster earnings, deep dive into the gift that keeps on giving, Elon Musk on the earnings call, of course. And we're going to talk all things terafabs and trillion dollar revenue projections. Oh, and Stephen will give his opinion, of course, on one of Bloomberg's big headlines of the week. Stephen, this is coming. The likelihood of a SpaceX-Tesla merger.

1:11Anthony Cheung: So stay tuned. Your verdict is coming by the end of this episode. So yeah, give me the headlines first on SpaceX, Stephen. Yeah, absolutely. This is a great story. And quite frankly, we haven't spoken about SpaceX or AI for quite a few weeks. we've been really cautious to not jump too far into the AI hype and we wanted to give a good cross section of different stories but look when a story like this comes along we need to get into it and SpaceX is such an interesting company not only from a lay person's perspective but even more so from a corporate finance analyst perspective because there's a lot to unpack So we'll start with the earnings, right?

1:57So last week, SpaceX Q3 earnings came out, delivered a blowout earnings quarter, resulting in an increased share price of about 8%. And as I speak, SpaceX's market cap is up at near$2.2 trillion. So we're back from the post IPO dip, and we're on a bit of a tear. And part of the reason for this is that revenue clocked in at$14.6 billion for the quarter. That is against the street's estimates, the consensus estimate of$12.7 billion. So it was a revenue beat. And that is an increase in revenue compared to Q3 of 2025 of 161%. There we go.

2:50Anthony Cheung: That's not bad, eh? That's not bad at all. If we could get some Amplify 160%, I'd be a very happy man. Yeah, it's quite remarkable. We'll go on and talk about the quality of those revenue numbers in a little bit. But it also reported operating income of 2.8 billion, net income of 4.4 billion. Again, there's a question mark there around why net income is higher than operating income. We'll talk about that in a second. But this is so much better than Q3 2025, where there was a net loss of 1.1 billion. The big fat asterisk in this really bumper earnings release that probably put a smile on a lot of people's faces is that they spent $20 billion on capital expenditure in that quarter alone, which is three times higher than this time last year, but is also about 30 % higher than their total revenue.

3:47So their CapEx is 130 % of their quarterly revenue. This is, again, for someone that's been around a little bit, these types of numbers are head-scratching. They're really exciting, and that's why we cover it, but they're certainly head-scratching all of this money going into CapEx.

4:08Anthony Cheung: that's that's why there was 25 of the initial spacex perspectives dedicated to really cool photography of rockets and things like that it's just you know a little bit of got to got to build the smoke and mirrors a little bit to keep keep the vision alive oh absolutely it's a little bit of magic a little bit of uh a little bit of stardust you know and and it's again for we have to realize that me and you are both men and the finance industry for worse rather than for better is dominated still by men and men are really really simple creatures that tending to quite like rockets and cars that flip upside down and fly and things like that uh kind of lame really but we all get quite excited about it well look let's let's break this down then because you've talked about these numbers and they're quite sort of top level.

5:00Anthony Cheung: But of course, we've talked about this before when it initially listed, there's things like the acquisition sense of XAI, there's Starlink, there's the actual rocket side of the business in SpaceX. So what does it look like when you actually sort of get under the bonnet? Yeah, absolutely. So as we said, when we were doing this deep dive into their IPO S1 filing, there are three divisions within SpaceX. The first is what you would consider to be actual SpaceX, which is the rockets. And that generated 1.77 billion in revenue, which is barely up from the 1.6 billion in revenue generated in Q3 2025.

5:44But it got Starship, which is their flagship reusable big payload rocket, into orbit for the first time. And this is something that, of course, Musk goes on and says, look, we're going to get, you know, we're going to get one of these things up every week, you know, in 2027, and they're going to come down and we're going to keep using them. And it's going to be fantastic. Whether that happens, we'll wait and see. The second division, and this is the division that analysts really, really love, and rightly so, the second division is Starlink. So Starlink, the big network of over 11 ,000 satellites up in space connecting us to Wi-Fi in very, very remote and maybe inhospitable parts of the world, revenue increased by 69 % compared to Q3 2025.

6:37And 5.25 billion revenue for Starlink against the consensus estimate of 4.8 billion. So this was another win, right? And there's a lot of good news going on in the world of Starlink. I think there's a plan for the company and actually sign off from the Federal Communications Commission to put up another 15 ,000 satellites into US airspace on top of their current 11 ,000. So, you know, this is a massive growth space, right? So it pays to be quite chummy with the president, that? Probably pays to be quite chummy with the president. Again, when you can cite national security, space wars, Star Wars, I think is what they called it back when George Bush Senior was around and they were talking in Cold War terms.

7:30But yeah, it does pay to know the right people and to talk about this in the context of national security and national infrastructure. I think I read a tweet the other day that suggested that Starlink should be nationalized. Such is the influence of this part of SpaceX on the future of the US, potentially. So yes, Starlink has gone great guns. Normal, boring, but important metrics like average revenue per user, the ARPU, has gone up quite significantly compared to Q3 of 2025. This is a good business and it's got recurring revenue, it's got subscription revenue, It's got all the good stuff, really good barriers to entry, defensibility, etc.

8:17It's got all the stuff to make a really, really nice business. But then we get onto what was until very recently called XAI, now called super intelligence. Well, of course. Super mega intelligence. Yeah, it's, yeah, well, whatever. So$7.56 billion of revenue jumped 9x compared to this time last year and beat the expectation of$6.47 billion of revenue. So this is now SpaceX's biggest segment by revenue. And let's just dive very quickly into some of the drivers for this. So we spoke during the conversations around the prospectus that one of the big strategies of SpaceX is to build massive, massive colossus data centers, which have huge what they call nameplate compute, maximum capacity compute.

9:22I believe they have about 1.7 gigawatts as we speak. And then they rent this out to the likes of Anthropic and the likes of OpenAI through cloud service agreements. And the relationship between Anthropic and SpaceX has been discussed previously. But it is, I mean, Anthropic basically paid SpaceX in the order of$3.5 to$4 billion in the last quarter. And that is more than 50 % of its super intelligence revenues. And this is going nowhere, right? So Elon wants, and there is, I think, a reasonable roadmap to get that compute from 1.7 gigawatts up to three in the next six months. That's what he says.

10:16And then there's talk of getting up to 20 gigawatts in the next 18, 20 months, whatever that. Again, we take Elon with a pinch of salt. So this really is the growth driver of this business. And that's why we've seen the 161 % increase in revenue from last year.

10:36Anthony Cheung: So in a bigger, broader context where people have been panicking a little bit about an AI bubble and CoreWeave and some of the neoclouds tanking recently, there's demand here though. Yeah, there is demand. And again, there will be demand until the investment taps start to shut off, especially from the likes of OpenAI, Anthropic, and the intermediate end users for this technology. And again, the proof will be in the pudding as to whether the likes of Anthropic are going to keep growing as quickly as they are. So I think we look more to the Anthropic S1 and the Anthropic IPO and we look more to the numbers and their growth rates than we probably do to the likes of SpaceX.

11:33SpaceX is just building massive, massive capacity because there is still a huge supply constraint and computers getting more expensive. So they're taking advantage of that as well. Okay, well, look, so far it seems,

11:52Anthony Cheung: I'll hide the CapEx for a moment, the asterisk you said, seems quite impressive overall. So I'm old enough to not be that naive. So is there something I'm missing here? Is it just a CapEx thing to be worried about? Is there more to that? And a little bit more on that would be great. Yeah, the CapEx, I mean, look, it depends on what side of the AI bull versus bear you're on. If you're a bit of an AI bull, then 19.6 billion CapEx is not enough, right? They need to be doubling that. And that's why they've been tapping up the bond market and things like that. I would say the quality of revenue is certainly something that needs to be addressed.

12:41So for a company that is$2.2 trillion in market capitalization, you would expect or you would hope or you would assume that quite a substantial amount of its revenue is coming from super, super embedded, really sticky, multi-year, subscription-like, low-churn revenue, right? That's what we love to see as analysts and investors. But remember that pop, that 9x pop in superintelligence revenue? According to a couple of analysts that I've been following, about 75 % of that$7.6 billion of revenue came from renting their GPUs to a few artificial intelligence labs, i .e. Anthropic, etc. etc. on short-term spot price contracts.

13:38And when I hear the word short-term spot price contracts, I tend to think, well, this is something that can get turned off as quickly as it can get turned on. So it is really a case of, do I believe that the taps are going to get turned on even faster and wider than they were? Or actually, again, if things start going the other way, that 9x increase can start to look like a decrease in a few quarters time, right? So it's a little bit inconsistent and not particularly high quality.

14:13Anthony Cheung: Well, any read really into how good or not was an earnings release, a lot of it is dependent on the outlook. And this obviously is one of the first times you get to see real concrete detail and progress on SpaceX. But what does that outlook look like? How are they managing given what we've just had in the prior quarter to the expectations going forward. Yeah, it's really interesting when the CFO, who's pretty bullish, gets completely and utterly outbullished by the CEO, Elon Musk. So I was quite staggered looking at the transcript thinking, right, you know, Brett Johnson's earnings outlook is really, really very, very bullish.

14:58So expected Q1 2027 revenue to come in at between$33 and$37 billion, much higher than the analyst estimates of$22.2 billion. Remember their recent earnings, $14.8 billion. So that's another two and a half X on top of what they've got at the moment. And again, this is all attributed to the increased visibility into our compute contract pipeline for the next six months. So basically saying, all right, we've got a load of Frontier Labs or customers lined up to take and pay for some of the compute that we are growing from 1.7 gigawatts up to three. But note that little next six months. That doesn't give me a great deal of visibility, right?

15:52There's a decent backlog, but only for the next six months. What happens after six months? We don't know. So again, this is a very expensive stock. It's trading at a very, very high multiple. And to have that level of uncertainty or those question marks still gets me a little bit scared until I get reassured by Elon. Because he comes out in the earnings call with another estimate saying that by the end of 2027, so really not that far away, 14, 15 months away, annual recurring revenue ARR is going to be between, and I love this range, between$500 billion and a trillion dollars. Pick your number.

16:41Anthony Cheung: But he's not talking to Wall Street, even though technically he's saying these comments to Wall Street, because this is in the post earnings release in the conference call, which is all the Wall Street analysts following to determine then their future price targets and what have you valuations of this firm. But surely this has just taken the soundbite to keep the narrative alive for the other greater audience that he has. So those numbers are ridiculous, as you rightly said, but I mean, that's just unsurprising, right? Yeah. And it's really interesting. So you can probably do a dissection of the earnings transcript and very, very clearly highlight and allocate certain statements by the CFO to the analyst community and to portfolio managers and people that really know what they're talking about.

17:30And then the Elon bits, you highlight those and those get allocated to the headlines for retail investors that get all very excited and start to re-exit or re-tweet it or whatever we do.

17:44Anthony Cheung: Just before the comments start landing on this video, got a lot of love for the retail investor. I love the retail investor too. I am a retail investor. And quite frankly, Musk gives us something to talk about. Exactly. but to quote my portfolio manager friend, Elon is totally, utterly full of BS, shall we say. All right then, so in conclusion then on the financials then from this earnings report, or as expected, anything that surprised you or has raised a flag that you want to continue to monitor over the preceding months? five stocks to sell you might be missing the opportunity

18:33real traders still hear the noise they just know when to stop listening to it find and research opportunities to fit your strategy with thinkorswim trading platforms from schwab discover features like robust charting nearly unlimited customization and built-in risk management technology plus get 24 7 support from real trading specialists that's schwab trading Learn more at schwab.com slash trading. Yeah, I mean, look, this is a really impressive earnings report, regardless of what I've previously mentioned. There's no doubt about the trajectory of the company and the real, real impressive numbers on Starlink, quite frankly.

19:11I think that's a massive win. But there is something to keep watch on. So I don't know if you saw this article in the FT last week. There's a move in Europe, a conglomerate of Deutsche Telekom, Orange, Telefonica and Vodafone are exploring a joint bid for Spectrum to provide mobile satellite coverage as a challenger to Starlink. again it's the classic if you want to talk about uh strategic um theory you've got the blue ocean versus the red ocean blue ocean strategy is you want to head into a space that currently has no competitors and not fight for the last remaining dollar in what they call a red ocean but as soon as someone comes to dominate a blue ocean it suddenly becomes fair game for everyone else to pile in.

20:04And Starlink's had a brilliant run of being first mover and creating barriers to entry. But the likes of the incumbents are just waking up and scratching their heads and going, wait a second, we missed out on a piece of this action.

20:20Anthony Cheung: So it's almost like your own success is your greatest enemy in some respects. In so many cases. And again, we will talk later about, yeah, about success being a strategic problem as opposed to a strategic good and it feels really counterintuitive but it is a real kind of law of of strategy okay well yeah you can throw some my way and then i'll see how i deal with it but one of the things i saw in your your notes was a picture of i mean he looks quite quite angry or at least animated i should say and he's got his gilet on and all the rest of it. So who's this guy in the image that you've showed me?

21:03Yeah, yeah. So my notes, we're now going to talk a little bit about the earnings call. And my notes start with a bit of a, I wouldn't say a shout out to research analyst Adam Jonas at Morgan Stanley, who I screenshotted a bit of a photo of. And he's looking really aggressive with his very, very thick gilet and leather-bound books behind him. He looks like a proper finance guy. Anyway, he is ponying up to Elon Musk. He says, hey, Elon, firstly, thank you for making flying cars real. Oh, Jesus. And then Elon goes, you're welcome. And then he goes, that was freaking insane. It's my first comment, but it's super inspiring for people all over the world, especially young people that want to build.

21:53oh my god yeah a little desperate it was pretty cool though again fair play it was very very cool I don't think it was real by the way I think it was all made up

22:09Anthony Cheung: drop a comment let us know what you think conspiracy theory flying cars and all that we'll see what the comments say but anyway the earnings call I want to mention this thing, this word, Terafab. So Terafab was mentioned a number of times and it will lead maybe into the Tesla discussion. Terafab is the name that Musk has given to a chip manufacturing effort shared between SpaceX and Tesla. So rather than relying solely on outside foundries, i.e. TSMC, maybe to a lesser extent Samsung, SpaceX and Tesla are working together under the guidance of Elon Musk to try to take on one of the most impressive and entrenched companies in the world.

23:12of the last generation TSMC and create a fully vertically integrated AI company, which no company is at the moment.

23:23Anthony Cheung: I mean, that sounds like it makes complete rational sense, but I'm assuming that the barriers to entry on competing with a TSMC, who's the absolute master of this profession is not a small feat. Yeah, absolutely. So you have chip designers and designing really, really high quality chips is very, very hard, but it is doable. And we've seen competitors to NVIDIA and lots of hyperscalers getting into the chip design space. But when it actually comes to manufacturing, taking that design and putting a chip together, there's only really one player in town. There's Intel and then there's Samsung, but there's only really one player in town and that's TSMC, the Taiwanese company.

24:19And they are so good at this, so efficient and getting better, investing, reinvesting their massive, massive free cash flow. The concept that SpaceX and Tesla, that doesn't have any fabrication experience, applying their not insignificant manufacturing capability to such a complex space when there's already an incumbent that's so impressive, this to me, this terafab vertically integrated fever dream from Elon Musk does seem to... He says that they want to get a terawatt of capacity, which is twice the existing... Sorry, a trillion watts is a terawatt. It's twice the current capacity of the US.

25:20That's the project's long-term production objective in terms of chip manufacture.

25:25Anthony Cheung: Stephen this is a national security issue I think we should just give Elon full clearance because TSMC is a foreign entity we need to up our game we need to give Elon full vertical manufacturing access I think that's the argument right I think there is no way there is no way that this thing is going to come online in 2028 the whole end-to-end process of creating a rival to TSMC is probably not possible. And if it is, it's going to take a lot of time. Intel haven't come close. Samsung's losing market share. These are two sophisticated companies. Yes, Musk will make the argument for unlimited money because this is a national security concern, right?

26:10And maybe tariffs on TSMC manufactured chips, dot, dot, dot. But he's going to have to have an awful lot of tailwinds and an awful lot of open doors to get this even close to being off the ground. This strikes me as not desperate, but very, very speculative.

26:33Anthony Cheung: But to accelerate the TerraFab, then it would make sense for SpaceX and Tesla to come together. And would it also make sense that this sort of commentary is happening just before the midterms? So there's there's a bit of timing aspect around this as well, given the more probable, favourable conditions you would have if Trump and the administration has greater control at this point or in the future. Yeah, I think the midterms is a very interesting event that maybe these comments were somewhat directed at. And I'm talking about the comments that Elon Musk made in the earnings report. And he speaks quite a lot about this chip manufacture, basically joint venture between SpaceX and Tesla.

27:24And the strategic rationale for SpaceX and Tesla to in-house and own the supply chain of chip design, manufacture, production, and the artificial intelligence layer that sits on top is that the two companies have massive, massive requirements for AI compute, whether it's autonomous vehicles, whether it is humanoid robots, the optimus humanoid robots, whether it is SpaceX's grand plan to put data centers, really highly efficient data centers up into space. They need a bunch of chips to do this. And Elon, his natural tendency is to bring this in house. So in the earnings call, he says I can't say too much but do I think it do I think it would be a good idea yes but at the end of the day the shareholders have to be supportive and this is the Tesla shareholders that he's speaking about and there are there are special committees between the two companies that are working together to see a what they can do with regards to chip manufacture but also be what what they can do with regards to a potential merger.

28:38And this is looking like a$3.5 trillion company joined together. I mean, Tesla's what,$1.5 trillion? SpaceX hovering around the$2.2 trillion. So this is huge.

28:51Anthony Cheung: So maybe you could then unpack for me, kind of getting a sense of it, but I'm sure there's other parts to it. What are the synergies specifically then for this potential combination and then how likely is it to materialize yeah so the synergies are relatively straightforward so firstly it's a lot of this is a capital arms race who can raise the most money can potentially quote-unquote win whatever ai race that we're trying to run at the moment. And SpaceX is a large company with a lot of cash from the IPO with an investment grade credit rating that if you bolt on Tesla only has more access to capital and a bigger balance sheet with which to raise money, right?

29:54So firstly, it's an economies of scale from a capital raising perspective synergy. Secondly, the two companies between them have extremely impressive manufacturing expertise. And it was very, very interesting to listen to Elon on the earnings call. And he was saying, again, talking about the vertically integrated nature of what he wants to create with regards to AI. And he was saying, look, one of the biggest bottlenecks, we've spoken about chips and manufacture, et cetera, but one of the biggest bottlenecks is energy. And Tesla's manufacturing capability, and by the way, it's giga plants are relatively flexible with regards to the things that it can build beyond just Tesla's.

30:49He was saying that We've got some of the most sophisticated manufacturing capability to cast wind turbines, to create the power, to create the basis of the data centers, which we're going to put our chips in, etc., etc., etc., etc. So you can see the synergies coming from a manufacturing perspective. And then thirdly, both SpaceX, as I've mentioned previously, both SpaceX and Tesla have a similar need for certainty and control over the compute supply chain, whether it's directed at data centers up in the sky or whether it's directed at humanoid robots. At the moment, both companies, separate entities for now, are at the behest of NVIDIA, effectively.

31:42And that's their chosen, well certainly SpaceX's chosen supplier to populate their data centers so they really want to bring this whole thing in-house and again if you think about Elon his strategy with cars bring everything vertical vertical integration bring everything in-house no outsourcing build from first principles theory about rockets exactly the same he's going to try and do this with the AI I stack.

32:10Anthony Cheung: I mean, so his rationale makes sense. However, my understanding is his ownership between company A and company B is not the same. So he's not the only player in town that needs to be appeased to get on side for this to happen. And then there's always these issues about governance. And then if he can, if again, if he's controlling the Death Star, is there problems here in executing this type of merger? And as a consequence, then what's your conclusion on whether or not this will happen? Yeah, you're absolutely right. It's not an inevitability because 80 % of the voting rights of Tesla are not controlled by Elon.

32:51So the Tesla, many of which are retail investors, so maybe he'll have those guys on side. But the Tesla investor base, the shareholder base is going to have to vote in favor of this merger. And that will probably require a decent premium. And that decent premium will make what is already a ridiculously expensive company, you know,$1.5 trillion company on pretty modest revenue, non-growing and pretty modest earnings. that is going to be a really, really hard one for SpaceX to swallow, right? To offer, let's say, 1.75 or closer to$2 trillion to get this over the line. And there may well be a point that this starts to not make sense.

33:40Who knows? I think that this is going to happen. I think that the only way for Tesla to get close to the always over the horizon potential and grow into the share price and the ridiculous multiple and the ridiculous valuation that it's had for so long is to be bought by another one of Elon Musk's companies. And that's what I think every investor in tesla is kind of hanging on for me included um so if i was going to put a poll to finish

34:18Anthony Cheung: on this episode which i will uh that's for spotify if it's just comment if it's on youtube or other platforms what should i put a merger by what date should i put in the post we're going to get into polymarket here aren't we i wonder what the uh wonder what the odds are on polymarket I reckon by the, I mean, a bullish me would say by the end of the year. Actually, let's go the end of the year. It could happen that soon. End of this year? Yeah? Wow. Crikey, you've been drinking the Elon Coulé. Maybe the end of Q1 2027. Let's give it a little bit more time. Let's do that. All right, cool. Well, look, that was great to get that recorded and out very quickly.

35:03Anthony Cheung: So I appreciate your time, Stephen, given the earnings just dropped a few days ago. So yeah, thanks for listening, everyone. Remember, if you made it this far, don't forget to like and subscribe. We'd love to have you for future episodes and take care until next time. Thanks, Anne. Mr. Monopoly here. Miss me? Monopoly is back at McDonald's with millions of prizes. A 2027 cheap charity. A Carnival Cruise vacation. Gift cards from DoorDash and Best Buy. He'll then play in the McDonald's app. Get your bag. No purchase necessary. 50 U.S. and D.C. age 18 plus. See play at mcd.com for rules and play at mcd.com slash A-M-O-E for info and playing without purchase by mail by November 2nd.

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