SpaceX’s AI Spending Rattles Investors & Influencers Blasted for Attending OpenAI’s Summer Camp

0:01Whether you're hitting the road this summer or just parking for some peace of mind, AT &T connected car turns your vehicle into a Wi-Fi hotspot with fast, reliable, and secure internet access. You can connect multiple devices to stream, browse, play games, or get a little work done all inside or in proximity outside of your vehicle. To learn more, head to att.com slash morningbrew. That's att.com slash morningbrew. Requires eligible vehicle service and coverage not available everywhere. Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, why the nut milk boom has gone sour.

0:39Then what secrets were revealed in SpaceX's first earnings report ever? It's Wednesday, August 5th. Let's ride.

0:56There are rumblings, my friends, rumblings that MySpace could be making a comeback. In a recent documentary about MySpace, the brothers who now own the social media platform said they were planning to boot it back up. Tim Vanderhoek said in the movie, we are going to relaunch MySpace. We are just waiting for the right time to do it. This news, of course, has sent millennials into a nostalgic frenzy, reminding them of the glory days when you had to use HTML or CSS to customize your page or pick a song that would greet every visitor. Toby, I can't wait to get so addicted to MySpace I have to delete it from my phone.

1:30I'm not going to lie. Totally missed the MySpace wave. It was always Facebook for me, but the site has been up to some interesting stuff over the last two decades. After it sold for$580 million back in 2005, it kind of faded from relevance. until a group including Justin Timberlake bought it for$35 million in 2011. They tried to relaunch it in 2013. Apparently that lost$150 million, didn't go very well. And yet here they are trying to come back once more. And I think they have a shot. All they have to do is compete against Facebook again, as well as Instagram, TikTok, Xthreads, Blue Sky, Reddit, YouTube, Snapchat, Twitch, and Pinterest.

2:07They got it for sure. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required, compatibility and availability varies 18+. SpaceX is a very old company started 24 years ago, but yesterday was its first earnings report ever.

2:43What did we learn about the house that Elon Musk built? Well, for starters, it's making billions of dollars, but it's spending even more. Q2 revenue came in at 7.8 billion, exceeding Wall Street's expectations by more than a billion. But the bill to generate that revenue was steep, 18.4 billion in CapEx, largely driven by its AI data center expansion. So if my math is correct, and check me because I was an English major, the company is spending more than twice what it makes in quarterly revenue. And yet Elon has never been one to let the reality of today stand in the way of the promise of tomorrow.

3:17He said on the call that SpaceX expects to reach$1 trillion in annual revenue by 2030, a timeline that, according to Elon, has moved up a year. While it sounds lofty, SpaceX's finance head said that the company's annualized run rate should reach$100 billion by the end of this year. Where is all this revenue coming from? It's not its space business that lost money, nor its AI or social media arms. SpaceX's only profitable division is connectivity, which contains the satellite internet provider Starlink. Must sign on the call that Starlink will provide most of the world's internet connectivity within 10 years.

3:52President Gwen Shotwell went a step further and said that the mobile service it plans to launch could take quite a few customers from companies like Verizon, AT &T, and T-Mobile. How did the stock react to all this? In the lead up to the call, it had its best day in weeks, gaining 9%, but dumped 7 % in the immediate aftermath. Since speaking shortly after its IPO, the stock is down by over 40%, erasing more than$1 trillion from its market cap. Neil, after so long as a private startup, it was weird to just get a normal earnings report from the Rocketmaker slash AI Lab slash internet provider slash social media company.

4:27It's really hard to wrap your head around SpaceX as a company. It's so sprawling. It does so many different things. So it's very nice to categorize this into just three different segments. Space, which is its launch business. Think Starship. Connectivity, think Starlink and Telecom and AI, which is XAI data centers, things like that. Yeah, Space made$962 million in revenue. Connectivity,$4.3 billion. It's really putting the team on its back. AI,$2.56 billion. Connectivity is the only profitable one. this stock has gone interstellar and then it hit gravity it's going to require projects how mary to eventually reach its targets it's worth 125 dollars a share now ipo to 135 dollars a share ultimately went up to 225 lost more money in the span of a few weeks than any company ever it's still worth right now 1.6 trillion dollars which it makes it one of the biggest companies in the entire world it's worth more than Tesla.

5:25Part of the reason why it fell, you know, 7 % after hours was just the same way that most of big tech is being judged these days when it comes to their earnings report. And that is the fact that investors got a little squirmish by how much it's spending on its AI data center expansion. I feel like we said that a million times on this show because Microsoft, Meta, Amazon, they were all judged quite harshly for the most part for their CapEx expenditures. But the thing that they have that SpaceX doesn't is that they're funding it using very profitable existing businesses. SpaceX is just not bringing in as much revenue as they are.

5:58So each dollar that they allocate towards this build out is being scrutinized. But they think that there's a lot of future growth coming down the pipeline. I was surprised at how much of a center stage Starlink took. Starlink is really what they are betting on becoming a much bigger business than it is even today. The fact that they want to take on the telecom providers like the AT &Ts of the world. They want to build out a terrestrial phone network. So maybe in a few years, we'll all be using Starlink instead of T-Mobile. That was something that they're kind of calling their shot. And you saw that reflected in the market as well.

6:35When they started talking about this new business line, shares of all of those companies that I mentioned started falling and everyone screenshot and says, look what happens when Elon enters your market. But that was definitely a key theme of this earnings call is how much they think Starlink is going to be their growth provider. This report wasn't the only big test coming to SpaceX this week. Today, actually, the lockup period for insiders to sell their shares from the IPO ends. So$100 billion worth of stock could become eligible for sale today. So these are SpaceX employees, SpaceX executives that had shares in the company, was a private company.

7:12Then the IPO happened. And every company that IPOs has this lockup period, whether it's weeks or months where they can't sell because that would put downward pressure on shares. Now they are able to sell. This is about to flood the market with SpaceX stock, $100 billion worth of stock. Right now, only 5 % of total SpaceX shares are able to be traded. This is going to bump that up to 20%. A lot of investors are worried that this is going to depress the stock price because whenever the lockup period ends, stock prices do eventually go down. It's just a simple supply and demand equation. There's a ton of supply that's going to come by.

7:48And a lot of SpaceX employees want to get rich and cash out and buy their fancy cars and houses after working for this company for so long. Let's look forward and specifically upwards, because again, SpaceX is in the name space. They still are very bullish on Starship. Elon Musk called it the key enabler of its long term growth because they need this giant rocket ship to launch more Starlink satellites to expand that mobile service to deploy orbital data centers. Again, that has been the pie in the sky idea that is kind of underpinning the valuation right now of SpaceX. And Elon Musk did shed some light on that.

8:24He's very serious about space data centers. They announced a new partnership with NVIDIA. It includes a joint venture to design the StarMind AI-1 satellite compute payload, which will hypothetically enable orbital data centers. He also announced that SpaceX will build all of its AI infrastructure exclusively on NVIDIA chips. So there is very real money and very real time and resources, obviously, going into this idea, even though it still has its skeptics. Elon Musk very much believes in the idea of space data centers. Final note on SpaceX, there's a lot going on with this company. This morning at 2.35 a.m.

9:01Eastern, an upper stage Falcon 9 rocket is believed to have crashed into the moon. This is something that people have been watching for a very long time. We don't know exactly if it happens because it wasn't able to be seen by the naked eye. But yes, this upper stage rocket, which has been floating in space since 2005, is expected to have hit the moon at 5 ,400 miles per hour, more than twice the speed of a bullet shot from a rifle and leave a crater as wide as 100 feet. and you're thinking, wow, Elon, come on, what are you doing? But actually, people, the scientists, rocket scientists say, this is amazing, we are going to learn so much from how this thing impacts the moon and it will inform our future decisions about how people colonize the moon and how they might react to, the civilization might react to things just blasting into the moon.

9:50So that likely happened a few hours ago. Forget the Strait of Hormuz for a sec. The waterways you need to pay attention to now are the Danube and the Rhyme. Two of Europe's mighty rivers are drying up due to extreme temperatures and drought, with water levels falling to record or near-record lows across a swath of countries. It's an economic crisis in the making, imperiling everything from industrial production to energy generation to tourism. You might not think of rivers as economic drivers, but in inland regions like Central Europe, they are absolutely crucial for delivering raw materials to factories, bringing finished goods to markets, cooling power plants, and enabling vacationers to take a load off on a cruise.

10:27But no water to carry ships, and the entire system collapses. As far as energy goes, the emergency is most acute in Hungary and Romania, where nuclear plants are on the verge of shutting down because there's not enough river water from the Danube to cool them. Hungary's Prime Minister Peter Magyar said the largest nuclear plant in Hungary, which supplies almost half of the country's electricity, is expected to fully close next week from the water crisis. But the pain is spreading throughout Europe and across sectors. In Bulgaria, nearly 200 cruise passengers had to be evacuated after their Viking ship hit a sandbar.

10:58Manufacturers in Germany have had to reduce output because no materials are arriving. It's an absolute mess, Toby, and highlights the importance of navigable waterways. These countries are going to extreme lengths to try to re-divert water flow where they need it to go. Romania literally detonated explosives in and along the Danube to divert more water towards their nuclear power plants because, again, these are things that need water to function. They will overheat if they do not have water flowing through them, And it's led to a lot of people saying that water is becoming as strategically important as something like oil or gas or other types of fuel.

11:35Francisco Sassi, who is a professor at the University of Oslo, said water is as critical an energy commodity as gas or uranium. Because, again, if something goes offline because of a limiting factor, of course that's a scarce resource. So obviously you have to look at the energy markets. But then shipping, too, that one is a little more easy to wrap your head around. The fact that every drop, every centimeter drop actually impacts the GDP of these countries is something you probably don't think about. But now these cargo ships can only carry 20 to 30 percent of their normal loads to avoid running aground.

12:10You need more ships to move the same amount of cargo. It's just a sand in the gears of the economic system over there. Yeah, this is especially frightening for these huge, heavy industry companies along the Rhine in Germany. You've heard all of these names. ThyssenKrupp, Bayer, Daimler, BASF, chemical and industrial giants that make cars and chemicals and literally anything you can think of. They're all along the Rhine and they get their raw materials from the North Sea going through this water. BASF has described the Rhine as, without the Rhine, industrial production in Western Europe would collapse.

12:47So this happened in 2018 where you mentioned GDP. There was a big drought along all of these rivers and it actually reduced Germany's GDP by 0.5 percentage points. That could happen again if there's no rain in the forecast. These companies are going to have to shut down production and not be able to produce goods because they're not getting raw materials. So they're looking at the forecast. It doesn't look like rain. In Central and Eastern Europe, they're looking at over 100 degree temperatures. So it's basically affecting everything from industrial production to just being able to power your country and keep the lights on.

13:20Moving on, OpenAI is in retreat. After an influencer retreat they hosted did not have the influence they were hoping for. The AI company did its best tart impression and invited roughly 30 influencers to a swanky resort in New York's Hudson Valley called Wildflower Farms, where rooms can cost up to$2 ,000 a night. In between farm-to - table dinners and painting workshops, the assembled creators got hands-on with OpenAI products, including the new ChatGPT work. Videos started to trickle out as people documented their time at what OpenAI dubbed Summer Club. Then the backlash started. Comments poured in accusing the posters of selling their soul for the trip.

13:58One Redditor wrote, this is the proper context to use the word dystopian. Under a video of a creator preparing herself a bath, another comment read, the irony of running a bath at a chat GPT brand trip. The chief concern surrounded what many perceived as greenwashing, criticizing the creators for promoting AI while at a luxury nature retreat without acknowledging its environmental impact. OpenAI pushed back on the critics, saying that the trip was purely educational, designed to help creators understand ChatGPT so they could pass on new uses to their audiences. Attendees also defended their presence.

14:33My morals were not compromised, Grace McCarrick wrote on LinkedIn. I am supremely excited about AI and the opportunities it offers to our species. Neil, regardless of where you stand on AI, it's safe to say that this retreat did not have the effect OpenAI was going for, unless they are a sucker for outrage. You've heard this concept of a split screen country over the past couple of years. You have this group that watches Fox News, this group that watches MSNBC, and they just don't see the world in the same reality. And I think we're seeing the same thing playing out with tech because you have this group of people, sometimes in Silicon Valley, but across the country, that says, oh, I love Claude.

15:09I love ChatGPT. I use them for work. I use them all the time. They're so helpful for me. I put my agents to do all my work for me. I love all this. And then you have another group that said, oh my, this is dystopian. This is going to lead to the end of the world. This is going to ruin the environment. This is going to take all our jobs. And these people just aren't talking to each other and they don't acknowledge each other's existence. And I think this ChatGPT influencer retreat really brought that to the fore. I mean, one commenter who's a critic of AI told TechCrunch, the world is on fire. It's not a great time to brag about your$5 ,000 a night suite.

15:42And then on the other hand, you have one of these influencers, Grace McCarrick, who said, I didn't for one second consider it would be controversial. So these two groups just have nothing in common. They don't see AI the same way. We spent a good part of yesterday afternoon just scrolling through the comments because it was very entertaining to see this playing out. And this is a dynamic that is going to continue playing out specifically because OpenAI is going to push further into the influencer and celebrity partnership game. Earlier this year, they actually brought over Charles Porch, who was Instagram's former VP of global partnerships.

16:17And his role is going to be building relationships with these influencers, building relationships with people who post online and understand how creators use and interact with AI. So that's definitely something that this is not going to be the last, you know, influencer partnership we're going to see out of open AI. But some people were saying that they just went about it in the wrong way. Companies do this all the time. Anthropic also recently hosted an influencer dinner to learn about Claude, but they did it more low key. They didn't post about it too much. They are kind of trying to align themselves with this crowd without being overt about it.

16:50And that's what a lot of industry onlookers said. It's okay to do this stuff, but it's not necessarily in your best interest if you're putting your comms hat on to broadcast this widely to the world, especially since the technology is so divisive. It's been really interesting to dig into the numbers to see whether these critics of AI that are so vocal on Instagram in criticizing the influencers who went to this retreat are the vocal minority or they represent a large swath of the population. And from the numbers, it does seem like this is really a vocal minority. I mean, ChatGPT is about to hit 10 million app store reviews with a 4.8 rating.

17:29ChatGPT was the most downloaded mobile app last year, over 770 million downloads. It was, you know, it's soon gonna hit 1 billion downloads. So a lot of people out there, maybe they don't like to talk about it, but use ChatGPT and they like it. Among frequent users of AI, 62 % have a favorable view of ChatGPT and OpenAI compared to just 35 % of Claude. So there's a perhaps just from these numbers, it seems like there's a silent majority out there that, you know, wants to go to bat for AI, but they're just not talking about it. maybe it just says more about influencer trips in general because every couple of years or so we get one that just really hits the mainstream and rubs people the wrong way i'm thinking about xian in 2023 when they flew creators out to china for this very curated in stage factory tour and then i mentioned tart cosmetics they were kind of the poster child for throwing these lavish creator retreats that was got a lot of backlash because a lot of people viewed them as out of touch with reality or excessive.

18:28So when will brands learn that maybe it's not the best idea to spend a lot of money on these influencers when normal people are just, you know, trying to get by. All right, we're going to take a quick break and come back with a story about milk right after this. This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome, that's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it.

19:01Ready to make anything online make sense? There's no place like Chrome. Check responses set up required, compatibility and availability varies 18+. Milk is making like tame Impala and going from alternative to the mainstream. Bloomberg reports that alt milks, oat, almond, cashew, and the like have been falling out of flavor as more consumers re-embrace the real stuff from a cow. For three straight years, retail sales by volume of dairy-free milks has fallen by over 5%, according to Sercana, with the biggest decline coming from almond milk, long the king of the nut milks. At the same time, dairy milk sales are seeing renewed interest, totaling sales of$18 billion annually.

19:40The alt milk slump has hit some of the biggest purveyors hard, particularly Oatly. In 2021, at the height of the dairy-free craze, Oatly went public and surged to a market cap of over$15 billion. But since then, it's been an utter disaster. Americans began to prioritize other things in their diet, clean, simple, unprocessed ingredients, and of course, protein. And Oatly's value is now down to$470 million, a 96 % plunge. The wipeout has caused soul searching among the entire alt milk industry. Some are reformulating their products or marketing to different customers like baristas. Others are discontinuing their plant-based brands altogether.

20:18Toby, it absolutely reminds me of what's happened to plant-based meat companies like Beyond Meat and Impossible Foods, which never lived up to the hype. The American consumer is a fickle one. Preferences changed, and while calcium was in you a few years ago, now it's protein. I mean, calcium really used to be the thing that almond milk especially hung its hat on. Almond Breeze advertises 450 milligrams of calcium per cup versus 300 milligrams in cow's milk, but now it just seems so outdated to even think that people care about that anymore because everyone is protein maxing. So it really is just one of those things that swings with the wind of consumer sentiment.

20:55The other thing too, is that we're in this big anti-process food movement, especially in the upper reaches of the government. RFK Jr. has a very big proponent of simple food and the fact that milk has one ingredient versus oat milk has more, just simply more things in it. A lot of them to point out the fact that oat milk often has seed oils in it. There's been this big hubbubaloo around seed oils in particular. So if you are seeing people not care about calcium anymore, you're seeing people care much more about simplicity and you think that they see seed oils as toxic and inflammatory, of course, the pendulum is going to swing back towards cow milk, which by the way, has always been a bigger industry than oat milk.

21:38They never quite got on par with each other. The U.S. dairy market in 2022 was$60 billion. U.S. plant-based milk market was just under$6 billion. So it was never quite an even comparison, but even now, cow's milk is running away with it. Yeah, and it also doesn't help that it's much cheaper than alt milks right now. The average for a gallon of milk in the U.S. is$422 ,000. And according to the Department of Agriculture, if you go down the milk aisle and look for some alt milks and you just want a half a gallon, that can cost anywhere from$4 to$5 or even more. So basically you're down 50 % already when it comes to price comparisons.

22:16Not all dairy is winning though. That's what I found interesting. Whole milk is killing it. Organic milk is killing it, but skim milk sales have actually fallen more than 75 % since 1998. 1 % milk sales as well are down more than 50%. I've always been a 2 % guy myself. Also, not all plant-based milks are dead either. Some are expected to grow. The two new categories that are emerging right now are pistachio milk because it doesn't have added oils. It has a little bit lower sugar, lower calories, lower carbs than oatly. And then also hemp milk. It is projected to be the fastest growing alternative milk category, 14 % growth over the next four years.

22:54So it still has certain advantages where people say it uses less water than the dairy industry does, less land and water, fewer greenhouse gas emissions. So there's still that narrative. It can tell even though it's out of style right now, maybe in a few years, all of that comes back into the four in oat milk. Sorry, alt milks are growing once more. All right, let's sprint to the finish with some final headlines. Maybe stocks do only go up and to the right. Yesterday, the S &P 500 closed at a new record, posting a 1.8 % gain to topple its previous high from June. After a few bumps this summer, stocks are on a roll thanks to strong corporate earnings and hopes that maybe sometime soon, the U.S.

23:34and Iran will agree on a deal that reopens the Strait of Hormuz. Companies are simply crushing it. So far this earnings season, 86 % of public firms have beat profit expectations, including some of the biggest tech names that account for a disproportionate share of the market. Meanwhile, oil prices have dipped below$80 a barrel for the first time in three weeks, as a peace deal comes into view that will unlock energy flows from the Middle East. Toby, we're so back. If you're handing out game balls, you got to give one to Palantir, which jumped nearly 30 % yesterday, as well as Caterpillar, which is a more boring company on the surface, but is also profiting from the AI boom and the power generators they are supplying.

24:11That rose 6%. I don't know how many other game balls, but we should give one to the oil market. And also NVIDIA was back up 2.6%. Broadcom was up nearly 7 % and Micron up 7.6%. So that memory and chip trade came flying back as well. It was tough to go this long between an all-time high all the way back in June till now in early August. Like it was, I wrote and will remember the great stock market sell-off of those last 20 days or so. Caterpillar is a boring company. Clearly you did not play Tonka on PC in the nineties. You missed my space. You also missed Tonka. That was awesome. Okay. Up next, there is one stock that didn't join the party yesterday.