Should You Buy Space X? | IPO Special

0:00The space business is very much a pioneering business and I think it also speaks to this idea of when Elon Musk says he's going to set out and do something, he's not necessarily going to do it in the crazy forecast that he puts forward, but he almost always does it. And space business within SpaceX, I think, is a good example of that because even right now, what they're designing with Starship, the next generation rocket, which unlocks the future overall for SpaceX and this like huge hefty valuation that they're asking for as they come public. All of that has been said by everybody else to not be possible and yet they've done it.

0:29And now they dominate the market. And so it puts them in a key tentpole position to now be able to go out and carve out other pieces of the market.

0:40Hello and welcome to this special episode of the Master Investor Podcast, where we focus on the SpaceX IPO. By this Friday, the 12th of June, it will be the biggest IPO of all time, set to raise about$80 billion of fresh capital, valuing SpaceX at some$1.8 trillion. To debate the attractions and detractions of this IPO, we are joined by four fantastic guests. My former colleague and friend from CNBC, Morgan Brennan, the host of Morning Call, but also the network's lead anchor when it comes to space. Then to outline the bull case will be joined by Dan Ives of Wedbush Securities, who you'll know from previous episodes, followed for the bear case by Morningstar's Nicholas Owens.

1:36And to round things off, another friend of the show, Larry McDonald of the Bear Traps Report, will outline what he thinks this mammoth IPO will mean for the broader markets. All of that coming up. The Master Investor Podcast is sponsored by LSEG, Interactive Brokers, the World Gold Council and BNY Investments. Please do remember the views expressed in this podcast are for general information purposes only. Nothing in the podcast constitutes a financial promotion, investment advice or a personal recommendation. More on that in the show notes. first up we're joined by morgan brennan of course the anchor of morning call on cnbc and the lead reporter on all things space for cnbc morgan it's great to see you well if the pleasure is all mine it's wonderful to see you again and keep up all the great work just huge congratulations to you and excited to talk about this major moment that to be honest i wasn't sure we were going to see in our lifetime.

2:38Well, I mean, quite. Well, firstly, congrats back to you with the new show. It's going so well. And as you say, we didn't know if we'd see it in our lifetime. And I guess we didn't know it'd be quite this size. Just talk to us through the core numbers. It's Monday, the 8th of June. By Friday, the 12th of June, this company will be listing. What sort of numbers are we talking about? Yeah. And we're talking about the largest IPO, initial public offering in the history of the world, literally. And it's a space company that's doing it. It's a space company that under the hood obviously has a variety of different multi-billion dollar, highly disruptive businesses that all come together to create, I think in the eyes of SpaceX, a company where the sum is greater than the value of the parts.

3:23So in light of that, you're talking about a company that's also losing a lot of money here, but is growing rather quickly and is really sort of basing its valuation, this nearly$1.8 trillion valuation if everything sort of comes together according to plan here come Friday. $1.8 trillion valuation on a bet on the future, on the long-term future. So 555 million shares priced at$135 a share. That is not expected to change. As of right now, according to some reports, two times oversubscribed. And just a small float, so not a lot of shares being offered to market. But what is being offered to market is expected to raise more than$75 billion.

4:03$20 billion of that will go to paying down debt, and the rest is going to go to this massive spend on everything from their next generation Starship rocket to AI compute infrastructure and, of course, data centers in space. So as you said, raising$75 billion at a valuation of about$1.8 trillion, so selling about 4%, 4.5 % of the shares only. What exactly does SpaceX do, Morgan? You alluded to it that it's not just space. There's three parts of the business, as they describe it, space, connectivity, and AI. Talk us through space, first of all, what falls under that? Yeah, so space is actually now, ironically, the smallest business.

4:40And this is the business that SpaceX was started upon, right? And it is the launch business. It is the business that has rockets flying to space and then coming back to be reflown again, the Falcon fleet, Falcon 9, Falcon heavy rockets that are absolutely dominating the launch services market when you talk about bringing satellites and other types of things to orbit and beyond. It's also the piece of the business that is carrying astronauts to the International Space Station and the piece of the business that is working with NASA right now through the Artemis program to return astronauts to the surface of the moon and build out lunar colonies and then ultimately colonize Mars down the road as well.

5:16That is the foundational business of SpaceX. It is the business that everyone said was not possible in terms of this idea of rocket reusability and companies coming in and basically offering launch as a service. It's now the smallest business, but it is the moat for everything else because they have driven down the cost of access to space, not only for other companies in this sort of new commercial space economy, but also for themselves to be able to enable the other business that is really the profit driver for SpaceX right now currently. And that is connectivity, which includes the Starlink broadband constellation that is now taking a chunk out of fiber and terrestrial telecom businesses in terms of how well it's operating and how quickly they're signing on new subscribers.

6:00So before we get on to connectivity and Starlink, just dwell on space for us. I mean, you've covered this area much more closely than any reporter I know. Is it fair to say they are, under Elon's guidance and innovation, unquestionably the world leader in the space of space? They're unquestionably the world leader in the space that is space. And you see it in the public markets too. There's quite a few of these so-called new space companies that are already publicly traded and have stocks in the market. And you've seen this massive re-rating take place in the valuations of the stocks that are currently available on the market, whether it's a Redwire, Planet Labs, or probably the most direct comparable in terms of the launch business, which is Rocket Labs, just massive surge in these stocks.

6:45And I think the argument to be had here is that you're seeing that re-rating in those space stocks because many of those companies wouldn't exist if SpaceX hadn't done what it had done over the past two and a half decades. And so that has enabled this new economy and this new way of doing business in space, if you will. And then of course, this new attention from investors within the marketplace to understand that that's going to unlock the next generation of growth and the future for humanity, if you will. So the space business is very much a pioneering business. And I think it also speaks to this idea of when Elon Musk says he's gonna set out and do something, he's not necessarily gonna do it And the crazy forecast that he puts forward, but he almost always does it.

7:28And space, the space business within SpaceX, I think, is a good example of that. Because even right now, what they're designing with Starship, the next generation rocket, which unlocks the future overall for SpaceX and this like huge hefty valuation that they're asking for as they come public. All of that has been said by everybody else to not be possible. And yet they've done it. And now they dominate the market. And so it puts them in a key tentpole position to now be able to go out and carve out other pieces of the market. And obviously that has enabled connectivity, Starlink. Yes. So Starlink is really the growth driver right now for SpaceX.

8:04So you've got revenues that are growing double digits right now. It is the profit engine. It is what's throwing off the free cash flow. And that is enabling a lot of other expenditures that happen around other parts of the broader SpaceX business right now. they've got 10 million plus subscribers they've got 10 000 plus satellites and orbits those numbers are going to keep growing they have a next generation constellation of satellites that are very high tech much bigger much more i would say in direct communication with fiber lines and other types of terrestrial connectivity that we're used to seeing when it comes to getting your internet access and so all of that the launch business and starship coming online is going to enable.

8:46But in the meantime, it is really the growth engine for SpaceX that then allows them to turn around and reinvest into building out all of this AI infrastructure and compute. Starlink in itself, though, is just a huge business. It's a huge opportunity. It represents another business where people said this is not going to be possible. You're not going to be able to put broadband constellation into low Earth orbit and have it be economical. Nobody said it before. Why is SpaceX going to be any different? And then yet here we are. So again, another example of why it tends to not always be the best financial bet to go against Elon Musk, although timing is everything, forecasts are everything, especially when you're talking about the public markets.

9:24But Starlink also, I think, unlocks the capability and the technology to be able to realize data centers in space as well. So everything sort of fits together and it's together. It's sort of this idea of a vertically integrated, full and complete AI tech stack. It starts with the launch and then extends to, you know, Grok and everything else you're going to be able to do with AI over the longer term. Well, let's touch on that because that's the third part of the business. AI, obviously, it includes X. AI includes Grok. It includes X. And this is the latest, I guess, addition to the company that was more pure play space initially.

10:04it's the smallest part of the revenue as things stand, but the biggest predicted part of the revenue in the future? Yes, that's right. And so when SpaceX and its 300-page-plus-page prospectus talks about a$28.5 trillion total addressable market, which is just a monster number in and of itself. But when they talk about the vast majority of that number as they've carved it out for themselves in terms of TAM is AI. And so that is really where the growth lies for them. And not only terrestrially with the AI data center buildup that we see in all these companies, including SpaceX, spending many billions of dollars to build out these AI-enabled data centers, it's going to be AI data centers in space.

10:49And sort of this whole idea of being able to do edge computing for space and collect all of that data and do what you need with it in real time, which also then in turn unlocks this idea of, you know, lunar colonization and Mars colonization and just, you know, AI capabilities here on Earth. They all kind of come together and knit together. When you look across those different businesses over the longer term, it is the biggest opportunity for SpaceX. But it's also the one that is burning the most cash right now and has the highest risk attached with it. I think the biggest takeaway here, though, is that from Earth to space, Elon Musk is building out a hardware and software vertically integrated next gen tech opportunity.

11:32And he's looking to own every step of the way, every piece of it here. And so if you're going to invest in SpaceX at these levels, which many people argue are lofty valuations, you're betting on that future. And I think Elon Musk and SpaceX would also argue that's why they have the governance structure that they have in place here, which is so harsh or, I guess, intense compared to what we see with other companies as well. Because who else but Elon is going to be able to build out a monopoly and be able to do so with humanity's best interests in mind? And expand on that for me. You're talking about the level of control he'll retain?

12:09Yeah. So obviously dual class structure here. He owns something like, you know, he owns quite a bit of the of the company. But then in terms of those secondary shares, he owns something like somewhere between 80 and 85 percent of all the voting rights. He's going to have control of the board. He obviously is chairman. He's CEO. He's also, you know, the chief technology officer for the company, too. And so it's really it is a company crafted by Elon that is led by Elon and has very little in terms of, you know, governance other than Elon. And so for better or worse, you have a lot of investors, particularly on the institutional side of there saying, hey, wait a second, like this is egregious.

12:50This, you know, has a lot of room for error. There's a lot of risk attached to this. We've never quite seen anything like this in the marketplace. And oh, by the way, this is a company that's now going to be added very quickly to something like the NASDAQ 100. And now you're going to have a lot of passive investors and funds that are going to be forced to buy whether they want to or not. Just this idea of conflicts of interest and risks inherent in the governance structure. So that's the critical side of it. I think the other side of it is if you believe the company is Elon and Elon is the company, then that would be the argument around having a governance structure like that.

13:22And just remind us, where do we end up on these passive funds, buying them or not? There was thought that perhaps all of them would change their rules, so they'd have to buy the stock much sooner than typical, but that's not quite where we ended up. Yeah, that's not quite where we ended up. It's really a mixed bag here. So the NASDAQ is actually moving for faster inclusion here. SpaceX will be the first of what is expected to be a number of examples of these mega cap names that come to market here and raise oodles of cash and have huge valuations like we've never seen before in terms of IPOs. So SpaceX, Anthropic, potentially open AI before the end of the year, potentially.

14:01And so SpaceX will enter the NASDAQ 100 two weeks after it goes public here. S &P 500 was expected to be, they were considering something similar. Some of the other indexes we're considering something similar as well. Ultimately, some of these other ones, most notably S &P, have passed on changing the rules. So it's still a 12-month. There has to be profitability, a number of other metrics attached as well. The expectation is, at least in the near term, this is going to push more inflows into those NASDAQ products. And in general, because of the small float, you're going to have a lot of passive investors and funds, et cetera, that are going to be forced to buy shares of SpaceX here.

14:40So in the near term, there is the very real possibility, either way, you're going to see volatility in the stock, but there's the very real possibility that you're going to see the stock and the valuation move higher because there's going to be more demand than supply in the market. But we'll see how all of this goes here. We certainly will. And Morgan, we could not have asked for a better setup than that before we get into the bull bear debates with our other guests. Thank you so much for joining us. Thank you, Wilf. It's great to see you.

15:11This episode is sponsored by Interactive Brokers. Building wealth starts with the right broker, and Interactive Brokers helps you reach your goals with powerful tools, global market access, low costs, and unmatched financial strength. That's why the best informed investors choose IBKR. Learn more at ibkr.com forward slash master investor. This episode is brought to you by LSEG, the leading global financial markets, infrastructure, data and analytics provider. To learn more about how LSEG connects businesses, investors and markets worldwide, visit lseg.com.

15:59well as Morgan outlined for us there so much of this 1.8 trillion dollar valuation for SpaceX is based on the hope of potential huge growth in the future if we though were to look backwards in terms of the most recent years numbers it is an extraordinary multiple to look at last year SpaceX had revenues of$18 billion and we're talking about a nearly$2 trillion valuation. Very rough calculations puts that on 100 times price to revenue. For context the S &P 500 is currently trading at three times price to revenue which itself is at the top end of its historical range the FTSE 100 for context is at 1.3 times we're talking about a hundred times admittedly backward looking price to sales for this SpaceX valuation so let's talk about the valuation and to give the positive take on it we are joined now by Dan Ives of Wedbush Securities.

17:10Dan it's great

17:11Dan Ives:to see you again yeah it's true first of all it's always great to to see you wilf and uh yeah i mean obviously it's a super exciting week you know of course not just with apple but with spacex and because i mean you've talked about this is the fourth industrial revolution i'll point it out well it's really we're really grateful for you for making the time as you said some massive massive week ahead um let's get straight into the the spacex numbers um which which i know you're always a bull on Elon Musk. You have been right to be a bull on Elon Musk many, many times. And he's proven the data's wrong on a number of things.

17:49Touch on us first of all, though, on this total addressable market, the TAM in the SpaceX S1,$28.5 trillion TAM. Is that believable in your eyes?

18:03Dan Ives:I think what they're laying out in the S1, it's essentially like, what's the total market, it's not just about space. It's about data. It's about AI, right? And so, you know, look, and I think when you look at these total addressable markets, I think it just gives you a perspective of how potentially big they are. And also, look, with Juniqua Space X, this isn't, this is a company that's so well known on the private side for so many years. And, you know, a lot of the stuff that they're putting in these, you know, sort of market opportunities are something I think many investors have been well aware of for many years.

18:42It's funny you mentioned it's not just the space stuff, it's data too, because I guess that's kind of the point of my follow-up, which is$26 trillion of the$28.5 trillion total addressable market is in the AI business. But it's interesting that SpaceX is now much more an AI company based on that metric than it is a space company and and maybe that makes people suddenly pause when you think of the sort of moonshot nature of some of these these numbers they're maybe more believable if they're all from

19:19Dan Ives:space than they are from earth well look i think i mean i mean you've talked about it in terms like the ai revolution space is definitely going to be a part of that i mean look how long until we see data centers in space till we see almost more and more, I'll almost call it a convergence between technology and space. A lot of the execution will come down to data because more, if you really start to think about it, it's a data world. I mean, data is a new oil, the new gold, and what they're doing when it comes to SpaceX, you know, they continue to sort of be unparalleled in terms of their opportunity on space.

20:02Dan Ives:I think investors continue to view it as what's around the corner when it comes to AI and data. In terms of the AI, pure AI part, is it fair to say that they're at best third at the moment in terms of Grok and X AI versus OpenAI and Anthropic? it yeah i mean look i don't think there's any really dispute right now it's a two-horse race it looks like anthropocod in terms of being first open ai second look that's also speaks to why spacex did the merger with xai and we'll get into it but it's ultimately we believe that they'll merge with tesla as well because they got to make up ground musk needs to make up ground and the biggest area that they're behind is when it comes to true AIP from a model perspective.

20:57Dan Ives:But what's going to drive that? It's really what drives it is the data. Now, you could argue the Musk-Altman trial, that was just the start of kind of this just general arms race that's going on. But I kind of view it as like this is really Musk creating his own ecosystem, in terms of like no different than when a video is done or amd but it's actually all within essentially elon sort of companies and on the the pure space part dan are they unquestionably the world leaders yeah look i don't think there's any dispute they're world leaders with their space spatial foundation satellite technology obviously everything was starling but will i think the whole thing is that when you look at space traditionally okay it was really exploration virgin galactic you know blue origin but now it's really moving to the enterprise to data now there have been some rocket labs quantum labs and obviously voyager i mean there's some companies that are in the space but that's really the new frontier what essentially they're going after.

22:10And on the idea of data centers in space, which is sort of the perfect merger, I guess, of all of the different parts of the business for SpaceX and central to the investment case, how realistic a prospect is data centers in space in the next few years?

22:29Dan Ives:I mean, I think 2029, 2030, I mean, it's sort of, if you want a timeframe, something that's, I think realistic. Now, if you look at any of the core data centers that are being built, it's complex enough on earth, let alone in space, but it's might be like over the years, over the decades, like when it comes like energy and when it comes to efficiency and when it comes to possibilities, data center in space, I don't, it's not a question of if it's when I think that's really the sort of debate. Dan let's touch on the Tesla SpaceX relationship I mean clearly there are cross holdings already one theory I'd seen was that either SpaceX IPO would go ahead or the two would merge but you've got a kind of different view you think the SpaceX IPO goes ahead and then the two merge either way well I mean my my view has always been like okay X XAI XAI SpaceX SpaceX goes public and then over an 80 % chance over the next year by 2027 that SpaceX and Tesla merge.

23:42Dan Ives:My whole view is, okay, first off, it's a data game. And that would make... I almost would view it as a no-brainer move for Musk to do that. And obviously it depends on price and what they'd outplay after acquired Tesla. Then it comes down to cross-pollination between Tesla and SpaceX, which has always existed in some form and this would really be like the golden vision i mean i think it's it's the vision from musk always have all of his companies under one hood as well as also like from an ownership perspective and he won't talk about this is that making sure that he has control over ai within his companies that he throws more and more in and i think this would essentially be what i kind of view as like a watershed mood you know if that happened but do you not worry about those types of moves i mean to some extent like look if you're buying spacex you're buying must i mean you and there's really no different than tesso i mean you're buying into that now does that cause concern in terms of just must getting bigger and bigger maybe at first there's like concern about owning too much.

25:00Dan Ives:I think over time that will settle out. Dan, you mentioned there the idea that if you're buying the SpaceX IPO, you're buying Elon Musk. And we've been here before. You've been here before because for all of those years around the Tesla IPO and the immediate years that followed when there was quite a lot of challenges, you've obviously been someone that's clearly backed Elon Musk always. And you've been richer rewards because of it. Do you get that feeling of deja vu now that this is a moment where the pure play people that look at the numbers question the future? And what you've really got to do is back Elon and believe that he will deliver going forward?

25:45Or is this time different to the Tesla IPO? Is this time different because SpaceX is so much bigger and this IPO is

25:53Dan Ives:so enormous look i think they are they are different i mean you can compare tesla and spacex in terms of different times different periods but look my view is is that those investors that ultimately buy in the spacex you're buying it for musk and then it goes back to like those that bet against musk with tesla i mean you've talked about so many times over the years even though there were moments where it felt like maybe that negative bet was going to work out, that ultimately was the wrong bet for so many bets that bet against Tesla. I think if you look what SpaceX has done, it's clearly proving itself out.

26:36Dan Ives:They obviously will have to continue to execute significantly in terms of especially some of the valuations that's being talked about. But I think a lot of it comes down to like you're either a believer in Musk or you're a skeptic or a bear or whatever it may be. And I think a lot of that does play into this place like fuel. And Dan, what about the size? I mean, look,$75 billion for the investment banks to place on one single day. It's a mammoth task for them. As we sit here, what, five days before the IPO takes place? Are you confident they'll get it away? it's a historical moment right in terms of just the size of the ipo the history that would be broken then obviously those questions from investors like when you have deals like this does it absorb or take away the oxygen out of maybe some other names in fact right like not and i think that's i think that also has to play itself out over the coming weeks but what i would say is is that the reception and what the man looks like will be important not just for spacex but i think the broader market because when you have anthropic and you have open ai and you have other deals and you have just you know broader sort of obviously tech rally i think it's actually important not just for spacex but i think the broader attack in the broader market.