Why 'trillionaire' Musk and SpaceX are driving the AI arms race

0:02Paul Kelso:Sky News, the full story first.

0:11Paul Kelso:Elon Musk will soon be the world's first trillionaire. And this is why.

0:31Paul Kelso:We are going to be able to take astronauts to Mars. In fact, we want to take anyone who goes to Mars and ultimately build a self-sustaining civilization on Mars. That is the long-term goal of the company. No one would deny Elon Musk is a bit of a character. He's also the world's richest man, so clearly he's doing something right. And he's about to become a whole lot richer. Lift up. Lift up. His company, SpaceX, will soon launch on the stock market. the estimated value somewhere in the region of$1.75 trillion. No, you did hear me right just there. It's an almost unimaginable sum of money. Compare and contrast.

1:11Paul Kelso:When Google floated back in 2004, it was worth around$23 billion. Microsoft went to market in 1986, coming in at a paltry$780 million. Clearly, something has changed. And not just the fact that Elon Musk will soon graduate from the Billionaire Boys Club, to something even more exclusive, because there are other trillion-dollar valuations coming soon. Paul Kelso is Sky's business correspondent. Paul, let's just start with the definition. When we say an IPO, what do we mean by that? IPO stands for Initial Public Offering. It is the first time that the public are offered the opportunity to buy shares in a company.

1:53They happen all the time. They're a big moment for those companies. Generally, they need to raise public money to help their expansion, and they're offered on the stock market. When it comes to SpaceX, we are talking about the biggest IPO ever. I'll just run you through the numbers on what they are offering. So in a week's time, if all goes to plan, 3 % of SpaceX will be offered for public sale at$135 a share, 550 million shares. Sounds modest enough. That will raise around$86 billion for SpaceX to spend. But the key bit here, perhaps, is what that, because we're selling 3 % to 4 % of the company, that takes the total valuation of SpaceX, which all of a sudden will have a number we can base the size of the company on, at$1.78 trillion.

2:46And at a stroke, because certain Elon Musk owns 40 % of this company, make him the first dollar trillionaire that's ever been.

2:55Paul Kelso:I'm not sure genuinely that I understand what that number represents. What are we talking about? Well, we're talking about a trillion is a million million. So we take a million and a thousand of them is a billion. Another thousand of those gets you to a trillion. We are talking nation state money is the best way of thinking about it. We can look at what countries generate in a year. the UK's GDP, so the entire output of the economy, from you and I sitting here to nurses and doctors, to banks, to factories, in a year, it's about£1.2 trillion. So knock that up a bit for dollars, so close to one and a half.

3:34Paul Kelso:Sorry, SpaceX is presumably about to become, or people are judging it, to be worth more than everything that this country produces in 365 days. Yeah, it is a staggering amount of money. And it is a staggering amount of money, remember, for a company that does not make a profit. But SpaceX, I think most people will assume that what they do is the stuff that they see on the telly. You know, they point rockets up, the rockets go up, and then they come back and they land on their platforms. But they must be doing a lot more than that for this valuation. They are, although that is extremely valuable.

4:10SpaceX has. It's space infrastructure business, launching rockets into space, taking payloads, satellites largely with them. They have the contract to service the International Space Station as well. That is extremely valuable. And they have transformed the economics of space. Reusable rockets. They brought down the cost dramatically of launching stuff into space, and they account for about 80 % of the stuff we put into space. On top of that, they have a communications network, Starlink, which people are familiar with. That's the profitable bit of this company. It's an array of satellites, but it's also a communications network on Earth, so you essentially can provide connectivity around the world.

4:54People will know it's been used on the Ukrainian front line. That has millions of subscribers, has power to grow. The new bit and the bit that is powering this valuation is earlier in the last few months, XAI, which is Elon Musk's AI business. Or is that like Grok and so on? Exactly, Grok. On X. It's X and X, the platform, formerly Twitter, and XAI together have been wrapped in to this company. That is what is powering a great deal of this valuation. That is what the banks that are pushing this stock hard, as they will be over the next 10 days, to investors will be saying. You can see what we do in space.

5:33You can see the potential there. Because, by the way, the space offer gets bigger and bigger. He doesn't just want to stop with satellites. No, he's off to Mars, isn't he? We're off to Mars, as are we all. We're going to have data centers floating in space. But it's the AI bit here and the potential that everyone is chasing for what that can do that is boosting this valuation. Potential, right?

5:55Paul Kelso:Potential. Nothing in this world is guaranteed. And I thought, you know, perhaps investors tended to invest with a degree of confidence, of course, but mindful of the potential risks. This thing doesn't make any money. So on what planet, other than Earth, is it worth 1.75 trillion? I don't get it. You know, the test of whether this argument stands up, of course, will be seen when these shares hit the market. But it's on the potential of its areas of competitive advantage. He's got a massive competitive advantage in space infrastructure at the moment. A lot of this is a bet on Elon Musk himself.

6:31You know, he already has launched and controls a trillion dollar company in Tesla. It's the most valuable car company on the planet by a mile. How much money does it make again? It is profitable, but its valuation is based on, among other things, self-driving vehicles, which aren't yet. Robo-taxis are not yet on the roads. And robotics. Musk has a great knack for selling a vision that investors have bought. And frankly, thus far, when it comes to Tesla, you know, he has proved people wrong. And with SpaceX, it is remarkable. It's 25 years old, nearly this company. It has transformed the economics of space.

7:08But this valuation isn't based on that. It's based on the potential that it might be the one that wins the AI race.

7:15Paul Kelso:SpaceX is by no means the only big player in the tech space that is heading to market very soon. I mean, we're also hearing talk of OpenAI and Anthropic as well, those two massive competitors in the artificial intelligence world. Absolutely. What we're seeing is this kicks off, the SpaceX launch kicks off what is going to be a run of major players in artificial intelligence turning to the public markets to continue their investment in the promise and potential of AI. So Anthropic, Claude is the product people might be familiar with. They've filed with the Security and Exchange Commission. That has been done privately.

7:50They haven't published it as yet. That flotation, perhaps coming in the autumn, looked to value the company at about north of, again, north of a trillion dollars. And it could well then be followed by OpenAI, which ChatGPT was perhaps the first mover in that space. We've been wondering which would go first. Those two will look to float this year. Remind me, just how profitable are those companies? Not at all. Exactly. Sorry, am I missing something here? No, you're not. But then they will not be the first companies that have gone to market to continue growth and not been profitable while they did it.

8:28When you are scaling up as a company, it is usual to go to market because, frankly, you've raised probably what you can from the private market. because billions and billions and billions of dollars has been poured into these companies from private investors. What's interesting, there has perhaps never been a product as greedy for front-end investment as AI, nor one with outcomes that are still as uncertain about what they look like at the other end. What is interesting about this moment is that it is clear that across the board to continue the pace of expansion of AI, these companies are having to go to the public markets.

9:06And ultimately, that means us and our pensions. Pensions in the form of our pension funds investing. Our pension funds, where are when you stick your money in a pension, or frankly, you might stick it in an ISO. They are turning to the public markets, to the real world rather than prime ministers to get this money. I should say, it's barely been mentioned this week, but Alphabet, parent company of Google, has this week announced plans to raise$85 billion. So more than SpaceX hope to raise from this IPO. They've looked to raise$85 billion, some of it privately, some of it from additional shares, just to keep their pace of AI investment going.

9:50So right across the board, we are seeing tens of billions of dollars being demanded by these companies to keep this momentum going. Just remind us, Paul, what was the dot-com bubble? Well, it was a moment when many, many investments in the first round of the internet, valuation sword and sword and sword, and the bubble burst. And lots of people lost an enormous amount of money around the turn of the century. Should say that there are survivors of that bubble. And those are the companies that sustain. Many of them have helped drive the second wave of the internet. And we are absolutely at that moment.

10:29Paul Kelso:Are we in another bubble? Are we about to see things collapse? Because whilst there is clearly an awful lot of investor interest, I wonder whether it's FOMO, fear of missing out, rather than looking at the balance sheet, working out what the profitability might be in a couple of years, what your return on investment might be. I mean, we are seeing some of the biggest investors in the world deliberately steering clear of the AI space. I feel like this is the moment where I should say that stock market investments can go up as well as down, isn't it? This is not financial advice. I mean, we're going to get a much better steer as to how investors, the people who are paid to make these decisions on their behalf and on ours, really think about the sustainability of the AI spending, the AI investment boom over the next few months.

11:17You look at the tech shares, you look at their valuations. For at least two years, people have been asking, can this really last? And as the AI boom has emerged, that question remains. For now, there is enough evidence in the utility of the AI we can see to maintain that momentum and for people to think it is. But what we are looking at, we've talked about what four players here, Anthropic, OpenAI, Alphabet, SpaceX, Musk, XAI. There are more than those four. Microsoft, massively in this space, plenty of others. They are all seeking to be the one mega owner of this and succeed. They are all chasing that success because that has been the model of that first wave of the internet.

12:06We have got a few enormous players and plenty of roadkill along the way.

12:21The End

12:30Paul Kelso:The one group of people who are guaranteed to absolutely do brilliantly out of this are people who own a chunk of these companies ahead of the IPO. I mean, if Anthropic floats roughly 1 trillion, every 1 % stake in that company is 10 billion. at SpaceX, 1.75 trillion, 17.5 billion for every percentage point of their share price. This is going to make an awful lot of people richer than crisis. It is, starting with Musk himself. And that's, there's no question. And for now, when it comes to SpaceX, initially, existing owners won't be selling. But it's interesting. There's one of the big ratings and market monitoring agencies, Morningstar, who are bearish in the technology about SpaceX.

13:20I think it's overvalued by about double. And they think the opportunity will come a few months' time. They anticipate the price will come down. At that point, some of those investors will start to put their shares out. And there will be an opportunity to get a slice of this company at a much cheaper rate. I should say at this point that there's a good chance many of us are going to end up owning a chunk of SpaceX without even realising it. Big companies float in the stock market. There are many, many investment funds that are so-called passive investors that will take the FTSE 100, the S &P 500 in the US, or when it comes to SpaceX, the NASDAQ market, take the top 100 companies, and automatically, you put in 100 pounds, you'll buy a bit of each of those companies passively.

14:08Now, usually, they have to sort of percolate for a while before investors are effectively forced to buy them. with spacex it's going to be about a fortnight so you might end up with spacex uh in your portfolio without even knowing it so it does matter what happens next yeah of course of course it does

14:28Paul Kelso:and but just for a second we just part the ai the dreams of moving to mars and all the rest of it and ask a really fundamental question should an individual have that much wealth i mean genuinely We are talking about Elon Musk being able to do whatever he likes. It's unconscionable, isn't it, on one level? It's preposterous and it's surely unconscionable that so much wealth should be so concentrated. It is not new to have very, very rich men, generally speaking, since the 20th century. You can go through the list, as I have been recently, of who was the richest person in the world. I generally remember from Carnegie and the steel that built America through Getty and oil.

15:10And then we get into the 80s, 90s. Bill Gates, it has been tech since then. It is not unusual for enormous wealth to be concentrated in very few hands, but not on this scale. It is the vast amount of money, and it is the hyper-concentration in essentially a dozen men, most of them in California, out of this incredible tech revolution that's transformed our lives. Ultimately, it comes down to what you do with it. Bill Gates is giving nearly all of his away. Elon Musk, interestingly, has signed the giving pledge, which is a pledge to give away the majority of your wealth. Maybe it's part of his life he likes to keep private, but there must be something that we don't know about him.

15:53I can't find much record of how much he has given away. I spoke to John Caldwell, who's a billionaire, Phones for You. He's giving away 99 % of his money. He said if he had a trillion, he'd give away 99.9, if not more, because that still leaves you with 10 billion. So it is about what you do with it. And what we've seen with Elon Musk is that he is happy to wield that wealth and power. Not even the Trump White House could ignore him. I don't think they necessarily wanted him in the House, but you can't ignore that money. And we've seen him now deploying it in his interventions in British politics.

16:31And that raises questions about what checks and balances there are when there is so much money in so few hands.

16:42Paul Kelso:If Anthropic, if SpaceX, if these big companies are worth what investors currently feel that they are, what does that tell us about the world we're living in? If they don't, what does that tell us? If they are, it tells us that we are on the cusp of yet more technological transformation. And we're just getting to grips with the changes that the smartphone brought us. The political and social response to technology is on a big lag, isn't it? We're only just working out what these things do to us and perhaps more importantly, our children. If they aren't worth it and there is a massive market correction, well, you think the bump we've had from the war with Iran has been significant.

17:25Add a massive stock market crash and I will be talking to you again.

17:30Paul Kelso:Do you know what? I'm going to go and have a look and find out how much is in my son's piggy bank for the time being, Bob. Thanks very much. Pleasure. Thanks very much for listening. Do remember to give the podcast a follow if you don't already and get in touch with your thoughts. Why? At sky.uk. We're back tomorrow.