Space ecstasy

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0:32Rob Armstrong: Pushkin.

0:35Rob Armstrong: Markets, ladies and gents, are heading into a new dimension. They are heading into space, led by that guy again, Elon Musk. Investing in space as a big theme has been around for a while, but Musk is really taking it up a notch because he's planning to list one of his companies, SpaceX, on the stock market in the States. and he reckons it's worth, get this,$1.75 trillion, trillion with a T, which would make it one of the most valuable companies on Earth and indeed in the known universe. Now, you take a little look at the electric vehicle slash robot maker Tesla, which is Musk's other big thing, and you wonder what gives him so much confidence in his ability.

1:20Rob Armstrong: That stock's down by about 30 % since November. But the launch, get it, of SpaceX is happening. It will be impossible to avoid and it will be a big test of whether investors are up for hype and promises and whether they really want more Elon Musk in their lives. Today on the show, will this thing fly? This is Unhedged, the markets and finance podcast from the Financial Times. I'm Pushkin. I'm Katie Martin, a markets columnist here at FT Towers in lovely sunny London. and I'm joined down the line from New York City by my usual fellow astronaut, Rob Armstrong. Rob, say hello.

1:57Katie Martin: Greetings from space.

2:00Rob Armstrong: But we also have, all the way from San Francisco, a genuine FT legend, a stalwart, Richard Waters, known affectionately around these parts as Muddy. You're a real authority on all things big tech and Silicon Valley and it's very early over there. So, Richard, thank you so much for coming on today. Well, it's very nice to be with you. And by the way, I should say, I'm not in San Francisco. I'm in San Diego today. I'm in the FT satellite office. It's all about the satellites.

2:29Katie Martin: Richard, just to establish your bona fides, if that's how you pronounce it, in what year did your byline first appear in the Financial Times? Well, Rob, it was a year when there was a stock market crash. I can tell you that much. And we're not talking 08. But I'll tell you what. But I will tell you, it was 1987. I was there a month before the 87 crash. You may not remember that one, but it was big at the time. And when did you start covering tech for the FT? Oh, I'm getting the whole personal grill here. So I was covering tech out of New York in the late 90s when tech, telecom, and media were going to emerge in some big thing.

3:13And it was part of the dot-com bubble.

3:14Katie Martin: Yeah. Boy, has that idea not worked over the last 30 years. I've seen a few, but I've been in California since 2002. So I've seen a few cycles. Right on.

3:26Rob Armstrong: So tell us, let's start from basics here. For normal people, what is SpaceX? Where does it fit in this grand Elon Musk universe where everything has an X in it? I think the way we should think about SpaceX as a stock is it's going to be Elon Musk's kind of field of dreams part two. Tesla was an electric car company that turned into many other things. SpaceX is a rocket company that is turning into other things before our eyes. It started out as an incredibly successful, the first private company to put a rocket into orbit. You know, it's an extraordinary thing. And Musk is ferrying astronauts to the International Space station.

4:10Before that, the US relied on Russian rockets. So Musk is the US space program in many ways or became it. And then, you know, through his Falcon rockets, he basically established this incredible lead and cost in getting payloads into orbit. So he is the global workhorse for getting anything into orbit. Extraordinary, absolutely extraordinary.

4:32Rob Armstrong: So like SpaceX mushed together with XAI, which is his artificial intelligence grok thing. Tell me how that makes sense. You skipped over part two. Part two was putting Starlink satellites, tens of thousands of satellites into orbit. This is now two thirds of SpaceX revenue. I mean, it's an incredibly successful thing. He's got it way ahead of the rest of the industry. Every other business and every other country wants to put up a network, a global network of communication satellites because they don't all want to be dependent on Elon, which they are at the moment. So that was step two. Step three is let's kind of clutch this thing together with, as you say, XAI, which is Musk's money pit of an AI company, which has also been clutched together with X, the former Twitter.

5:25And let's put it all together and call it, well, what do we call it? And that's the amazing thing here. You know, I've had people say to me, this is some new style, vertically integrated space conglomerate for the 21st century or something. I don't know. But you can start to see some rationale. You can say, well, let's put data centers into space and generate AI in space. And, hey, you know, we're one step ahead of open AI. So the storylines are starting to proliferate. And as with Musk, you know, we always find this. They're just going to keep coming. We're just going to see the story shift to fit the mood.

6:03Katie Martin: Let me put a question to you, Richard. There's kind of two sides to the Elon Musk story. On the one hand, he is this person who can build incredible things at a scale and with a speed that other people just can't do. An electric car company that challenged the world's incumbent car makers. an electric car charging network in the United States, a satellite communications network, a commercially viable rocket company. I mean, this stuff is amazing. And that's the kind of earthbound reality side. And then there's the kind of out in outer space, wild hype side, where, you know, what is Tesla anyway?

6:47Katie Martin: It's going to make robots. We're all going to have robots. and then there's going to be satellites in space that maybe we're going to use as a way station to colonize the moon, and it'll all be valued at a thousand times earnings. How do you kind of fit those two sides of the Elon Musk story together? Well, Leslie, it's not two sides, it's a continuum. So what Musk does is he links what he can do now, something he's actually doing and building with something over the horizon. First of all, he looks at the horizon, and that horizon is always shifting. And for Musk, the trick is to say, look, I've got this thing I'm building.

7:25Nobody else can build this. I'm two steps ahead. And if you look to the horizon, that's where it's going to take me. And then over the horizon, there's this kind of magic pot of money. And his genius, and it is real genius, is that, yes, he builds this thing now. He has to keep moving the horizon. Because he's got no moats in his electric car business. He's soon going to have a lot of competition in rockets. And when that happens, where's his margin going to come from? Where's his profit going to come from? And so he's no longer, Tesla's no longer an electric car company. It's now a robot company.

8:03And it's a taxi operating company. It's going to be something else. And the same thing with SpaceX.

8:10Rob Armstrong: It's a good job it's not an electric car company just anymore because sales of those things are falling off a cliff. in Europe. But like, as you say, he's always over the next horizon. But like, how can it make sense to value this company at$1.75 trillion when it pulls in revenues that are probably no more than 20 billion with a B last year? I mean, come on, how is this going to happen? Before we actually get to that valuation, I mean, you know, Katie, you asked before about why he was sticking this together with XAI. We have to remember this is all being done for financial convenience. Elon is weaving this technology vision around it all, but it's fundamentally being driven by finance, real cold hard logic here.

8:59He needs to raise a ton of money, right? XAI is a money pit. Put it this way, in his entire existence, He probably raised$25 billion, roughly$10 billion through SpaceX,$15 through Tesla. Well, he's now looking at raising$75 billion in one go. He's looked around. He's seen this AI mania on Wall Street, this willingness to fund hundreds of billions of dollars of infrastructure. And he said, this is my big chance. And he's rammed everything together. And he's going big. I mean, this is just incredible. We're all the dice. So the valuation, I've got no idea. I'll leave that one to Rob. I'll leave that to you guys.

9:42You're the market experts.

9:44Rob Armstrong: Well, yeah, that might be a stretch. But like Rob, you know, you talk to a lot of investors. I talk to a lot of investors. Do you think they're going to swallow this at that kind of valuation? Because, you know, as Richard says, Musk is the master at like creating vibes and creating kind of FOMO, right? Fear of missing out. Everyone wants to be in this thing. But do you think the market mood is ready for an IPO with that sort of valuation of this sort of, you know, just behind the rainbow stuff in this moment in time?

10:16Katie Martin: If he could have done it two years ago, he'd be laughing. He'd get it all done. Even a year ago when, you know, the massive spending by all the so-called hyperscalers or Magnificent Seven tech companies was just being swallowed by the market in one big bite. But now the mood, and I think this is what you're getting at, has changed a little bit. I mean, the market is still strong, but it's not quite what it was. And we've seen some of the big tech companies get their valuations marked down. So in a sense, Musk is a day late, which actually leads us to the dirty tricks part of the podcast, where if he's going to raise the amount of money he wants to raise, he needs to generate a huge amount of retail demand.

11:08Katie Martin: And it seems like there might be some jiggery-pokery in terms of listing rules and IPO rules to help him do that.

11:19Rob Armstrong: So the main bit of jiggery-pokery, I think, is that purely coincidentally, right, So Musk has got a choice between listing this thing on the New York Stock Exchange or on NASDAQ. And perfectly coincidentally, NASDAQ has been having a think about how companies get included on its really big indices. Now, if you're a company, you list, your stocks are tradable. If you get into a big index, then that does almost kind of mechanically pull in a lot of money, pulls in a lot of money from retail, pulls in a lot of money from institutional investors.

11:49Katie Martin: Because passive investors buy the whole index. Because they love it. So you want to be in the index and the index funds as quickly as possible.

11:56Rob Armstrong: So like right now, if you imagine that this thing listed in May, it wouldn't be eligible for the NASDAQ 100 before December. And because Musk is only talking about listing less than 10 percent of the company, it wouldn't appear in the index at all because it's because that free flow is too small. NASDAQ is talking about changing these rules so that a company could be in the index as quickly as 15 days after it gets listed. And that 10 % threshold, well, maybe we could do a bit of loosey-goosey with that. This strikes me as quite a bad idea to be like fiddling with rules like this. What do you think?

12:34I don't know. Richard? I think the real question for me out of this is, if the numbers we're hearing are right, then less than 5 % of this company is going to go out, even on a$75 billion IPO, which is absolutely incredible. And there is going to be one heck of a lockup that goes at some point.

12:55Katie Martin: So just to back up for our listeners slightly, the lockup means there's going to be all these people who work in the SpaceX empire who have been granted stock as part of their pay packages. And at some point, they're going to be allowed to turn that stock into cash by selling it into the stock market. That's selling pressure, right? That affects the stock. And who's going to be there when that lockup ends and all that stock comes rushing on the market? What they're worried about is who's going to be there to pick up all those shares. And so, as you say, you know, the quicker it gets into the indices.

13:30But even if it's not in the indices, there's a lot of pressure on a lot of institutions here to say, you know, how do I stand aside from this deal? If it's an in-off stock that comes on the market with a nearly$2 trillion valuation, am I really going to stand aside from the rest of the market and say no thanks? You know, what happens if it doubles? I mean, who knows?

13:54Katie Martin: There's something self-reinforcing about it, in other words.

13:57Rob Armstrong: But you mentioned something interesting there, Richard, which is that this is an Elon stock. So as we were saying, Tesla car sales have been falling, particularly in Europe. Tesla stock has been falling quite hard. It's down by about 30 % since November. Is Tesla stock falling precisely because investors feel like they only have room for so much Elon in their lives and they have to get rid of some Tesla exposure so they can take on some SpaceX in a few weeks' time? I don't think so. I mean, Tesla's a volatile stock. It's still$1.2 trillion or whatever it is of stock market value. I don't know the current number.

14:31I mean, this is an incredibly over-inflated stock based on current earnings or even any kind of realistic medium-term projection on earnings. It's all based on big new markets that may develop. And so I honestly think I see SpaceX as part two. It is, I've got, you know, you like that, I've got another one for you. And it's a different story, but it's just as big and just as exciting. And I think there'll be as much interest.

15:04Katie Martin: Richard, do you think there is a world in which the SpaceX story really does live up to the hype? I mean, can you imagine a world where the commercial space business grows like crazy and there's data centers in space brought up by these rockets and those data centers support a lower cost artificial intelligence network and et cetera? Is all of this within the realm of being conceivable or are we in total fairyland here? No, I mean, this is the really interesting thing here. All of this is very doable within the laws of physics. Some of it, quite a lot of it, Elon has already proven. And so the satellite business, for instance, is getting to a point where it is a cash-generative business, as you mentioned.

15:55It's growing like crazy. Musk is about to launch much bigger, more powerful satellites that will have the power to directly connect to more handsets at higher bandwidth. Now, whether this ever replaces your sales service, I doubt fully, but there is a massive global market, communications market. And if you look at the projections for that out over 10 or 15 years, this could be a huge, huge communications business. Second point, data centers in space sounds like science fiction. Musk isn't anyone doing this. Everybody in the tech industry wants to do this. Google has its first test going up next year, potentially.

16:39And so this is physics that's been proven. If you can get your data center up closer to the sun in a geo, in a sun-synchronous orbit, so that your solar panels are always exposed to the sun, you get a massive improvement benefit in terms of energy consumption. You're in the freezing cold of space where you can radiate heat out through massive radiator panels. So it all comes down to the cost. Can you actually afford to put these things up there and all that? And Musk is the leader in launch costs when he's working out on that. So you tell me, Rob. You tell me.

17:20Katie Martin: I do love the idea of an investment pitch that starts with nothing here violates the laws of physics.

17:28Rob Armstrong: Yeah, exactly.

17:30Katie Martin: Yeah.

17:30Rob Armstrong: Yeah, there's so much going on with this potential listing, right? But I just want to kind of, you know, imagine a situation sort of six months from now, this thing is a stock on the stock exchange that you can buy or sell at will. Do we think it's going to behave like a normal stock that responds to the P &L of the company and its earnings projections? Or is it going to be like another Tesla, which is basically, that stock is basically a fan token for Elon Musk in a lot of ways. It doesn't really respond to the normal metrics. It is hard to justify the valuation of this company and of this stock based on what it actually earns.

18:09Rob Armstrong: Is this just going to be another massive stock that just doesn't behave like all the others? Like you've got a row of stocks. They're all the equivalent of like men in suits. And then you've got one that's dressed as like a clown. Can I offer a California view to this just for a moment?

18:25Katie Martin: Yes. Leave aside the actual valuation for a moment. For years, Wall Street's been criticized for not backing long-term bets. The US has underinvested. We've had massive underinvestment over the years. So what we're looking at here at the moment in this AI cycle, maybe it's massive overinvestment, but it's massive investment. Elon is a long-term bet. If you want to play on the future, on the big new markets, and this point about it not being beyond the laws of physics. That is literally how Musk operates. He's looking at what he can build and he's going out there to build it. And he's proven he can do a lot of this stuff.

19:05Well, we do. If you want a long-term bet, this is a long-term bet.

19:11Katie Martin: I think we do have examples of fanboy companies that have made good. The one I think of is Amazon. Both Richard and I were covering Amazon when people were saying it doesn't make any money. It sells at a jillion times earnings. I was as guilty as any journalist of saying this. Is there a real company there? You know, can this possibly be worth what the market says it's worth? Well, lo and behold, that grew into a business that justified those earlier valuations. It happened. The laws of physics allow it. And under the right circumstances, the laws of finance allow it to happen, too. I'm not saying it's likely, but I'm saying there's precedent.

19:54Rob Armstrong: Yeah. And the vibes, the vibes are strong. I kind of don't get how he does it. As a public orator, Musk doesn't do it for me, but he knows how to press the right people's right buttons and get them to buy the damn stock.

20:06Katie Martin: And he has the stuff that he's built behind him, which makes it a lot easier to believe the tapestry that he weaves.

20:14Rob Armstrong: Well, listeners, whether you like it or not, it's going to be all SpaceX all the time around the point where he decides to list this thing, which we're thinking is like May-ish, June-ish, something like that. Our previous reporting has indicated he wants to list by June to coincide with his birthday and the alignment of Jupiter and Venus, which is not a thing female CEOs can say out loud before they list their stock, I will just point out. But on that, we are going to have to come back in just one second with Long Shorts.

21:13Transcription by CastingWords Every angle to further inform your view. Listen to The Flipside on your favorite platform.

21:21Rob Armstrong: Okie doke. It is time for long, short, that part of the show where we go long, a thing we love or short, a thing we hate. Why don't you go first, Rob? What have you got?

21:30Katie Martin: I am long the magnolia tree. As you may know about me, I'm a bit of a sufferer of, you know, seasonal affective disorder. I get the winter blues. And for those of us with this problem, actually, the early spring is like the hardest time because you're like have been through the whole winter already and your batteries are depleted. But when the magnolia trees come into bloom and I smell that rich, sweet odor, I feel like, man, I made it. You know, spring is here. It's going to be all right again this year. So survived another winter. Thank you, universe, for the magnolia tree.

22:08Rob Armstrong: Yeah, my neighbor, who doesn't look after his garden at all, like it's a total wreck, he won't mind me saying this, he has the most beautiful magnolia tree, and it annoys the hell out of me because I keep killing them. But his is gorgeous. I am long papal news. I was not expecting the Pope to be so central to the news cycle in 2026, but I'm here for it. POTUS versus Pontifex, it's strong.

22:34Katie Martin: Yeah, I love this bit of the news cycle too.

22:37Rob Armstrong: it's so good Richard tell us something you love or something you hate well I'm very long Southern California these days I moved out of San Francisco San Francisco in the middle of a tech craze is not where you want to be it is just a lunatic place the good news is all the kind of doom loop stories including ones we ran in the FT those are all history now it's just money washing out of every doorway and I'm watching that from a distance. I'm down here in San Diego. Everything is laid back. The sun is out. Believe me, you don't want to be in San Francisco for a craze, but California is still a good place to be.

23:20Rob Armstrong: That's highly annoying, but it is nice in London at the moment. I will give you that. So, you know, come visit. Yeah. Rob, you have been Rob. Richard, thank you so much for being fantastic and coming on today. We know you have better things to do with your time, frankly, and thanks for sending us all of your wisdom from California. Listeners, we are going to be back in your ears on Thursday, God willing, so listen up then. Unhedged is produced by Jake Harper and edited by Brian Erstad. Our executive producer is Jacob Goldstein. We had additional help from Topher Forhears. Cheryl Brumley is the FT's Global Head of Audio.

23:58Rob Armstrong: Special thanks to Laura Clark, Alistair Mackey, Greta Cohn and Natalie Sadler. FT Premium subscribers can get the Unhedged newsletter for free and a 30-day free trial is available to everyone else. Just go to ft.com slash unhedged offer. I'm Katie Martin. Thanks for listening.

24:34Thank you.