¶ Intro / Opening
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¶ Elon Musk's Space IPO Vision
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, one point seven five trillion dollars 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. 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 promise. And whether they really want more Elon Musk in their lives. Today on the show.
Will this thing fly?
This is Unhedge, the Markets and Finance podcast from the Financial Times. And 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. Strong, Rob say hello.
Greetings from space.
But we also have all the way from San Francisco a genuine FT legend, a stalwart, Richard Waters, known affectionately round 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 I'm in San Diego today. I'm in the FT's factory office.
It's all about the satellites.
Richard, just to establish your bona fide 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 one.
Ah.
Okay.
And we're not talking over eight.
But I'll tell you not. But I would tell you it was n it was nineteen eighty seven. I was I was there a month before the eighty seven crash. You may not remember that one, but it was big at the time.
And when did you start covering tech for the F T.
Oh, I'm getting I'm getting the whole uh personal grill here. In around well, so I was covering tech out of New York in the late nineties when tech, telecom and media were gonna merge in some big thing and it was part of the dot com bubble.
Yeah. Boy has that idea not worked over the last thirty years.
I've seen a few. But I've been in I've been in California since two thousand two, so I've seen a few cycles.
Right on.
¶ SpaceX's Technology and Musk's Vision
So look tell us, let's start from like basics here. For normal people, what 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 gonna 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. Before 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 rocket 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.
So like SpaceX mushed together with XAI, which is his his artificial intelligence grok thing. H tell me how that makes sense.
We skipped over part two, part two with 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 w 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 must
money pit of a an AI company, which has also been clutched together with X, the former Twitter. And let's put it all together and call it, well, what do we call it? And that's the 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 twenty first 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 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 gonna keep coming. We're just gonna see the story shift to fit the mood.
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. Uh 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? It's gonna make robots, we're all gonna have robots and then there's gonna be satellites in space that maybe we're gonna use as a waste station to colonize the moon and it'll all be valued at a thousand times earnings.
¶ Valuation, Strategy, and Market Mood
How how do you kind of fit those two sides of the Elon Musk story together?
Wel, yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n. 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. Nobody else can build this. I'm two steps ahead. And if you look to the horizon, that's where it's gonna take me. And then I over the horizon
there's this kind of magic pot of money. Um and his his genius and it is real genius is that yes, he builds this thing now. Um He ke he has to keep moving the horizon because he's got he's got no motes in his electric car business. He's soon gonna have a lot of competition in rockets.
And when that happens, where's his margin gonna come from? Where's his profit gonna come from? And so he's he's no longer Tesla's no longer an electric car company, it's now a robot company, you know, it's it's no and it's a taxi operating company, it's gonna be something else. And the same thing same thing with SpaceX.
It's a good job it's not an electric car company just anymore because like sales of those things are falling off a cliff in in 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 one point seven five trillion dollars when it pulls in revenues that are probably no more than twenty billion with a B? last year. I mean, come on. How how is this gonna happen?
Before you actually get to that valuation, I mean I'd 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, with you know, Elon is is weaving this this technology vision around it all, but is fundamentally being driven by finance, you know, real cold hard logic here. He needs to raise a ton of money, right? Uh X AI is a money pair.
Um, you know, put it this way, in his entire existence, he probably raised twenty five billion dollars, rub roughly ten billion through SpaceX, fifteen through Tesla. Well, he's now looking at raising seventy five 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 this is just an incredible row of the dice. So the valuation I've got no idea. I'll leave that one to Rob. I'll leave that to you guys. You're the market expert.
Huh well yeah, the whee y 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 gonna swallow this at that kind of valuation? Because, you know, as as Richard says, Mosk is the master at like creating vibe.
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
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 that 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 to the dirty tricks part of the podcast.
¶ IPO Rules and Lock-up Concerns
Where if he's gonna raise the amount of money he wants to raise, he needs to generate a huge amount of retail demand. And it seems like there might be some jiggery pokery in terms of listing rules and IPO rules to help him do that.
So th 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 investment.
Because passive investors buy the whole index.
Because they love you.
You wanna be in the index and the index funds as quickly as possible.
So like right now, if you imagine the this thing listed in May, it wouldn't be eligible for the Nasdaq one hundred before December. And because Musk is only talking about listing less than ten percent of the company, it wouldn't appear in the index at all'cause it's'cause that free float is too small.
NASDAQ is talking about changing these rules so that a company could be in the index as quickly as fifteen days after it gets listed. And that ten percent 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?
I think the real question for me out of this is if the numbers we're hearing are right, then less than five percent of this company is gonna go out, even on a seventy five billion dollar IPO, which is absolutely incredible. And there is gonna be one heck of a lock up that that goes at some point.
So just uh to back up for our our listeners slightly, the lockup means there's gonna 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 gonna 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 gonna be there when that lockup ends and all that stock comes rushing on the market? What they're worried about is who's gonna be there to pick up.
And so as you say, you know, the quicker it gets into the embassies, but even if it's not in the embassies, 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 enon stock that comes on the market with a nearly two trillion dollar valuation, am I really going to stand aside from the rest of the market and say no thanks? You know, what happens if it's something if it doubles? I mean it's I mean who knows.
There's something self reinforcing about it, in other words.
¶ Tesla's Fate and SpaceX's Potential
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 thirty percent since November. Is Tesla's 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 th I mean Tus was a volatile stock. It's still one point two trillion dollars or whatever it is of stock market value. I don't know the current number. I mean this is an incredibly over inflated stock based on current earnings or even any, you know, kind of realistic medium term projection on earnings. It's all based on big new markets that, you know, may develop. And so
Um, I 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 I think there'll be I think there'll be as much interest.
Mm. 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 the realm of being conceivable or are we in total fairyland here?
Well 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. It's growing like crazy. Musk is about to launch much bigger, more powerful.
Satellites that will have the power to directly connect to hand 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 you know, if you look at the projections for that out over ten or fifteen 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. And so this is this is physics that's been proven. If you can get your data center uh up closer to the sun in a geo in a in a sun synchronous orbit So that it's you know, your solar panels are always exposed to the sun.
you get a massive improvement, you know, benefit in terms of energy consumption. You you're in the in in the freezing colder space where you can radiate heat out through massive radiator panels. So it all comes down to the cost. Can you can you actually afford to put these things up there in orbit? And Musk is the leader in launch costs and he's he's working hard on that. So you tell me, Rob, you tell me.
¶ SpaceX as a 'Fan Token' Stock
I do love the idea of an investment pitch. That starts with nothing here violates the laws of physics.
Yeah, exactly. Yeah. 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 is a f 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
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. Is this just gonna 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? Yes. Leave aside leave aside the actual valuation for a moment. For years Wall Street's been criticised 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 of the big new market and
Rob, I mean 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. Well we do If you want a long term bet, this is this is a long term bet.
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.
Yeah, and the vibes the vibes are strong. I kind of don't get how he does it. You know, 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 stuff.
And he has the stuff that he's built behind him. Which makes it a lot easier to believe the tapestry that he weaves.
Well listeners, whether you like it or not, it's gonna be all SpaceX all the time, around the point where he decides to list this thing, which we're thinking is like Mayish, June-ish, something like that. Our previous reporting is 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 gonna have to come back in just one second with long shorts.
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¶ Longs, Shorts, and California Views
Okie dok, 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?
I am long the magnolia tree. Uh uh 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 writ
Sweet odor. I feel like man, I made it. You know, spring is here. It's gonna be all right again this year. So Thank you, universe, for the magnolia tree.
Yeah, my neighbour 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'cause 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 twenty twenty six, but I'm here for it. Potus versus Pontifex, it's it's strong and and I'm
I love this bit of the newsletter cycle too. I guess.
So good.
her, Richard, tell us something you love or something you hate.
Well, I'm 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.
No independent.
just it is just a lunatic place. The good news is, you know, all the kind of Doom Loot stories, including ones we ran in the FT. Those are all history. Now it's just money washing out of every doorway. And I yeah, 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's still a good place to be.
Ah, 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. Um and and thanks for sending us all of your wisdom from California. Listeners, we are gonna be back in your ears on Thursday, God willing. So listen up then.
Unhedged is produced by Jake Harper and edited by Brian Erstadt. Our executive producer is Jacob Goldstein. We had additional help from Topha Forhez. Cheryl Brumley is the FT's global head of audio. 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.
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