Political Commentary and Closing Remarks

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An epic movie night We don't have enough snacks. Dinner party with the girls. We'd have to decorate. Surprise date night thing to wear But Amazon's prime same day delivery letesss you say yes before the moment slips away Try that new popcorn maker, order those cheeky drink glasses, get that new perfume, and turn that I wish we could into an I'm so glad we did Visit ammazon. com slash prime to find millions of items delivered fast. Same day delivery. It's on prime. Available in select areas. Terms apply If money is evil, then that building is held. Oh. Welcome to Profperty Markets. I'm Ed Eson. it is july sixteenth. Let's check in on yesterday's markarket vitals. The major indices rose after another inflation reading from the producer price index came in cooler than expected. Treasury yields fell. crrude had another volatile day as the US continued to strike Iran. And finally, Apple stock hit an all time high after announcing it will integrate Ali Bara's Quenn model into Apple intelligence in China What else is happening The largest IPO in history is officially underwater. Yesterday, SpaceX fell below, its one hundred and thirty five dollars IPO price for the first time, touching an all time low of one hundred and thirty two dollars seventy five cents The stock has now dropped forty percent from its peak, wiping away more than a trillion dollars in value downfall comes just one month after a debut that raised a record eighty six billion dollars and briefly made Elon Musk the world's first trillionaire. The new low also comes just one week after SpaceX joined the NASDAQ one hundred That means that the index fund and the millions of Americans whose retirement accounts track it, bought in right before a ten percent decline. It also means more importantly, my SpaceX prediction is on its way to becoming reality. On june tenth, I said this. Here is my prediction for what will happen tomorrow. As soon as it hits the market SpaceX stock will immediately explode twentyenty five percent However, My other prediction is that within six months, probably sooner SpaceX stock will be cut in half. Why becausecause the evaluation makes no sense. whatsoever. Almost two for two. We'll see, joining us to discuss SpaceX's decline. We're speaking with Nicholas Owens, equity analyst at Morningstar. one of the few analysts who has been bearish on this stark, Nicholas, thank you for joining us. on the show, just as a reminder for our audience, you published your SpaceX research before the IPO. You valued the company at sixty two dollars per share. So even lower than where we are now, of course, just walk us through your evaluation again as a reminder. The sixty two dollars is the result of three scenarios, you know, a bull case, medium case and a bare case and some probabilities that we assign to those On in the bull case do you get into the hundred thirty one hundred and fifty, one hundred and sixty dollars range. The problem is that depends on so many things going right that we think there's only a seven percent chance of that happening. So that's where you get to a weighted average fair value of sixty two. know the medium case on its own is about seventy one dollars a share. So I think we're in the same camp, if you will, thinking about Hal these valuation wise. Just looking at what's happened so far so the stock, I mean, obviously it popped immediately Uh, as I thought it would it continued to rise and now it's coming down. I mean, it's been pretty quick the way this has happened, especially considering the fact that it joined the NASDack one hundred so recently. what do you make of how quickly It has started to drop back down. I think it's a really good point. I think there's two of buckets that I would want to point out they are first of all, maybe working backwards, it's quick, I think partly because the flow is still so small. Only four percent of the company But then on top of that, I think and I go back and forth between thinking about the fundamentals, like what do you have to believe about AI, data centers in space, et cetera, or what the margins on that might be in ten years And then you go to the just the market, the supply and demand for the shares themselves, right? So both of those should drive the price U So I think here you have In the next couple weeks, I think they're supposed to announce earnings august somethingh, august eighth or ninth And two days after that, a whole another seven percent of the company can be sold by insiders. So that's supply And then I wanted to comment on the NasAq one hundred inclusion, which is know notable because it was a result of some changes in their methodology and so forth, but I think actually not even that huge a deal in terms of demand. Googled, what's the market cap of all the funds attract the NASDAQ one hundred at something like eight hundred billion dollars? Or if it's eight hundred billion dollars and they're waiting it at one percent, that's eight billion dollars of demand that would have been a result of that inclusion, which does not offset if you look at the market cap. and even with the float, you know the potential supply of someone who bought it at one hundred and thirty five and was selling at one hundred fifty six or whatever in the last, you know couple weeks. One of the crucial things you mentioned there is the fact that we haven't even gotten to the lockup expirations yet. I mean, that was what I was kind of waiting for is as soon as people can sell, my assumption is there are a lot of people who are very rich on paper right now. as soon as those lockups expire, I assume they're going to want to sell and maybe go out and buy a boat or buy a house, whatever they want to do. that hasn't even happened yet and yet the stock is still declining. surely that means it can only Keep going down, what do you think will happen I think that seems likely my I think two kind of so I go back then to the fundamentals. What are maybe some changes in what people believe about's you know what drives the value of this stock? There's certainly the Starlink business, which is actually kind of the gem you right now. But you have motivated competitors making some advances in their launch and their technology. Ironically, I think that the The economics of this business may resemble the terrestrial telecoms business where Morningstar would call it an efficient scale source of me, which is problematic because the more players there are, the worse the economics get So SpaceX is kind of king of the hill there and having a eager competitor launching a bunch of satellites lookooks like a capacity glut could happen. and so pricing doesn't look as good So there's maybe some overhang even on the starling case In terms of AI There's so many assumptions you have to make to get to these upside scenarios. and the payoff there, you know is in let's call it decades And there's a couple of news items I would point to. Meta starting to rent out capacity Um O AI probably delaying their IPO. Th are things that would make people question the thesis of what is the ROI on all these investments that have been made? And SpaceX today looks a lot like an infrastructure play Um and also an LLM that is not in the top ranks, shall we say? So lots to question. And when you look at some of the research that we've seen from some of the other Wall Street analysts, to be clear, twenty seven of the thirty one analysts who cover this stock have recommended it as a buy and the average price target is Shockingly two hundred and forty two dollars per share. One analyst gave it a price target of eight hundred dollars per share, which would value it at ten trillion dollars in market capit, which would make it by far the most valuable company in the world like double Nvidia, double Apple. I mean, it's just nuts What are your reactions to some of the other price targets we've seen? given the fact that you rate it at sixty two I would sort of like to go back to first principles and I would say things like the market works on disagreement And it's really good that investors have, let's say, different sources of information about what do you have to believe to buy this or that version of what this stock might be worth I think a there's also a methodological difference. I have a discounted cash flow model. We have forecasts out to twenty forty five. We're discounting those today. So we're saying these shares are fundamentally worth sixty two dollars today. Again, probability weighted A lot of those analyses that you're referring to, they're doing things like, oh, let's get to twenty twenty seven, twenty twenty eight, when they might be making money a little bit. and then we're going to put a hundred x multiple or something on that number. And they're doing some of the parts, you know with Star Link and AI and so forth. But that is a different methodology that gets you And again, I think when you're doing a multiple, you're baking in assumptions that are not necessarily being stripped out. you're making growth rate assumptions and discount rate assumptions that we always are very explicit about at Morning Star. So I think that's as much of a compare and contrast as I'd be comfortable doing. Fair enough's a polite way of putting it justust looking ahead for the rest of the year. the supply of the new shares coming down the pipeline. We've got, I mean, as you mentioned, right after the Q two earnings report, lots more supply because of the lock upp expirations. But then it's going to continue for the rest of the year. lotots more investors will be able to sell Given All the information at our disposal, do you have any thoughts on how the stock will perform over the course of the year Honestly, I think it could go either way. and I'll tell you why. So with everything we've said, right, there's certainly some a lot of items in the, you know in the negative column in terms of supply of shares and small changes in people's sentiment can make a bigger move again, given the smaller float You could say a positive argument is the float will actually increase with with each of these lockups expiring. And depending on what investor' appetite is, the price could find a new direction. And I'll say too, I expect the quarterly report to be glorious. We have pretty good growth rates even for twenty twenty six And I think if they did it, acccording to what I think of as the classical IPO playbook, they've got two quarters of numbers pretty much in the bag that they will be happy to share, right? And I'm looking mostly at those rental agreements with Anthropic and Google and the other one that are pretty nice chunks of revenue at low marginal cost. They're still spending a lot, et cetera. But anyway, I think you can you'll see some nice comps, you know, and then it might be people might be more comfortable thinking, oh, you know, AI might be whatever, cash flow neutral in twenty thirty three or whatever the story ends up being. So I'm not I'm not I'm not excluding the possibility that there will be some good news there and it wouldn't take much in terms of let's say collective, you know, appetite, if the story turns positive again. So I wouldn't sit here and say it's totally, you know going crater That said, there has to be more demand than supply for the stock to go up. It's again, first principles. All right, Nicholas Owens, equity analyst at Morningstar very respectfully bearish, which we always appreciate. Thanks again for joining us, Nicholas. Thanks so much After the break New York hits pause on data centers. And for even more markets insights, you can subscribe to my weekly newsletter simimply put at simply put. profgmedia dot com This episode is brought to you by Street Easy. Here's the thing, Wna be the grandparents who bolted to the burbs or the cool relatives still living in NYC? The city that people come to to be at the center of everything. With twenty years at NYC know how, Street Easy has the tools, agents, and guidance to make you a forever New Yorker too Visit streeteasy. com to buy a rent in NYC. StreetEasy is an assumed name of Zillow Inc, which has licenses in all fifty states Your summer weekends fill up fast, but Crocx has your back. Road trips, beach days, last minute getaways, whatever's on the agenda, swing by your local store and find your new goat too Try it, style it, make it yours. becausecause the right pair doesn't just show up, it shows off Wockk out ready for whatever's next. Visit your nearest crox store today Tomorrow morning is knocking. Stalock your fridge now. How about a creamy moocha fappuccino drink? or a sweet vanilla? smmooth caramel maybe, or white chocolate mocha. Whichever you choose, delicious coffee awaits. Find Starbucks Frappucino drinks wherever you buy your groceries We're back with property markets New York just issued the country's first statewide data center moratorium. Governor Kathy Hol signed an executive order on Tuesday that pauses state permits for the largest AI data centers for one year During that pause, the state will write rules to protect the environment, the grid, and rate payers the move comes amid growing opposition to data centers nationwide A recent gallop poll found that seven in ten Americans oppose constructing data centers in their own community and local resistance has already delayed or blocked nearly one hundred thirty billion dollars project in the first quarter of twenty twenty six. The big question now is Will other states follow New York's lead? Joining us to discuss this. We're speaking with Bradley Tusk, Vedure capitalist, political strategist and writer. Bradley, good to see you. Thank you for joining us. That is my first question. Is this moratorium The first of many. Yes. Now, I don't think it's sort of an absolute yes Let's work off the basic thesis which pretty much defines everything that I do, which is that Every policy output is the result of a political input. Every politician makes every decision solely based on one of the next election or nothing else If you assume that's the case in thirty four years in politics has taught me that that's the case, then you look at the unpopularity of AI across the board, then of course Politicians are going to pass bills and regulations and sign executive orders that come off as anti AI. And we've seen Lots of stuff happened in this past legislative session, which wrapped up about a month ago kind of across the country, where new laws regulating chat boots, new laws regulating AI use in insurance, new laws regulating AI use in healthcare, in hiring, data centers. So there's a lot of areas of it because politicians dont want to seem responsive to the voters And data centers are particularly controversial. However, I also do think when you read the governor's executive order, it does kind of point towards a resolution of all of this that I think is pretty doable. And I will say that Kathy Hoo for a Democrat is really pro business. So when she did this, that's an indication of one how powerful this issue is, she is also up for reelection this fall, and she's not stupid by any means politically either. But I think that she did sort of lay some breadcrumbs as to how this all works out. And to me really, there are kind of three things that if data centers say, hey, we can do these things, most of this is pretty resolvable One is energy and the The thing that made that estate center so unpopular is that initially the ones in Northern Virginia, in Georgia were just plugging into the grid. and by doing that because of their vast energy consumption, people's electricity bills were going up thirty forty percent. they're saying, why am I subsidizing Sam Altman? Why am I subsidizing Anthropic? of course they should If data centers are required to either bring their own power or pay for their own costs and not impose those negative externalities on anyone else That solves a lot of us. That's number one. Number two is water usage. And even though it doesn't get as much attention, data centers when you have a system that big requires a lot of water for cooling, there are things called a closed loop system that are really not that hard to install. And a data center can be built in a way that it brings in its own water, it circulates it, refrigerates it, it meets its own needs, and it's not drawing from the water utility itself or the risk of it then putting polluted water back into it, like you just saw with the Medadata center recently. And the third would be A relationship with the data center itself is a benefit to ommunities One challenge that data centers have is they don't create a lot of jobs. They create some construction jobs so some of the building tradade unions like them and that's great. But long term permanent jobs, it's really not all that many. So if you're going to be in a community, how can you help it? Are you going to help pay for energy grid improvements? Could you pay for some sort of property tax rebate? Could you pay for libraries and parks And I think the good data center builders and hyperscalers are open to these ideas. And so I do think there's a solution here, but it's not just going to be, hey, AI is a national security issue. so we're just going to put these wherever we want and everyone just has to suck up and bear the cost of it Something I can't quite tell from this legislation is how genuine it is. I think there's certainly an element of this, which is like she wants she's running for reelection. It is more popular to be anti AI today just based on the numbers Um, which makes me think, okay, maybe I mean unclear if this is actually an anti AI policy orr if this is just pressing pause, pretending to be anti AI policy And then it's actually something else. I mean, where is it? I think you may be giving politicians too much credit in your question itself there, right? Which is you're almost assuming there's substance, there's politics. and where's the distinction? I don't think there is a distinction, right? It's politics and then substance gets impacted by the politics of it. But I think the reason that the governor did The executive orderers opposed the sign the legislation, what to sort of not further the notion that data centers in and of itself are a bad thing We do need data centers, right? You can't have a country that whose economy is so reliant on AI, whose international security kind of rates around AI with China and then not have the ability to actually power AI. So clearly we need data centers needing them and then imposing costs on voters and consumers are two different things. and I think that they are reconcilable. So I think what Governor Hokl was trying to do is not in any way imperil her reelection bid because she's a politician first and I don't want to pretend that she's not, but within the realm of politicians because I do work with her enough to know her reasonably well She is pretty pro business. She is pretty reasonable. She's pretty moderate. She's the furthest thing from a DSA type Democrat, and so I think she was trying to split the baby a little Where do you think this goes from here in terms of data center regulation? Because if she's the pro business who is putting a moratorium on data centers, it makes me think that we're going to see even stricter anti data center regulation going forward. So earlier this year, Vermont and Maine did both pass moratoriums that were vetoed by their governors. Now the governor of Vermont happens to be a Rublican. the governor of Maine is Janet Mills, who's a pretty moderate Democrat But in Oregon, a Washington state, are we going to start to see the most left wing states potentially do this? You know, absolutely, But here's one thing that's really important to understand about the politics and regulation of AI. It's really not that partisan, meaning that when you look at the different types of AI regulation and legislation that have been enacted over the past year It's not just the left, it's red states and it's blue states, it's rural states and it's urban states. And so fundamentally, the polling and unpopularity of AI kind of cuts across all of the normal partisan lines and ideological spectrums and everything else. And so I think politicians on all sides are certainly concerned about this final question, a very important politician bashed this decision, President Trump said, quote, onene of the biggest driving forces in the future for jobs are data centers. New York State has made a terrible decision. So he has come out publicly proro data centers, what does that do to his political standing?, I'm not quite sure what he means by one of the most important source of jobs, because data centors themselves don't create a lot of jobs. I assume what he means is that the AI economy powered by data centers needs data centors, and he's right about that. And he iss the one that put together the whole Stargate program That was openAI committing one four point four trillion dollars in CapEx four data centers. So I guess he feels some ownership of it. And then in terms of his own personal finances, you never know with this guy one way or another. But you know, even he clearly has started to lean into the regulation of AI. He had an executive order a little over a month ago that asked the hyerscalers to give them meaning the U.S. government advanced copies of frontier new frontier models like methos from Claude before they're publicly released. And so even Trump, I think, understands which way the wind is blowing. And so to a certain extent, he's probably trying to have his cakeated too, but also it's quite possit he doesn't really understand what data centers are. and someone said something to him and then he fired off a post and didn't even realize what it was probably giving him too much credit to say there's any strategy to it. But yeah, I think the recurring theme of this interview has been you keep giving politicians way too much credit Okay, I'll stop doing that going forward. Bradley does He is aenture capitalist, political strategist and writer. Bradley, really appreciate your time. Thank you. And comeind Thank Exciting news from the Treasury Department. The United States will start producing new one dollar gold coins emblazoned with the face President Donald Trump. That makes Trump first sitting U. S. president to appear on our national currency. but He will join a long line of other international leaders who featured on their currency while in office, including but not limited to Saddam Hussein, GQaddafi, and Mao Zadam So you know, he's in good company. acccording to Treasury Secretary Scott Besscent, the Trumified coin quote, celebrates the strength of American values. We're not what values he's referring to specifically, but they may include idolatry, greed, corruption, hubris After all, these are the hallmarks of any self idolizing political leader, especially ones who have literally flirted with the label of dictator And so it does appear that we are approaching I don't know, the end times And it's not just the gold coins, it is not just the gold statues. It's also billions of dollars that were stolen. from households via a literal ponzi scheme called Trumpcoin It's also the dozens of children who were sexually abused by his confidident Jeffrey Epstein and all of the other young women who were clearly exploited, if not directly by Trump, then certainly indirectly through his social circles It's also the fact that all of this was covered up by an administration that has systematically rewarded sycchophancy and punished integrity. And if you don't believe me on that, just search up the name Margaret Ryan and you will understand what I mean. It's also the five point six million dollars that he just paid this week as settlement in a lawsuit that literally found him liable of sexual abuse by a jury of his peers. It's the bombing of other nations with no real contingency plan. It's the accidentally murdering one hundred and twenty children in a drone strike and then never actually acknowledging why or how that happened. It's the pardoning criminals and the threatening allies and then suggesting that we should invade them. A lot And so what better way to commemorate this individual than to enshrine him on the legal tender of the United States. put him in the ranks of George Washington and Benjamin Franklin and Abraham Lincoln. Now you might say that I have Trump arrangement syndrome You might say I'm I don't know, brainwashed by the media Anyone with two eyes, a brain, and a basic understanding of history knows exactly What's happening here and that is this is what third world countries do And if you cannot acknowledge that where you feel a need to justify it or explain it away or downplay it by any measure thenen dare I see it You have been brainwashed yourself. This episode was produced by Claire Miller and Allison Weiss and engineered by Benjamin Spencer. Our video editor is Brad Williams, our research team is Dan Shalon, Kristine O'Donoghue, and Mia Solverio, and our social producer is Jake McPerson Thank you for listening to Property Markets from Property Media. If you liked what you heard, give us a follow I'm Ed Eson and tune in tomorrow for a conversation with Mike Novogratz