Political Connections and Future Outlook

This episode is brought to you by Bill, the intelligent finance platform that helps businesses and accounting firms scale with proven results Here at Whatnex TVD, we know business. And in businesses across America, smart people are stuck doing the grunt work You know the drill. Those hours when you could be brainstorming big ideas, you're instead filling in spreadsheets, filling out invoices or hunting down somebody else's signature Bill wants to change that. With AI powered automation, Bill removes the busywork from your accounts payables workflow. They handle capturing invoices, routing approvals, and syncing with your accounting software so that your team can focus on growth instead of paperwork The bill is so reliable, ninety eight of the top one hundred accounting firms in the US trust it to simplify and secure their bill payment processes Bill's handled over a trillion dollars in secure payments and is ranked number one overall on G two's twenty twenty five list of bestest acccounting and fininance products So stop the guesswork and start scaling with the proven choice. Go with a company whose financial infrastructure is trusted by nearly half a million customers ready to talk with an expert, visit bill dot com slash proven and get a one hundred and fifty dollars gift card as a thank you That's bill dot com slash proven. Terms and conditions apply, seeee offer page for details A beautiful home deserves a beautiful scent in every room From the open living room to the cozy guest bath, Pya makes whole home scenting effortless Control intensity and swap fragrances with a tap on the Pura app. Ready to transform your space, discover smart homeome fragrance at pura. com slash whole home. My name is Max Chafkin. I am a reporter with Bloomberg Business Week. I'm also the co host of the Everybody's Business podcast. And I guess for the purpose of this conversation, I have covered Elon Musk for a very long time for almost twenty years. And for this podcast, I gave Max some homework Let me pull up the S one just so I can So I can read the the u I asked Max to come prepared with one interesting thing from the SpaceX propectus That's the paperwork the company filed with the Securities and Exchange Commission We true nerds know it as the S one So there's a section in the S one Page one hundred and thirty six, why this matters now quote, We do not want humans to have the same fate as dinosaurs So I guess like we're gonna you should invest in this company because it's SpaceX is helping to make life multiplanetary. If we do not make life multiplanetary We will be like dinosaurs, I suppose. But I don't know, it's funny I go with one that is right near there To make life multiplanetary, to pick up on this thread, understand the true nature of the universe and extend the light of consciousness to the stars This S one is also full of mentions of human history. You know, Elon Musk is a guy who loves to talk about his own life and his own kind of life's work. You know in the grand scope of history, they claim to have identified the largest market in human history that the technologies that the company makes which include, you know, an anti woke chatbot and satellite communication for sailboats and airplanes as, you know, the most consequential technologies in human history. SpaceX and Elon Musk, I mean, that more than anything they want you to know They are, you know, important that we we are this is dinosaur level stuff Okay, so On that level, extend the light of our consciousness. tellell us these documents signal to you about SpaceX's ambition Well, we've known Elon Musk, the founder of SpaceX, the CEO and who also runs Tesla and Twitter and a bunch of other things has these kind of grand ambitions and and has, you know, for for as long as he's been public figure talked in this way And so so in some ways like the kind of crazy grandiose Elon Musk stuff too me is like the least surprising part of this because like that is how Musk has always marketed himself and an S one, this registration statement when you when you go public. it's a marketing document. And so in addition to all the Graniose language, there are a gazillion beautiful pictures of rockets. There's it's just like, you know, like pages and pages and pages of rocket porn The thing that I find most interesting and most surprising is how much of this is actually just like not about rockets at all. Not about Mars, not about multiplanetary life. It's about building data centers for Rck, which is SpaceX' Chapot as well as for other AI companies. I mean, basically this is an interplanetary travel company that appears to be in the process of pivoting to this kind of very hot market, which which is strange and feels, you know odd for Elon Musk. The other thing that I think is interesting is just It's not as big as I thought it would be. You look at the raw numbers here. Yeah tell me tellell me about that, the scale of this IPO and what the numbers tell you. eighteen billion dollars in revenue in twenty twenty five, which is is a lot of money, but you compare it to You know, Facebook, Google, the other big technology companies, companies that are going to have roughly the same valuation. It's really small. Meta made had around two hundred billion dollars in revenue in twenty twenty five. Meta had sixty billion dollars in profit in twenty twenty five. SpaceX lost a little over four billion, you know, same year. So this is like a modestly sized money losing company with some very, very You know, monumental ambitions, historic ambitions, mayaybe the biggest ambitions in human history. And that raises some very interesting questions. Namely, is SpaceX actually worth what Wall Street seems prepared to pay for it Is this a bunch of rockets and some AI stuffed into a trenchcoat named Elon Musk Today on the show IPO Palza Time SpaceX is about to blast off with open AI and anthropic soon to follow I'm Lizzie O'eary, and you're listening to Whatneext TVD, a show about technology, power, and how the future will be determined. Stick around This episode is brought to you by Bill, the intelligent finance platform that helps businesses and accounting firms scale with proven results Here at Whatnex TVD, we know business. and in businesses across America, smart people are stuck doing the grunt work. You know the drill. Th hours when you could be brainstorming big ideas, you're instead filling in spreadsheets, filling out invoices, or hunting down somebody else's signature Bill wants to change that. With AI powered automation, Bill removes the busywork from your accounts payables workflow. They handle capturing invoices, routing approvals, and syncing with your accounting software so that your team can focus on growth instead of paperwork. Bill is so reliable, ninety eight of the top one hundred accounting firms in the US trust it to simplify and secure their bill payment processes. Bill's handled over a trillion dollars in secure payments and is ranked number one overall on G two's twenty twenty five list of Best acccounting and fininance products So stop the guesswork and start scaling with the proven choice. Go with a company whose financial infrastructure is trusted by nearly half a million customers ready to talk with an expert, visit bill d. com slash proven and get a one hundred and fifty dollars gift card as a thank you. That's bill dot com slash proven. Terms and conditions apply, see offer page for details. Starting your own business is never easy. 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Right now, ProtonVPN is offering our listeners seventy percent off a two year plan when you go to protonvPN. com slash tvD That's PO to nvpN dot com slash TBD for seventy percent off your two year plan. That's protonvpN dot com slash TVD probablyrobably the most important thing to know about the SpaceX IPO is that it is massive The company is valued at one point seven seven trillion dollars, and the share price is set at one hundred and thirty five dollars before trading It's the biggest IPO ever you have to understand that SpaceX isn't a single thing It's more like a bunch of companies in one You have three businesses. One is the original business of SpaceX, which is shooting rockets into space. And you brought up Starlink. That business, while not huge, is a very, very, very successful business. SpaceX operates a rocket called the Falcon nine. The Falcon nine is basically the industry standard for sending satellites to orbit. It's what NASA uses, is what the Defense Department uses. When you look at the number of launches around the world, SpaceX has a huge percentage of them. you know, dominates this market in such a way that during the Biden administration as Elon Musk was becoming, you know, kind of more right wing and tweeting stuff that was kind of out there, starting to become worried like maybe we the United States are too dependent on this guy. We need to like figure something out because if Elon Musk cuts us off from our rockets, we'll have no way to service the space station, we' have no way to launch spy satellites and so on. So that's a really, really good business. It's not growing very quickly It's also losing money according to S one, although it's really important to say that Starlink, which is the satellite business, the second business Part of the reason it's making money is because it's not paying full price. launch its satellites into space Because who's footing that bill? The company. So they're paying they're charging Starlink the basically at cost or what they say is at cost, which is something like fifty million dollars a launch below what they would charge an outside company. So they're sort of giving up fifty million dollars in profit per launch And that's essentially going to Starling's bottom line. So it and that's defensible. like it's that's explained in the S one, but it's important to say like That fact makes the rocket business less successful than it is and it makes Starlink more successful than it is. And now why would you want to do that? I mean, maybe you do that because like Elon Musk says, this is a vertically integrated company. Of course, they're not going to pay for launch services. they develop launch services. But the other reason you do that is because one of those two businesses is a growth business. Starlink is growing. They're adding a lot of subscribers and the other one is not. It's a kind of mature defense contractor. so there's a little bit of kind of financial engineering, you know in that in that distinction. And then you have this third business, which is where Elon Musk says the future of the company is which is AI, which is, you know, again, supposedly very huge I mean, SpaceX has a couple of very large data centers, which is it appears it's going to begin running out to other companies, but this plan to make data centers in space, which is what the company says is kind of like the future. And then the other part of this AI thing is the large language model. Like when you look at what powers open AI or anthropic. It's the large language model. It's like Chat BT or Claud. Musk's version, SpaceX's version is called Grock And Grock, you know, as far as I can tell is mostly used as a way to make funny tweets and and is not taken that seriously, you know, by the people who buy, you know, AI, you know, large language model, capacity, like businesses and so on. So you have this kind of interesting but not particularly successful large language model that of course, company says is very state of the art and it's not woke and that's going to somehow help help it. And then you have this kind of you know pretty far out there plan to build data centers in space and they're calling that, you know, a multirillion dollar opportunity. You know, for now, it's just it's just causing massive losses So I think then a natural question is Why is this company valued at what it is? Is SpaceX overvalued Or are investors just looking at this and saying Elon Musk's name is on it? And therefore, we don't have to look at the fundamentals of the business because he'll figure something out and we'll make money I mean, it's both of those things. It it's like If it's valued as the business that it is, a very successful rocket company, a fast growing but still kind of early satellite business and a more or less nonxistent or small AI thing, it would be worth a lot less than, you know, one point seven, one point eight trillion dollars or wherever it winds up being after the stock begins trading But there's this other factor, which is Elon Musk and and you can everyone can can have different views on how much that should be worth the stock market has historically decided that that is worth a lot of money. If you And we have a really good comparison here with Tesla, which is Musk's publicly traded car company. Tesla is like a small car company. It sells about a sixth or a seventh, the number of cars that Toyota does, and yet it trades its market value is something like four timx what Toyota's market value is. And the reason for that is because Tesla has this kind of super speculative, but mostly nonexistent plan to become an AI company. But Tesla has also lost more than five percent in its value over the year because people have started saying, wait a minute Totally. And Tesla has been very troubled. I mean, Tesla was a fast growing car company. It is no longer a fast growing car company. It has issues, I think that SpaceX doesn't have. But my point is just that there is like some musk factor to this where it allows investors to look at a speculative business, humanoid robots and Robotaxis for Tesla data centers in space and Grock for SpaceX and, you know, kind of like magically apply a multiple And they believe and they are buying into they not only you know, own Tesla, they're the people who have, you know, been voting, you know, essentially against all kind of normal business common sense to give Elon Musk gigantic pay increases and they are the ones who are who the SpaceX IPO has been marketed to And so if you're betting against these companies, you're betting against that massive shareholder base, which is actually kind of more like a fan base It is a fan base And I want to talk about some of the people who are benefiting here. So Let's talk about Elon first because the share structure in this IPO gives him way more control than you're just sort of like regular degular CEO would You made a whole podcast about Elon. What does this kind of super share structure you about him. So it's funny because on some level, it doesn't matter that much because of that kind of like Elon multiple that I was mentioning, it would make it very hard for shareholders to kind of buck him. And that's come up over and over again at Tesla. Tesla shareholders, if you don't like Elon, your choices are try to try to rein him in and then risk that the Elon fans sell and then you lose lose money or just I to clarify this for SpaceX he'll have like eighty some percent of the voting rights here eighty five percent, I believe, of the voting rights, not only that, but this company in certain ways, shareholders will be in a more disempowered position than like maybe they've ever been. There is an arbitration provision in the S one basically requiring shareholders to do mandatory arbitration rather than bringing Class action lawsuits, Elon Musk, you know kind of somewhat famously engaged in this big fight with the state of Delaware over class action lawsuits and their approach to corporate law Mved the company to Texas where which takes a much more kind of like management friendly approach to this stuff. So you have you have a situation where Fctionally Elon Musk would have a lot of power and then literally there will be like pretty much no way for shareholders to rein him in. If you are buying this thing, you are basically saying, I'm going to give Elon Musk my money and he can do whatever he wants forever Which is so weird because that's not what a public company is in theory supposed to be, right? Like if we were to do total one on one here, the idea is like I buy some shares in Maxchafkin Incorporated and then I have some say about what Maxchafkin Incorporated does in the future. This kind of feels like Elon going to public markets for money but not any of buy in that shareholders often wield in a public company Yeah. I mean, he he has, as I said, he has just a huge amount of leverage over shareholders because of this dynamic. and that's what we're seeing. We we're we're seeing him negotiate best deal that he can get and that deal happens to just be, you know, an incredibly historically lopsided deal. I should say He's not the only one. I mean, there are a handful of big tech companies that have similar kind of lopsided share structures. you know, Mark Zuckerberg will essentially control Facebook forever. You know, Google's kind of in the same position. Anthropic and open AI. I assume we'll have similar you know, shareholder provisions, you know, for for different reasons, right? But it's going to it's going to amount to the same thing where you as an investor are essentially getting the upside if it goes well but assuming a bunch of risk with very little recourse other than to sell. and even selling maybe not as straightforward as it seems One of the things that Musk has been able to do with this leverage is get a bunch of the big indices. So like the company, the NSdAQ one hundred and a handful of others to change their rules to bring SaceX into these ind indices quicker than it otherwise would be. So if you are a Yeah, let's explain to listeners why this is so important because you might not care at all about Elon Musk. You might not care at all about these companies. But you might have a four hundred one K and theseese big institutional investors, your vanguards, your Black Rocks, Fidelaity, etcetera. like you're kind of generic fund that tracks the stock market has to by its rules mirror these indexes indices. Iexes indy, I never know. They got to buy SpaceX. They gott to buy SpaceX is the short version. Maybe not if it's one that tracks the S andP five hundred, but that means lots of people Maybe people who are on the verge of retirement are going to own SpaceX Mbe without knowing or wanting to. Yeah, and this is already true. we're talking about, you know, Facebook or Nvidia or many of these other, you know, like if you think, oh,, you know, I wish I had gotten in on NVidDia, Well you did because you probably if you're a normal retireree, you invest in these broad based index funds, that's been like the kind of industry standard strategy for decades. and these funds are the idea is they buy the whole market. And probably some fifty five percent to sixty percent of Americans have a retirement account And in general, these indices have had rules that they're called seasoning requirements. The idea is you want to have the stock on the market trading for a while to sort of like figure out what it's really worth because you have some very, very smart investment bankers very good at their jobs who their whole job is to get the price up as high as it can possibly be. You have these very sophisticated institutions that benefit from that. And then there's a lot of volatility as insiders, managers, CEO's and so on, trade. And so the kind of thinking has been, you don't want to just put that in the index right away because the index might be overpaying. And in fact, because the index is sort of forced to buy, it might be pushing the value up sort of artificially. Musk has managed to get most of these indexes, although not the S andP as you said, to change the rules. That feels Hmm, I'm looking for an adjective. Croka is not quite the right adjective, but it it makes my eyebrows go up The argument for changing the rules is that These AI megaaps, SpaceX, Anthropic and open AI are a much bigger percentage of like the overall economy, the market than previous IPO's. They're going public later and that to exclude them be to limit investors' exposure to an important part of the market. The point of the index is to track the market. So if they're going to track the market, they need these companies. As I said, the counter argument is you're at risk of pumping up the value of these companies and then having the index holders, you know taking financial responsibility for that for that thing. It's basically like We're all going to get on this, you know, if you don't, if the index doesn't do it, we're missing out on the potential, you know, awesome ketamine fueled rocket ride to the Snars, which could, I mean, it could end up being very valuable and we and you know, anyone who misses out on that would feel very bad and the indexes would feel bad. and like this thing looks incredibly overvalued. It feels like we're in an AI bubble. but things can feel bubbly for years and years and years before the bubble actually bursts. And so we just like don't know where we are. and that creates You know, a lot of uncertainty and just a lot of risk for all of us. Anyone who, you know, is owns stock or, you know, has a stake in the market the brake A bunch of guys who hate each other, all decide to take their companies public This episode is brought to you by Bill, the intelligent finance platform that helps businesses and accounting firms scale with proven results Here at Whatnex TVD, we know business. and in businesses across America, smart people are stuck doing the grunt work. You know the drill. Those hours when you could be brainstorming big ideas, you're instead filling in spreadsheets, filling out invoices, or hunting down somebody else's signature Bill wants to change that. With AI powered automation, Bill removes the busywork from your accounts payables workflow. They handle capturing invoices, routing approvals, and syncing with your accounting software so that your team can focus on growth instead of paperwork Bill is so reliable, ninety eight of the top one hundred accounting firms in the US trust it to simplify and secure their bill payment processes. Bill's handled over a trillion dollars in secure payments and is ranked number one overall on G two's twenty twenty five list of best accccounting and finance productucts So stop the guesswork and start scaling with the proven choice. Go with a company whose financial infrastructure is trusted by nearly half a million customers ready to talk with an expert, visit bill d. com slash proven and get a one hundred and fifty dollars gift card as a thank you. That's bill dot com slash proven. Terms and conditions apply, seeee offer page for details A beautiful home deserves a beautiful scent in every room From the open living room to the cozy guest bath, Pura makes whole home scenting effortless Control intensity and swap fragrances with a tap on the Pura app Ready to transform your space, discover smart homeome fragrance at pura. com slash pole home. But the thing is, Elon says things that aren't true whether that's because he wants them to be true, because he's working on them. I mean, the New York Times just did this big analysis where I think they found nineteen percent of the things he promised actually through in the way he promised them That's one thing when it's just your company. It's a totally different thing when a large chunk of the American economy via the stock market is wriding on that Yeah and not just the people are invested in these things. I mean, the AI bubble you know, has huge impact like across the economy. It's it's, you know, it's affecting a construction industry. It's affecting, you know, industrial materials. It's, you know, it's affecting electricity prices. There are just like a million ways in which gettingting bunch of investors as excited as they are about these stocks, you know, is having an economic impact. At the moment, you know, that economic impact has been largely I don't want to say positive, but it's led to a lot of economic growth And this has happened before. as you said, like he's been basically saying for a decade. that Teslas could drive themselves anywhere in the country without human oversight and that this product is basically a year away. and it's basically been a year away here