- 3 months ago
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00:00Okay, I'm going to ask the simple question here, which is SpaceX just raised roughly
00:05$86 billion in this IPO. Why are they selling billions of dollars of bonds right now?
00:11Well, they need money. Though they said this morning that they had $100 billion of cash,
00:16they're going to be spending a lot more over the next few years than they make.
00:21Probably in the neighborhood of $30 to $40 billion of negative free cash flow for the next few years.
00:27On top of that, they have a $20 billion term loan due next September. They're going to use the
00:34proceeds from this bond deal to pay off. So they're just getting ahead of the curve, like everybody
00:38else. Why are the Alphabets and Amazons and Metas raising so much? It's because over the next few
00:43years, they're going to be spending a lot more. And because they can.
00:46And because they can.
00:47I mean, the market's receptive, right? Investors are interested.
00:49Well, not only that, the rating agencies have just teed them up for an enormous inaugural launch.
00:55I mean, giving them BAA1, BBB, BBB plus ratings basically tells the bond market you don't have
01:03to worry about junk ratings. You don't have to worry about liquidity. Just go run your business
01:07over the next three or four years, and you're going to grow into these ratings. If you just
01:11looked at this balance sheet, you wouldn't say it looked anything like a solid, stable investment
01:16grade name. But in fact, they told them they are. Okay, just because I'm going to be sarcastic here.
01:21So we don't have to worry about anything. I mean, it's not like the ratings agencies ever get
01:24anything wrong. It's like your favorite thing. Because think about 2008, like you bring us back
01:30there. So can we say it's the same situation? Yeah, I'd say if you were concerned, you should
01:36simmer down that this is going to be a business that has access to tremendous amounts of capital,
01:43because they should. It's sort of like, I just think that Elon Musk is to this generation
01:51that Warren Buffett was to the last. You put your full faith and trust in Elon. You're shaking
01:57your head. I'm shaking my head because when it comes to creating value, they're polar opposites
02:01when it comes to balance. Oh, sure. Listen, the strategies are different, but value creation is
02:05what's the same. And what people are looking now, they're looking at the future of AI. And nobody,
02:10I think, can see the future more than Elon Musk sees it. Well, we had a great, I'm just going
02:16to bring
02:16people into this. We had a great chat. You know where I'm going. We're in Las Vegas at an event
02:21on Thursday. And this, unfortunately, this wasn't even on mic. We were just continuing the conversation.
02:26Can we say it? Or maybe not attribute it to who? We were talking to an executive who
02:32has experience in the space. And he was like, I am, I wish I were 20 years younger to just
02:38see
02:39what is coming, not just from SpaceX, but from the other firms that are working on this stuff.
02:43Like, that is how cool of a moment we're in right now. Like, he was upset that he was going
02:47to miss
02:47it. Right? Yeah. Well, good for you. I don't travel to Las Vegas. I'm here reading S1s and 10Ks,
02:54working on spreadsheets and models. You don't need to be here to read those.
02:58But it was a great deep dive into the AI world in a different way for us. And because we
03:03are really
03:03trying to understand all the twists and turns of it, because I think it's very easy to look at it
03:08in
03:08a very broad macro simplistic level. Yeah. But there's a lot of stuff going on underneath.
03:13I think right now, you know, people are sort of wondering what AI really is. Like, it's for most,
03:18it's just a chat bot. It's like, I've got a cough to, you know, how many, what drug should I
03:22take?
03:22And I just don't think that's it. Other people are looking for this to be, you know, 10 years
03:26out the future and why we're not flying around in jets and spacecrafts and hoverboards. So it's
03:32some place in the middle is that these networks right now are being built, right? I like to say,
03:37like, when you talk about this baseball analogy, or like, we're in the bottom of the third,
03:40we're just warming up. We haven't even started the ball game yet. So data centers are being built.
03:46There's tens, hundreds of billions of dollars have been put in. What you're starting to see,
03:50though, are enterprise customers actually writing checks. You saw that in the first quarter. That's
03:55why you saw stocks explode in a good way. Not when you talk about SpaceX, you don't like using terms
04:01like that, but you saw them explode higher because confidence that AI was starting to be monetized is
04:06coming. And we're just starting to see flavors of that. And that's going to flow through cash flows,
04:11but it's probably not going to flow through until an inflection point in 2028. So you're going to see
04:16a lot more borrowing until then. But then once we're going to get to 2028, you guys are going to
04:20be,
04:20have me on and you're going to say, why are these companies buying back so much stock? And I want
04:24to say, because they have so much cash, they don't know what to do with it.
04:27So let's go back to SpaceX being negative cash, uh, negative free cash flow for years,
04:32as you mentioned earlier. Um, $85 billion in this IPO because of the, of, you know,
04:37what they got after that, that initial raise, $20 billion of bonds. How long does that last,
04:42SpaceX? So it's going to last a few years. SpaceX has committed to keeping leverage between
04:48two and three times. So what that means is over time, as EBITDA grows, they're going to be able to
04:53grow total amounts of debt. But if they're burning say 35 or $40 billion a year, and they have 20
04:59billion of refinancing needs, it's a, it takes them, you know, three, four years out. I think
05:05you're going to see SpaceX again, back in the corporate markets for another 20, 25, 30 odd billion
05:12next year. And then you're going to see them the year after that for another 25, 35, 40, 50 odd
05:18billion
05:18the year after that, they're going to go grow into their balance sheet. But quite frankly,
05:23they have a lot less debt than their AI hyperscaler peers right now. And people are a little bit
05:28confused. Like, what is this company? Is it an aerospace and defense company? Is it a communications
05:33company? Is it a tech company? It's all three. It's a, it's a little bit of all of them. And
05:37I actually think it's going to end up pricing cheap to all of their comps. And that's what's going to
05:42get so many people excited and involved tomorrow. I think if they do a 20, 25 billion dollar deal,
05:49you're going to see order books that are going to be in the neighborhood of 125 billion.
05:55How do you determine though, at some point that everybody's just kind of a little bit
05:59of FOMO and just wants a piece of everything? Especially on something with artificial intelligence,
06:05the smartest kids in the room on this are still saying we're early in
06:08and there's, we're not quite sure where it all goes.
06:13It's interesting. You know, from an equity perspective, people have been looking at this
06:16name for many, many months, right? Prepping for the IPO. From a bondholder perspective,
06:21they weren't necessarily. And my guess is probably three quarters of the people that buy the bonds
06:25tomorrow don't even know what SpaceX does. And what they're going to do is buy first,
06:30ask questions later.
06:30But isn't that stupid?
06:31Not necessarily, right? You know, if you go to a flea market and you see a really good deal,
06:36it's still a good deal whether or not you know the exact value. Here,
06:40the rating agencies are telling you, don't worry. I actually don't think you should worry either.
06:45I think they have a key man that makes a big difference. I think they have a differentiated
06:51product, a diversified product. They also have this huge backstop of cash that if they do need to
06:57pull back, they can do so. And again, most of their peers that they're going to be comping to
07:03are higher rated and likely to trade tighter. So when you start launching a deal tomorrow,
07:08remember also nobody owns this name. No one has exposure. Everyone has tons of exposure now
07:13to Alphabet and Amazon and Meta and Microsoft.
07:18But Robert, are the credit agencies accurately assessing the risk of a company that's so identified
07:26with one individual and the way he thinks and the way he innovates and disrupts.
07:34Yes, he's got good leaders in place, or so we believe, but he's on a whole other scale,
07:39most would say. So are the credit agencies assessing that risk correctly? What would happen,
07:45God forbid, if something happened to Elon tomorrow? Well, you could say that about a lot of,
07:50you know, almost any high multiple company. I think you can, but here's the differential. One is,
07:56when you need to raise potentially hundreds of billions of dollars of debt, you need to be
08:02investment grade. Just think back about, you know, the poster child for the AI market, Oracle. Why did
08:07they come out originally and issue equity and say, we're committed to investment grade? Because you
08:11can't run this business and be a junk rated name with a hundred plus billion dollars of debt. I think
08:17that's ultimately where SpaceX might be headed. They've committed to being investment grade because
08:22they need to be investment grade. And again, as they grow into their balance sheet, that'll create a lot
08:27more financial flexibility. But you know, I'm much less concerned about key man than I am excited about
08:35what I think he ends up bringing to the table. I think the type of visionaries that exist in this
08:39market, like you said, the smartest people in the room, they're seeing stuff that we're not seeing.
08:44They're seeing stuff that we can't even dream of seeing and they're executing on it. And I think that
08:50Musk is going to bring more confidence to people than concerns. You mentioned some of the other
08:56companies that have tapped the debt markets, Alphabet, Amazon, others have raised more than
09:00300 billion dollars of debt just tied to AI just since November. It's just a staggering figure.
09:06That's according to strategists over at JPMorgan Chase. What is it about this moment that's driving this?
09:13Well, this is a complete revolution. I mean, we are changing the way that people think about
09:22growth in the technology space. You know, trillion dollar companies growing at double and triple
09:28digit rates are somewhat unheard of. These companies had become utilities and had nothing to do with their
09:35capital other than pay huge dividends and massive buybacks. And instead, they found a way to grow
09:40faster than anyone could have ever imagined. So again, it's hard when you're in a zone where you're
09:47spending the money first and you don't see what the final outcome is. It's like if you're redecorating
09:53your kitchen, you know, they tear your old one apart. It doesn't look that great. And then lo and
09:57behold, it's finally finished. And you're like, wow, this is awesome. And I think that's where we're going.
10:02And I just think the growth rates that we're seeing that appear achievable allow these companies to grow
10:08into these new balance sheets. Are you comfortable with the debt raise of all the hyperscalers? Are
10:14there some that you're more concerned about? Because it seems like you're very comfortable
10:18with with Elon and SpaceX. Yeah, my team is going to laugh at me because they've heard me say this
10:22so
10:23many times with, you know, most of the names that are raising all this money would be considered the
10:27Mount Rushmore of corporate credit, you know, double A's and triple A's. Obviously, as you go down the
10:32scale for a name like an Oracle, which is triple B or core weave, which is non investment grade,
10:38the concerns and risks are much higher. But the ones that are spending the vast majority of money,
10:43you know, when you when you're hearing that there's gonna be a trillion dollars of capex spent
10:47next year, five trillion over the next five years, it's in those Mount Rushmore names, and they have
10:52the balance sheet flexibility to do so. Again, I see it as much more of an opportunity from a
10:57bondholders perspective, you can buy the best, brightest names for much cheaper than you ever
11:04could historically, get much better returns, and then ride out growth over time. So again,
11:10I think that there's much more upside owning the debt of these names than the risk that people think exists.
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