00:00I've got to ask you, SpaceX is up about 10% from the IPO price of $135, down 26%
00:05from its closing high on June 16th.
00:08And the stock has hit about $225 on an intratay basis when it was kind of at its real high
00:14overall.
00:15Why a buy rating? Is it fundamentally based?
00:17Are you guys just thinking, we're going to be patient, it's got to grow into some of its expectations of
00:22valuation?
00:23Explain it.
00:24Yeah, I'll lead off on that one.
00:26And certainly this is a much more attractive entry point than we had a few weeks ago.
00:30I think that throughout our coverage in disruptive technology, we cover data centers, space, rockets, and connectivity.
00:40But it's rare to cover it all in one company, right?
00:44And that's where we see a tremendous amount of synergy and earnings power as the company gets that flywheel rolling
00:49over the next few years.
00:50So yes, it's fundamentally based and it's driven by the earnings growth.
00:54Yeah, and we also took a sum of the parts approach.
00:57We probably, you know, we looked at the rocket business, ironically, more as a placeholder.
01:02It doesn't have much value in our $217 target.
01:06The real value...
01:07Starlink.
01:08Starlink is the value component and then also the AI division is the value component.
01:13It's the rockets that allow for strong economics at Starlink.
01:17But when their rockets are roughly 60% of the payloads just their own satellites, it becomes an inter-company
01:24exchange there.
01:25So our sum of the parts is heavily driven by strong connectivity economics and strong AI.
01:31But when you look at the landscape, right?
01:34We've seen the company sell IG debt, but then it quickly trades like junk.
01:38I know you guys are equity analysts, but how do you think about the cap stack?
01:42How do you think about the ability for this company to go out and raise what likely is hundreds of
01:46billions of dollars to turn some of these dreams from Elon Musk into a reality?
01:51Yeah, well, I'm sure Greg has a few comments on this, but I'll start by saying they've proven that they
01:54can raise capital through their IPO, right?
01:56And I think that as the company starts to report quarters and show real earnings growth to the street, that's
02:02just going to reinforce that point.
02:03Are we going to get that on August 17th when it reports?
02:06Yeah, I think so.
02:06You do?
02:07And I think that management is going to take that opportunity to really fully have a full discussion with Wall
02:14Street, right?
02:14Like right now, only the banks, of which there were many, were included in the preliminary discussions leading up to
02:20the IPO.
02:20But here's a great chance for them to really articulate the earnings power of the business.
02:24Well, just thinking about that, though, in terms of earnings, that brings the lockup expiration.
02:30That's right.
02:30Are we looking at a pretty choppy next six weeks, or how are you guys thinking about that from a
02:36fundamental standpoint where we don't really know what we're going to get from earnings or any releases or announcements in
02:41the medium term?
02:42Yeah, there could be some volatility, right?
02:44Some technical trading, because with a float this small, there's a lot of technical factors, but we see it as
02:51a positive.
02:52Yeah, I mean, we think that the name's going to be on every fund manager's radar right now.
02:58So as the liquidity starts to open up, we think we'll start to see more of the large institutions look
03:03at the name.
03:03Just because everybody's talking about it doesn't mean it's good.
03:07Just to be a parent for a moment, I'm just saying, like, how do we, again, you know, Elon is
03:15one of those folks, even with EVs, there were promises, dates missed, deadlines missed.
03:19Ultimately, he did deliver.
03:21Now there's more competition.
03:22It's a different market, we know, for the EV market, having said that.
03:24Is it going to be similar in terms of that?
03:27Is that what we should expect from Elon and his team?
03:30That's a really good point.
03:31And I think part of what you're seeing here is that Elon Musk premium.
03:34So this is the same kind of conversation, and I don't want to date myself, but it's the same kind
03:38of conversation that analysts were having around Tesla when that company came public.
03:42It's overvalued.
03:43They'll never hit the earnings growth.
03:44You know, this is too much, right?
03:47Yeah.
03:47But, you know, it wasn't, right?
03:49Ultimately, he was proven correct.
03:51That stock's worked out beautifully since the IPO, and we expect a similar performance out of SpaceX.
03:55Yeah, and I would just note that when you talk about the earnings print, the first quarter earnings print was
04:02not well received, I don't think, because of the losses in AI, despite profitability and Starlink, as well as launch.
04:09But they've signed three very large AI deals since then, so we think they're much more well positioned to explain
04:16all three pillars of the business in the 2Q earnings call.
04:20But thinking through the company's role in AI, obviously, data centers and spaces, the vision, it looks a lot like
04:27a hyperscaler right now.
04:28How are you guys thinking through what Grok actually brings to the table?
04:32Is it a competitor to Anthropic and OpenAI, or is it really, right now, when you look at SpaceX, it's
04:36more ability to self-compute and partner with the Anthropics and Google's?
04:40I mean, we think that right now that's probably the correct way to read it, right?
04:44But further down the line, data centers in space, that's a really compelling opportunity that's not at all in our
04:50numbers, right?
04:51We think that that feeds into a bit of a hero.
04:53But that's because there's a lot of ifs there.
04:54There's a ton of ifs there.
04:55But if anyone can do it, it's SpaceX, right?
04:58Because they have the integrated rocket business.
05:00But that's not in our numbers, and it's not part of our buy rating.
05:03It's just an exciting data point.
05:04In terms of the AI components, how much of the interest is Cursor?
05:08I mean, we have a lot of folks come on, and we keep hearing people talk about this and how
05:13important this is, the AI coding startup that it bought, $60 billion in June.
05:19Yeah, and that's one thing that we're looking for them to fully elaborate on the earnings call, right?
05:24And that's probably, I would say, the lion's share of our valuation at $217 is the AI business.
05:30That's what I wanted to do, go through that valuation.
05:32Because, I mean, we're looking at a company with a market cap of, what, $1.9 trillion.
05:36How much of that is that?
05:37How much of that of that is Starlink?
05:40Yeah.
05:40Yeah.
05:41So we had $9 for the launch business.
05:44Nine.
05:44And as we said, I think it was for the connectivity, we went 20 times, our EBITDA, and then for
05:52AI.
05:53For AI, it's $113 of the $217 price target.
05:58Well, how much of that $113, though, is predicated on what's happening now?
06:02Versus what could happen five years.
06:04The lion's share of it is predicated on what happens between now and 2030, right?
06:08And, you know, when this company announced the price that it was going public at, you
06:13had a lot of people coming out and saying, well, you know, that's X times revenue, and
06:17that seems rather lofty.
06:18But companies aren't valued on what they do now or what they did last year, right?
06:23So, I mean, you have to look at 2030, and we see really substantial growth through there.
06:26Well, one question I need to ask, I look at the street coverage of Tesla.
06:3029 buys, 24 holds, 9 sells.
06:33Vastly different from SpaceX.
06:3429 buys, 5 holds, 1 sell.
06:37Do we get to a point three months from now, six months from now, where kind of the leash
06:43that Elon Musk and Brett Johnson and Gwen Shotwell have been given starts to get tightened, where
06:48analysts are forced to say, you know what, we built up this model on 2030, but that looks
06:53more like 2035 or 2040.
06:55Yeah.
06:55So, in my experience, when companies come public, managements are given a great deal
07:01of benefit of the doubt, and that's what's happening here, like many go public company
07:05managements.
07:06And then there will be starts and stops and disappointments and delays along the way, and
07:10people will change their ratings, and the coverage of the company will mature.
07:15And Starship is the big catalyst for the stock, so we need that to kind of deliver later this
07:20year and prove its ability over the Falcon 9.
07:23This is a really important point.
07:25Talk to us a little bit more about that, Greg.
07:28Yeah.
07:28So, the other...
07:29There's a lot riding on this, literally.
07:31There is.
07:31It was mentioned as one of the biggest risks in the S1, and it will be something heavily
07:37washed for the stock.
07:38So, when you look at the connectivity pillar, Starship is important because you can put significantly
07:44more satellites on that versus a Falcon 9.
07:47When you think about orbital compute, again, it really comes down to the Falcon 9 bringing
07:54down those launch costs.
07:56If you look at other names, like a Planet Labs, when they're looking to do orbital compute
08:01with Google on Project Suncatcher, the biggest risk or timing that they mentioned in the white
08:09paper on Google Suncatcher is launch costs.
08:12So, a lot will be riding on that.
08:14And it has to happen.
08:15It has to work.
08:16Otherwise, you have to kind of re-examine.
08:18How much, too, of your thinking is the expectation that SpaceX and Tesla become one company?
08:26You smile.
08:27Is that a yes?
08:28I mean, we can't really...
08:30We don't cover Tesla, but it makes a lot of sense, right?
08:34You have a huge...
08:36To be fair, I just got to say, if you cover anything to do with Elon, you have to be
08:40looking
08:40at all of it.
08:41No, I agree, right?
08:42So, you have a huge AI compute business, and you have Tesla, which gathers tons of data
08:48that can be used to train models, really sophisticated models, right?
08:52In a variety of instances, it makes some sense.
08:54Perhaps some government data in there, too, some might say, but go ahead.
08:58Yeah, and I would just note, you know, Elon has a controlling stake in the vote for SpaceX.
09:03I can't speak to Tesla, so...
09:04But does that make it easier for Tesla to acquire SpaceX, or vice versa?
09:08What's the easier deal with that in mind?
09:10I can't really speak to Tesla, because I don't cover it.
09:12But would it be a good thing for the two to get together, and have Elon just put everything
09:16under the umbrella?
09:17Would you guys...
09:17I mean, without saying too much, certainly one of the things that we really like about
09:20SpaceX is its vertical integration across these platforms, right?
09:24So, to the extent that it can extend that vertical integration, I think that'll resonate
09:27and potentially drive margin.
