00:00Let's talk about that SpaceX issue. Generating billions of dollars worth of passive buying as it joins the Nasdaq 100
00:05today.
00:06Nicholas Simons of Morningstar has a sell rating and $62 price target on the stock, writing,
00:11We see SpaceX shares as overvalued. Index funds buying the stock will likely offset some, but not all the supply
00:18of shares coming available from lockups.
00:21He joins us now for more. Nick, welcome to the program. It's good to see you.
00:24When I buy SpaceX, if I buy it, what am I buying? What is the company?
00:30Well, it's three big divisions. They're Rocket Launch, which is sort of the smaller of the three.
00:37Starlink, which is really the highlight in terms of revenue and profit generation.
00:41And then this newer set of businesses around AI, formerly known as XAI.
00:48And that's kind of really the swing factor in how you would get to any kind of valuation analysis for
00:53this company.
00:54Nick, is the neocloud part of the business, the business right now, or just a bolt on?
00:59You know, that's an interesting question.
01:02I've looked at it primarily as that, you know, let's say that's the primary play.
01:07And then certainly these rental deals that they've announced show that there's some value there.
01:12But you have to factor in this very long list of other ambitious things that might happen in the next,
01:18whatever, 20 years.
01:20You know, cities on Mars or what have you.
01:23Those are hard to value, and we can talk about how you might do that.
01:26But the main story that I've seen so far for XAI is the compute and the infrastructure play,
01:35which is what drives the idea of putting data centers in space.
01:38So we know the quiet period for SpaceX ends today.
01:42And so at least six sell-side firms have begun coverage.
01:45They have buy ratings.
01:46Some of them have pretty lofty price targets.
01:49The highest one we've seen so far is Raymond James rating SpaceX a new strong buy with a price target
01:55of $800.
01:56A lot of these are pie in the sky in the same way that SpaceX's plans might be described as
02:01pie in the sky.
02:02But the calls do offer investors some kind of framework.
02:05How do you think about the framework that these calls offer in terms of valuing SpaceX or how analysts are
02:11thinking about valuing this business?
02:15I think the framework, especially when you get into AI, you know, in the filing, for example,
02:20they talk about a $25 trillion addressable market.
02:24And I think what you get to with any number of these types of forecasts where they're talking about trillions
02:29of dollars of revenue this decade and so forth,
02:33you're making what I think are, you know, wild leaps of speculation around what is achievable and likely in what
02:42is turning out to be a more competitive market.
02:45You know, then the story is, you know, maybe there's overinvestment in compute and maybe the enterprise value isn't what
02:55you might think.
02:56That's basically my point of view is a little bit more down to earth.
03:00There's also this anticipation that SpaceX is going to merge with Tesla at some point.
03:05And a lot of people think of it as a question of when rather than if because of that common
03:09denominator of their AI ambitions.
03:12Combining them on the one hand would make it easier for them to borrow funds to fuel their AI ambitions.
03:17How are you thinking through the likelihood of this?
03:21I think it's pretty likely.
03:23My colleague Seth and I have talked about it.
03:25And it seems given where some of the stock and valuations and the market caps are, it seems like SpaceX
03:33might issue equity to buy Tesla or if they can.
03:37And that, you know, the combo makes a certain amount of business sense and allows them to share resources and
03:44on these big projects.
03:47So, yeah, I'm I'm we think it's likely within a year.
03:51And then can we just finish on this so-called staggered end to the lockup?
03:54As I understand it, slightly unusual the way it staggers over the next six months or so.
03:58Can you just briefly describe that to our audience and the implications it might have?
04:02I think it's a really important question.
04:04So your usual IPO lockups are typically 180 and 360 days.
04:10This one has them pretty much every few weeks starting at the end of this month or two days after
04:14whenever they release earnings.
04:17And it's some pretty big chunks.
04:20My guess is it'll be 7.3 percent of the flow will come on in this first lockup after earnings.
04:26And that's more than the IPO was in terms of supply of shares.
04:30And I think it's prudent to assume that insiders who can sell during these windows will.
04:38If you think of their cost basis being from a long time ago, they're indifferent probably between, you know, if
04:44it's trading for 150 or 190, it's all good.
04:48And the amounts are significant.
04:52You know, the NASDAQ 100 happening today, given the float weighting and so forth, that might only be $8 billion
05:00of demand.
