SpaceX Raised $111B — It Already Needs More

Space Exploration Technologies

Across the shows: 7 speakers in other episodes, 9 bullish and 1 bearish calls, past 30 days

• John Foley · Financial TimesBearish

  SpaceX's $2.3T valuation rests on faith in Musk, not fundamentals; the market cap is largely unreal.

  Foley argues that valuing SpaceX at about $2.3T only makes sense if you believe Musk is an anomalous genius, so it is not a normal company to value on earnings. He says the $2.3T figure is not real because the float is small and the stock is not in key indices, so you could not buy the whole company at that price. He criticises sell-side price targets: analysts extrapolate next year's revenue, apply a multiple, and often 'started with the answer and worked backwards', with analyst incentives tied to Musk's fees. He had expected the stock to rise and then fall below the IPO price, and says the lockup expiry was well telegraphed and had little effect. He adds that SpaceX's future is Mars colonies rather than Starlink.

  “if you think that SpaceX is really worth $2,300,000,000,000, which is where it is today, it's because you think Elon Musk is some kind of anomalous genius. And if you don't think that, you should not be in the shares”at 7:32

• Ed Elson · Prof G MediaBearish

  Bond market is worried about SpaceX debt as its CDS spread jumped from 110 to 194bp.

  Ed points to SpaceX credit default swaps rising to 194 basis points on Wednesday from 110 in June, so the cost of insuring its debt against default has become very expensive. He notes the debt itself has been sold off too. He reads this as the bond market telling a different story from the equity rally, one in which investors are very worried about the debt SpaceX keeps issuing.

  “which rose to a 194 basis points on Wednesday. They were trading at a 110 basis points in June. So, essentially, what's happened here is the cost of ensuring SpaceX's debt against default is suddenly getting very expensive.”at 10:50

• John Foley · Financial TimesBearish

  SpaceX's debt is getting riskier; losing investment-grade rating would sharply raise yields.

  Foley points to rising credit default swap spreads, and says investors are hedging against the debt going wrong. Long-dated SpaceX bonds have fallen more than the five-year bonds, with the 50-year at about 85 cents on the dollar, showing investors know the company is taking on much more debt. He notes it currently holds an investment-grade rating that could be lost, and that losing it would push yields up a long way and make the debt much riskier. He says the market is not sending a distress signal yet, but the company is getting riskier by the minute. Revenue growth expected to quadruple by 2028 could make the debt look less scary.

  “So we should definitely be looking at the creditworthiness of SpaceX. At the moment, the market's not sending out a distress signal, but it is saying this company is getting riskier by the minute.”at 12:22

• Ed Elson · Prof G MediaBullish

  Starlink is a really good, profitable business that has dominated its market.

  Ed accepts that Starlink and the connectivity business are a really good business, profitable and dominant in their market, and that many investors have faith in SpaceX because of it. But he argues the company is no longer really about Starlink or spaceships, and is increasingly about data centers, where it spent more than $18B on capex last quarter. So the connectivity business is a strength that does not explain the current valuation.

  “the Starlink business and the connectivity business is a really good business and also profitable and has completely dominated that market.”at 13:03

• John Foley · Financial TimesUncertain

  SpaceX's data-center plan needs huge capital; renting to AI labs is viable but revenue is early.

  Foley says data centers are where SpaceX's revenue is today, not Starlink or its enterprise apps. The company plans about 10 gigawatts of data centers by the end of next year, and at roughly $50B per gigawatt that is about $500B of spending, so it needs much more money. He says renting capacity to AI labs such as Anthropic and Google is a reasonable way to generate cash, and the CFO claims payback in under a year. But the revenue is very early stage, the company must prove it can build quickly, and rental prices could change in the meantime.

  “Data centers are what's happening now, and data centers are actually where the revenue is. So realistically, if we want them to generate cash, renting out data centers to AI labs is not a bad way of doing it. It's just that revenue is very early stage.”at 13:42

OpenAI

Across the shows: 18 speakers in other episodes, 9 bullish and 17 bearish calls, past 30 days

• Ed Elson · Prof G MediaBullish

  OpenAI's math proofs look like a major breakthrough, though unverified; it's pushing research boundaries.

  Ed says the mathematics community's reaction suggests the hundreds of proofs OpenAI posted to GitHub, including a claimed breakthrough on the Riemann hypothesis, are a very major breakthrough on problems unsolved for decades. He acknowledges the proofs have not been officially verified, and that critics say OpenAI drew on existing research without proper attribution. He still thinks the company is helping to deepen humanity's understanding of math and pushing the boundaries of research.

  “based on the reactions that I'm seeing from the mathematics community online, this does appear to be a very major breakthrough.”at 34:43

• Ed Elson · Prof G MediaBearish

  OpenAI's $1.5T valuation is unjustified; it is deeply unprofitable with losses expanding.

  Ed says OpenAI's business model does not work so far: the company is still immensely unprofitable and its losses appear to be expanding. Yet it is pursuing a $1.5T valuation, which would make it twice as valuable as Walmart while generating less than a tenth of Walmart's revenue. He argues that research is typically funded by donations, not profits, so being good at math does not make OpenAI a good business. Unless it wants to burn billions indefinitely, it will have to choose between science and enterprise.

  “this is a business model that so far doesn't work. The company is still immensely unprofitable, and it appears that their losses are expanding.”at 36:37

Tesla

Across the shows: 2 speakers in other episodes, 0 bullish and 1 bearish calls, past 30 days

• John Foley · Financial TimesBearish

  Tesla's valuation is not based on fundamentals, though betting against it has lost money.

  Foley says he has argued for a long time that Tesla's valuation is not based on real fundamentals. Yet he admits that betting against it would have lost money in most periods. He puts this down to Musk's fan base and his ability to sustain belief. He warns that others now think they can replicate Musk's appeal and will be wrong, and he frames the SpaceX valuation as similar faith-based pricing.

  “I have been arguing for so long that Tesla's valuation is not based on any real fundamentals. And yet, if I bet against Tesla, with some periods that are exceptions, I would have lost money.”at 16:15

AI infrastructure & data centers

• Ed Elson · Prof G Media

  Building data centers fast and putting them in space are completely at odds; the plan seems unserious.

  Ed argues that SpaceX's pitch to build data centers quickly on Earth and also put them in space is contradictory. He cites an FT report that investors were pitched a two-page memo with pictures of outer space and an arrow to data centers 'somewhere in the universe', which he calls extraordinary for a $40B transaction. He says many scientists think space data centers are not viable, and that the pitch shows a lack of seriousness.

  “And to me, those two things seem to be completely at odds with each other.”at 6:39

Consumer & retail

• Ronan Farrow · The New Yorker

  Deliberately hard cancellation and service paths are a profitable business practice that raise company revenue.

  Farrow argues the annoyance economy is a deliberate business practice, because providing service costs money, so making it hard to get service is a business win. He cites Amazon's internal 'Iliad' cancellation path for Prime, after which cancellations fell 14%. He cites Stanford economist Neil Mahoney's finding that a difficult cancellation process can raise revenue by anywhere from 14% to more than 200%, depending on the product. He says the practice spans ticketing, hotels, airlines, cable, banks and health insurers, and that it is not an accident.

  “a difficult cancellation process can raise a company's revenue anywhere from 14% to even up to more than 200% depending on the product.”at 24:40

US entitlements

• Ronan Farrow · The New Yorker

  New federal Medicaid paperwork rules will screen out eligible people, adding millions uninsured.

  Farrow says new federal rules require low-income adults on Medicaid to prove they are working and to re-prove eligibility every six months instead of yearly, and food stamps are getting similar treatment. He argues the barriers screen out those who need the service most, selecting for people with time and money rather than eligibility. He cites Arkansas in 2018, where 18,000 people lost Medicaid, most of whom were eligible. He cites the Congressional Budget Office projection of 5.3 million more uninsured people by 2034, about 2.8 million of whom lose coverage because they cannot get through the paperwork, not because they fail the work test.

  “The congressional budget office has projected what does this look like with this new federal regime that's in place. Their projection is 5,300,000 more people uninsured by 2034, and about 2,800,000 of them are gonna lose coverage, again, not because they fail this work test that's been put in place, but because they just couldn't get through the paperwork to prove that eligibility.”at 29:11

US state & local policy

• Ronan Farrow · The New Yorker

  States, not Washington, are leading the fight against deliberate customer-service and cancellation friction.

  Farrow says states are moving first: California requires advertised prices to include mandatory fees and lets consumers cancel the same way they signed up, and New York City has fines for companies that do not allow one-click cancellation. Courts and settlements have also pushed back, including Amazon's $2.5B FTC settlement and a New York court action against SiriusXM. By contrast, the FTC's national click-to-cancel rule was thrown out on a technicality, and he says consumer protection agencies have been hollowed out under this administration. He sees hope in the issue being bipartisan.

  “[Under this administration,] there has been the hollowing out of a number of consumer protection organs across the government. So it remains to be seen whether the federal government will catch up on this one.”at 31:39