Motley Fool Hidden Gems Investing - SpaceX Goes on $60 Billion AI Buying Spree

Starting point is 00:00:00 Space X is making another big acquisition, this time buying Cursor. Does that make sense long-term? Motley Fool Money starts now. Welcome to Motley Fool Money. I'm Travis Hoy. I'm joined today by Lou Whiteman and Rachel Warren. Guys, we got to start with what I think might be one of the biggest news items of the week, despite the fact that we're in the middle of earnings season. SpaceX has made a deal to potentially buy Cursor. It's all a little bit confusing. They're either going to buy Cursor for $60 billion at some point in the future, or they're going to write them a $10 billion check for whatever they're doing together. And Lou, this is another acquisition that SpaceX is making in the AI space. Obviously,

Starting point is 00:00:51 XAI, which includes X, formerly known as Twitter, and the AI efforts were acquired earlier this year, or maybe it was last year, but in the last year. This is another move in that direction, but it seems to be just a lot of spaghetti at the wall for a company that used to be so focused on space, and now looking at a potentially $2 trillion IPO, I don't know what this company is becoming at this point. I'm not sure it does either. But I can clear something up from you, I think, from my investment banking days. What's going on to reason the weird $10 billion, $60 billion? It is really, really awkward to do an acquisition right before an IPO. You have to refile all your paperwork, kind of go from scratch. It's going to delay things. They can't do the deal

Starting point is 00:01:37 right now. It's basically a, I promise to buy you after the IPO. Think of the $10 billion as sort of like a massive breakup fee where you get something out of this either way. But that's kind of why it's this convoluted weird thing. Yes, they want to buy it. And look, I think what's going on with the strategy is X is clearly behind Claude and the other models. They're trying to catch up. They're trying to add to their firepower. Cursor likely helps XAI, but it also does add to the burden. One of the reasons Cursor was trying to find fundraising or do a deal is they need money for their own compute. They were kind of yesterday's news, too. I think it all sort of makes sense, but at the same time, it is just a bunch of companies that maybe aren't front of

Starting point is 00:02:22 mind in the XI race trying to join together to become front of mind again or to build something from here. Yeah, Rachel, the odd thing is these may not be the leaders, either of these companies, but this is going to probably be one of the most valuable companies in the world. It's sort of a strange place to be. Yeah. I mean, I think we're seeing a paradigm where SpaceX is trying to convince investors that it deserves the valuation that's rumored to be up to $2 trillion when it goes public, very likely in June. But I think this is part of this core strategy to transform SpaceX from a simple rocket company into this massive tech engine that can really connect space hardware with AI. And we've kind of seen this playing out, merging with XAI, obviously securing

Starting point is 00:03:07 this major deal with Cursor. I think that they're trying to position themselves to solve what is still really the biggest problem facing AI today, which is really the massive amount of electricity and land needed for data centers. We know that the long-term vision for Musk is to use Starship to launch giant orbital data centers that run on constant solar power, use the cold of space for cooling, and that would move the heavy lifting of AI computing off the Earth's power grid and into orbit. So this partnership with Cursor could act as a test run for that vision, right? I mean, they're paying for the keys to one of the most sort of advanced suites of AI coding tools that could really speed up their own engineering on various projects, including their mission to Mars.

Starting point is 00:03:49 You know, I think there's kind of both a bull and a bear side here. On the sort of bull side, right, you know, SpaceX is building a space-based monopoly that no one else can touch. That's the idea here. They're looking to combine the world's most powerful rockets with advanced AI. But there's also the bear case, right? I mean, this idea that that proposed valuation is dangerously high. There's the massive $1 billion monthly burn rate of AI division. There's the very extreme technical difficulty of keeping sensitive computer chips from overheating in the vacuum of space. So I think there's still a lot we don't know here, but I do think that there is a strategy behind all of these updates we've seen recently. Can we just put the data center in space thing

Starting point is 00:04:31 to rest? It's Balderdash and it's Balderdash for at least a decade. But this is the interesting piece of this because this has been a Musk strategy for two decades at this point. I remember, you know, I followed the solar industry very closely. And when Tesla announced that they were acquiring SolarCity, remember that actually coincided with SolarCity announcing that they were going to make these solar shingles. Solar shingles have been a concept and an idea for decades before that. And the people that I talked to in the industry said, look, we've been trying to do exactly what they announced for a very long time. And it is either extremely costly or it just doesn't work. So either they've figured

Starting point is 00:05:15 something out or this isn't real. And it turns out it wasn't really real. And so it seems like a playbook that we've seen before. Now, you could make the argument that that actually worked out well for SolarCity shareholders because Tesla stock went up. For SolarCity shareholders, sure. For SolarCity shareholders. But the operations never really turned out to be that vision that Musk was playing out. And this is a totally different case because we're not buying a $10 billion, $20 billion company. This is potentially a $2 trillion IPO with promises that don't have, I think they've even said in their filings, potentially don't have commercial viability. Right. And before we get letters, let's just spend a second and explain because,

Starting point is 00:05:59 you know, we will get letters. How dare you? And no, I'm not a rocket scientist, but I can tell you that, look, for one thing, we don't really have the materials that we need to protect a data center in space from the radiation. The International Space Station would melt up if didn't go behind the Earth and hide from the sun every 12 hours to cool down. The idea of 24-7 power, because this thing would just be sitting out exposed to the sun 24-7, we don't have the materials to do that. By the time you get the radiators needed to dissipate heat in a vacuum, it's the same problem that they've experienced with Starship. When you try with a simple concept, why don't we do this?" Then you realize you have to staple 3,000 different things onto it.

Starting point is 00:06:49 That's why other people weren't using that concept, because it's a lot more complicated than your one-page white paper. By the time you start adding all of this, you have this massive, expensive contraction up there that I don't think we have the physics to do right now. Even if we did, it would be so massively expensive. It'd be cheaper, honestly, if you really want to talk about where we need to put data centers, put them on the bottom of the ocean. And the fact that we haven't done that when it's so much easier should tell you about the tech. But Elon Musk doesn't already have an ocean company. That's fair. That's fair. But seriously, you talk about the cost. I don't know what XAI runs, but I know what the other hyperscalers run per month. And so,

Starting point is 00:07:32 if you think about the massive cap of cash needs there, they've spent $5 billion on Starship so far, and how's that going? There's still more money to spend. You add on cursors, computer, whatever. I think the IPO is going to be a huge success. If anything, I think it could squeeze higher. Maybe, I don't know, why not? $5 trillion valuation by the end of the summer? Why not? But I really wish that instead of getting this massive valuation, maybe they'd sell more shares accept a lower valuation and build their cash stockpile, their cash pile, because they're going to need it. Yeah. It's going to be very interesting to see what happens in the secondary market because that is potentially an option. Maybe they go public with a relatively short

Starting point is 00:08:18 float, stock moves higher, and then you sell a whole bunch of shares and raise $50 billion, $100 billion. The numbers are getting wild as these stories get bigger and bigger. But lots of questions about their operations as they head to public markets. When we come back, we're going to get to Amazon moving into the GLP-1 market. You're listening to Motley Fool Money. You gotta try breakfast at A&W at participating A&W locations in Ontario. Welcome back to Motley Fool Money. Amazon announced this week that it's getting into the GLP-1 game. The company is bringing GLP-1 pills and pens, as they're now known, to its platform.

Starting point is 00:09:21 This doesn't necessarily include the prescriptions. You can just get your access to GLP-1s. You can also go through the Amazon prescriptions. But, you know, Rachel, this is interesting because Amazon keeps moving more and more into the medical field. You can get more and more of your prescriptions there. Who are they? What's the goal here and who are they ultimately going after? Yeah, this is a really interesting bit of news. I mean, it's a major shift.

Starting point is 00:09:47 I think one of the things that Amazon is looking to solve here is to fix one of the messier parts of health care, which is getting the actual medication to consumers. and Amazon's really leading into their strength as a logistics and pharmacy powerhouse. So under this new program, if you have an existing prescription for a GLP-1 medication, or you go and visit a doctor through One Medical, either virtually or in person, you can get a prescription for a GLP-1. And Amazon is going to help facilitate that process of getting it to you as the consumer. You know, bringing GLP-1 pills and pens directly into the Amazon pharmacy ecosystem, they're really cutting out the middleman. They're focusing on the supply chains, you can see how this could be more disruptive to your traditional pharmacy

Starting point is 00:10:29 chains like CVS per se than necessarily the telehealth companies we think of, right, like HIMSS and Rho. I think the strategy here is to really leverage the trust and speed that people expect from Amazon delivery, integrating these medications with existing one medical clinics and pharmacy hubs. There's going to be thousands of cities where Amazon is now going to be offering same-day delivery of JLP1. I read they have plans to expand that reach to up to 4,500 cities by the end of the year. And I think the bottom line here is Amazon's betting that customers are going to choose reliability, fast shipping over maybe the niche branding of smaller telehealth startups. They have hundreds of millions of Prime members. They have a delivery network that no startup can

Starting point is 00:11:15 really match. They offer lower prices. There's a level of convenience that can make some of the smaller platforms look like a hassle. So I actually think this is a good move for them. I mean, there's always the risk that Amazon, which is doing a million different things, might struggle with some of the elements of actually getting the medication to customers. But I think that overall, this is good news for Amazon. I think it's great news for its customers. Lou, the challenge here might be that this is supposed to be, Amazon's supposed to be this customer-focused company, but don't customers love going to CVS? Yeah, do they? I mean, where else do you get those receipts, right? Yeah. Look, GLP-1s are

Starting point is 00:11:53 splashy, so I see why this is a big deal. But this is what Amazon has been doing for a while. It really doesn't have anything to do with healthcare. As Rachel said, it's disrupting the pharmaceuticals. There are a lot of people who go running out to the pharmacy, especially for maintenance drugs like a statin or a GLP-1, where you don't need it this second because I have the flu and I need real quick. It could be a hassle to get. There are a lot of people in parts of their life where the delivery makes sense. I think this is good for the consumer. It doesn't really threaten the rows of the hymns of the world. I think Amazon is deliberately avoiding that because, quite frankly, they don't have to. Travis, we can argue this all day, but the dock-in-the-box model that hymns and

Starting point is 00:12:39 these guys are trying to do, maybe it's because they're trying to disrupt healthcare. Maybe it's because it's their only way to do it. They need to do it. It can work, but if you touch the wrong wire, you get electrocuted there. Amazon doesn't have to do that. They're not coming after these guys. These guys will remain fringe, but for the core medical establishment, this is just a more efficient way to get your medicines, just like Amazon.com can be a more efficient way to get your, I don't know, paper towels or whatever you need each month versus going, going to Walmart. It's going to be so interesting to see how they handle this, uh, transparency too. This is one thing as we look at, you know, the kids get prescriptions periodically and, and, you know,

Starting point is 00:13:25 we have allergies and things like that. And you go to Amazon and you can actually see what you're going to pay. And when you walk into a CVS or a Walgreens, uh, especially buying something like an EpiPen, which we got to do a couple of times a year, that's, that's always my go-to story, but you have no idea if you're going to be paying nothing or you're going to be paying $600 for those things. I applaud them for at least bringing that transparency and easy distribution, because if I can save myself that hour or two standing in line and arguing with the pharmacist, that's going to be a huge win for consumers. It'd be interesting to see where they take this. We've had this conversation before. Healthcare is definitely broken,

Starting point is 00:14:02 and I am all for trying to fix it. I think what you're talking about is definitely that. that. I mean, I'm skeptical about Roe or Hems as the solution, but the bittersweet thing here for me is, do you remember, it was what, just a decade ago that Amazon was teaming with Berkshire and JP Morgan, and they were going, like the super friends of healthcare, they were going to just meet in their hall of justice and they were going to fix healthcare. I think what they discovered is what everyone who has tried this has discovered. It's really, really hard to fix. At least Amazon is now trying to attack the part where they can lean into their strengths, but gosh, we need a better system. And I think it's, I guess, yay, we're getting little improvements in the fringes.

Starting point is 00:14:42 Yeah. Got to cheer the small things, I guess, when it comes to healthcare. When we come back, we're going to talk about Mark Zuckerberg potentially finding the perfect use case for artificial intelligence, tracking his employees. You're listening to Motley Fool Money. And what better way than with a delicious Pratt Organic Coffee, starting at just $1 all day, every day, now until December 31st. You gotta try Pratt first at A&W. At participating A&W locations in Ontario. Welcome back to Motley Fool Money. Meta has found its new use case for artificial intelligence.

Starting point is 00:15:30 This is a variety of different sources, but Reuters headline, I think, was the most telling. Meta to start capturing employee mouse movements and keystrokes for AI training data. Rachel, has Mark Zuckerberg found the perfect use case for AI? I think that remains to be seen. So this idea of, you know, tracking every click, scroll and keystroke under the guise of productivity and future model training. maybe that's it. I mean, this means they'd be essentially turning their own workforce into this massive living ongoing data set. You know, so then you have to think, is the use case for AI just finding more efficient ways to look over your shoulder? I don't know about that. It does

Starting point is 00:16:10 kind of raise some questions about the future of work in an AI-driven economy, right? You know, if Meta succeeds in productizing the literal brainpower and workflows of its engineers, for example, are they building a replacement for that workforce eventually? It's interesting. I mean, we've spent years worrying about what AI will do to us, but maybe we should have been more worried about what it's going to watch us do. I think Zuck is trying to not just build the future. I think he's trying to watch us build it, too. Maybe in the world of big tech, the line between cutting edge innovation and the digital overlord has never been more blurred. But I can't say I'm surprised by this news.

Starting point is 00:16:49 Be interesting to say what those what those data sets actually look like if we ever get to see them. Lou, Zuck's arc is so fascinating because he goes from villain to hero to villain, and now I think he's going to maybe take another villain turn if he's tracking everybody this closely. I guess. Look, I'm not here to defend this, but come on. Everybody's been doing this forever. It's just a new tool to do it, so I'm kind of over it. But I have two points to make, a serious one and then maybe a not-so-serious one. For one, I do think that this is admitting a vulnerability. Okay. The reason to do this is there really isn't the high quality interactive training data they need to actually replace their employees. There isn't a source for that other

Starting point is 00:17:29 than the employees who are doing it, which is look, maybe Zuck has figured out a way. So it's not a, it's there's ways around that vulnerability, but it does feel like that this is a mission of weakness. But Travis, here's the funniest thing. The AI does this. It starts training by watching people. Suddenly, the AI, instead of being this productive machine, ends up spending half the day scrolling Instagram or going on Amazon to try and find a dress or something for the weekend. There are so many ways that this could backfire where if we make AI more human, be careful what you wish for. Yeah. You could argue that Meta has been making people less productive for the last 20 years. Maybe this will make AI less productive

Starting point is 00:18:13 as well. The future we begged for. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows The Motley Fool's editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For Lou Whiteman, Rachel Warren, Bart Shannon, and Behind the Glass, I'm Travis William. Thanks for listening to Motley Fool money. We'll see you here tomorrow.

Motley Fool Hidden Gems Investing - SpaceX Goes on $60 Billion AI Buying Spree

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