On with Kara Swisher - The Hidden Risk Inside SpaceX

Episode Date: August 13, 2026

Elon Musk’s SpaceX debuted on the Nasdaq in June with the largest IPO ever, raising a record $86 billion. But the stock has been on a wild ride ever since. Kara sits down with a panel of experts to assess SpaceX after its inaugural post-IPO earnings report and the first in a series of lockup expirations that released more than 900 million shares for trading. They break down where SpaceX is actually making money (spoiler: it’s Starlink) and what its massive AI spending, xAI acquisition and increasingly expansive ambitions reveal about Musk’s long-term strategy.  Ed Elson is an analyst, writer, and co-host of the Prof G Markets podcast from the Vox Media Podcast Network. Tim Higgins is a business columnist for The Wall Street Journal, a CNBC contributor, and the author of books including iWar: Fortnite, Elon Musk, Spotify, WeChat, and Laying Siege to Apple’s Empire. Bethany McLean is a contributing editor at Vanity Fair, a columnist at Yahoo Finance, a CNBC contributor, and the author of books including The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron. Questions? Comments? Email us at [e-mail] or find us on YouTube, Instagram, TikTok, Threads, and Bluesky @onwithkaraswisher. Come see Kara for a live taping of On at the Odoo Experience conference in San Francisco on September 2. Register for the conference on Odoo's website. Learn more about your ad choices. Visit podcastchoices.com/adchoices

You would go to the moon? Well, I wouldn't go myself, but I wouldn't mind having another place for humanity to flourish. I don't want to live on the moon. I mean, it's a good song, but Tim. Okay, well, first of all, how do we define a city on the moon? Because I, you know, I think that's, it's in the details there. It's a self-growing city, Tim. It's all.

Hi, everyone, from New York Magazine and the Vox Media Podcast Network. This is on with Kara Swisher, and I'm Kara Swisher. We're talking about SpaceX. That's Elon Musk's rocket slash satellite, internet, slash AI company. Its mission, according to its IPO filing, is to, quote, extend the light of consciousness to the stars. But before that happens, the company needs to address more practical concerns like making money. And today we're going to get into all the ways the unprofitable SpaceX is making and losing money. SpaceX debuted on the NASDAQ in June with the largest IPO ever, raising a record $86 billion. But the stock has been on a wild ride this summer. It's attracted interest from short sellers or investors betting against the stock, adding to the volatility. The company weathered its first earnings report last week pretty well, actually, and it's even managed to hold most of its value after more than 900 million shares that had been locked up became tradable. But that

doesn't mean it's smooth sailing ahead. I've gathered a panel of experts to dig into SpaceX's business and why it matters. I think it's critically important to talk about SpaceX, because the question is, is it Enron? Will it cause an enormous problem? in the stock market, given how many different things Elon's done to try to prop up the stock? Or is it really going to be one of these groundbreaking companies that will break through? It's a great question, and there's a lot to discuss here. Ed Elson is an analyst, writer, and co-host of Prof.G Markets Podcasts from the Vox Media Podcast Network. Tim Higgins is a business columnist for the Wall Street Journal, CNBC contributor, and the author of books including

I-Wore, Fortnite, Elon Musk, Spotify, WeChat, and Laying Siege to Apple's Empire. Bethany McLean is a contributing editor at Vanity Fair. She's also a columnist at Yahoo Finance and a contributor to CNBC. She's the author of books, including The Smartest Guys in the Room, The Amazing Rise and Scandalous Fall of Enron. Our expert question today comes from Aswath Demoteren, a professor of finance at the Stern School of Business at NYU, who's also known as the dean of valuation. So stick around. One more thing before we get into it,

I'm going to be doing a live taping of On at the Odu Experience Conference in San Francisco on September 2nd. You can register for the conference on their website. We'll drop a link in the description for this episode. Support for this show comes from Odu. Running a business takes everything you've got. And a lot of the tools out there that are supposed to make your life easier just aren't great at talking to each other.

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Ed, Tim and Bethany, thanks for coming on on. Thank you. Thank you. Ed. Thank you. This is a great topic, and it's sort of a look into Wall Street in general, what's happening right now around tech stocks. But volatility has defined SpaceX's run since going public in June. It was the biggest public offering that we've had in forever. When we're taping, on this Tuesday morning, the shares are trading around $135 a share up a little bit, but around where it went public in. We'll get into the investors who are betting against the company in a moment, but first, make the bullish case for SpaceX. What's driving the value? Let's be fair to Elon. Ed, you go first, then Bethany and then Tim.

This is going to be a tough one for me. I know that. I'll do my best. Okay. The bullish case is that you have a really exciting and pretty profitable business in Starlink. That is their connectivity business. That's the satellites. And that's actually a business that I genuinely am bullish on. I think that's a great business. The space business is currently a money loser and it's not really driving much of the value of this company at this point, despite the fact that it's called SpaceX. But if there's a world where we're sending lots more people into space, if we are going to start building orbital data centers, which is what they like to talk about, then there's a world in which you'd need a lot of rockets

to send that stuff out into the atmosphere. And then the final piece of the business, which was kind of just an add-on a few months ago, but it's now become basically the entire story of SpaceX is the AI business. They're building LLMs. They're also building data centers. That is a massive money loser at the day.

point. And so the bet is that eventually you'll see the ROI. Eventually, AI will become so massive. They say that the Tam, the total addressable market of AI, is $26 trillion. So if that all happens, then, yeah, they'll be well positioned. The question is if you actually believe that AI is a $26 trillion market. Right, which they seem to have gotten out of thinny. Or Bethany? So I think the bullish case is Musk himself. He is the master of hype. And I I used to be, and wait, this is the bullish case, I used to be very offended by that, but I think because the old school view, right, is that you let the results speak for themselves and you deliver. And that's not the way Musk operates. But I've actually come to believe that

he was onto something ahead of people like Sam Altman. And Sam Altman has taken a cue from him. And Musk has realized that the way to make this work is to be the master of height and to be able to keep raising capital no matter what the results are. And I think in the market, we're in now, that ability to keep raising capital and keep people believing no matter what the results are and get the money ahead of the results may be the winning recipe. Is that a good thing? I'm not sure it's a good thing, but it's the way the markets are now. It's a good thing if he can eventually deliver. I think that's going to have to happen at some point. But the ability to get people to believe in you and to be able to keep funding you, even when your deliverables don't appear on

time, that is a semi-miraculous feat that Musk has accomplished. So your standards have declined in other words. I'm teasing. My standards have changed. The standards have changed. Tim? I think the bull case is the creation of a giant space economy, right? That we'll be having moon bases and going to Mars and living there.

And he will be the foundation of that new world order, that new universe order. I mean, that is the dream. you know, that's the big bat within the company. None of you mentioned robotics, which is interesting, which I think is where he's furthest along. But we'll get to that in a second. Let's take a step back to the IPO. Ed, in June, you predicted that as soon as SpaceX hit the market,

the stock would immediately jump 25%, and that within six months, probably sooner, it would be cut in half because the valuation makes no sense whatsoever. You're not alone in that skepticism. Former Fidelity Manager George Noble has pointed out what he calls SpaceX's, quote, horrible fundamentals. But earnings last week generally beat analyst expectations. So given what's happened so far, what's your assessment of the company now? It got close to $100 a share, and some people

think it should be worth $70, $60, et cetera. Well, the first thing I'll say is that I was right. Yes, you are. Thank you. It went up 25 percent immediately, which is the first part of the prediction, and then it was cut in half. My prediction was that it would get cut in half within six months. it happened within less than two months. If we look at the stock price now, it's trading at $135 a share, which people are saying, oh, that's exciting because it was at $109. But let's not forget that at its high, it was trading at $225 per share. So it's down 40% right now, and a lot of people have lost a lot of money on this thing. The initial buyers. The initial buyers who are largely retail investors because they allocated 30% of this thing to the retail, which is three

times higher than the average IPO because I believe they believed that the only people who would be interested in buying this thing at 200 are the Elon fans, the Elon stands, the people who will basically buy whatever he puts out into the ether. But if you just look at the story that they were telling you in the prospectus, that was when I started to get very worried about this thing, because the story that they told us was truly a pipe dream that really made no sense. And you can see that in the language. They say that the mission of the company, is to, quote, extend the light of consciousness to the stars. That's not what companies do. That's what people talk about when they have ayahuasca trips and they talk about finding their inner selves. That's not what

a company should be doing. And it's something Elon said for years, just to be clear. He says it all the time for a long time. He says it all the time and actually it's getting worse. I mean, if we look at the Q2 earnings and the stuff that he talked about, he said that they're not just going to be building orbital data centers in space, which was the first story. Now they're going to build data centers on the moon. And now they're going to use humanoid robots to service those lunar data centers. And SpaceX factories will enable us to, these are his words, scale the economy of Earth to 1,000 times, maybe even a million times. So these are fabricated numbers. They're coming out of thin air. And the idea is to make you believe that the actual numbers, the fundamentals, that they don't

matter, because the future is so fantastic and so fabulous. that who could come up with a reasonable price for this thing. Make it $2 trillion, $3 trillion, $4 trillion. Who cares? And as Bethany noted, it's working a little bit. It continues to work. But Bethany, in New York Times' opinion piece in July, you made the distinction between SpaceX's astronomical $1.77 trillion IPO price

and its debt, which is priced as if it were junk. Shortly after going public, the company issued $25 billion in new debt, SpaceX's bonds of an average rating of BBB, according to credit scores compiled by BYU. Bloomberg. Essentially, they're teetering at the edge of junk. Talk about why this matters and explain it for people to understand why does it reveal about the underlying investor skepticism in SpaceX and Musk's vision that you talked about. So historically, the equity market is regarded as the dumb money and the bond market is regarded as the smart money. And that's because equity investors want to

believe a story. They get paid if the story comes true. Debt investors don't make any more money if the story comes true, and they just care about getting paid back. So they tend to be much more skeptical over time. And so I think that explains the difference between the view of the equity and the view of the debt, which was quite profound when the stock was soaring post the IPO. And not only is the debt barely rated investment grade, but the credit default swaps, which is essentially insurance on the debt, that was priced even more as if SpaceX might have problems in the future. And so there was this real split. And you want to say, and I think on some level it's true, that that means that the smart money is skeptical of SpaceX, exactly as Ed just expressed, much more in line with Ed's point of view. And over time, when there has been a gap like this between the equity and the debt, the debt has typically been right. So in the run up to the financial crisis, for instance, there was a lot of skepticism about the way AAA, supposedly AAA mortgages were trading. And they showed skepticism while the stocks of the investment, banks were still hitting their highs. Back in the days of Enron, this tool that you can use to bet against

the debt was soaring, even as Enron's stock was still priced like everything was fine. And so it's typically an early warning sign. That said, it's not 100% the case that the debt is always right. Sometimes the so-called smart money gets it wrong. So there was a period of time where Amazon's bonds back in the early 2000s were also trading like the company might go bankrupt. They were trading like junk. And Amazon, that was obviously not Amazon's fate. So it's not always right, but it does tell you something you should know. So smart money, meaning people, it would cost money for versus speculative stock money. People who are really doing the work, looking at this, saying, not just believing the story, but saying, wait, how do I get paid?

How do I get a coupon on this debt I'm owed? How am I paid over time? How is this pile of debt paid back? And that forces you not to be a believer in the big dreams of space or a believer in the hype that Musk is excellent at. it forces you to just do the numbers. What have you done for me lately, essentially? And be very analytical about what the possibilities are that the money is going to be there to pay back the debt.

So more than 900 million SpaceX shares unlocked last Thursday, increasing the tight float or shares available to trade to more than 11%. So that's larger. Last Friday, SpaceX stock had one of its best days in weeks, ending the day up nearly 16%. But that was only in the first of a series of unlocks. Another 319 million shares could unlock next week, followed by roughly 700,000. million in September and close to that number in October. CNBC reports, Tim, first explain this lockup structure, the share lockup structure, what happened last week after the first one,

which people are expecting the stock to suffer, and what were, I think, analysts were, and is the market's response so far a reliable indication of what's to come? I think the only thing that we can reliably predict for the next few months as these lockups occur is going to be volatility, Right. I think last week was a pretty good example of that. The first earnings call, the first earnings report, the market reacted very negatively to those results. I think in large part because there was some concern about just the size of spending and investing in AI. It gets to this idea of it's a space company, but it's now also an AI company and the big bulk of that money is going to AI, whereas the space part of the company needs a lot of cash as well. You've got this overall concern in the marketplace about companies spending huge amounts of money on AI and questions about when the kind of the payback will be for that. So you've got kind of that muddying up the water. And then going into this lockup period where the first time the insiders and folks who were given some of these shares before the IPO, they couldn't sell until this point. There's other tranches as well to try to keep some of the volatility from happening earlier on.

I think going into that, there was a lot of concern that that was going to see a huge drop. Going up that week, at the end of the week, I mean, this was a swing of 20% throughout that week. You ended the week 20% up. During the point of the week of earnings, you were down, it was like the second worst day in their short history of the publicly traded company, right? So it's like a roller coaster ride, which to me signals investors in Musk are signing up for kind of what we saw with Tesla for the first 10 years of it's publicly traded life, where you had these dramatic swings on any utterance or any kind of signal of positive or negative because it is a widely speculative stock at this point. It's a story stock, and people are trying to figure out what the story is. So, Ed, how do you look at this?

What do you make of these lockups and why the reaction is so varied? Because most people assume the more lockups, the more people will get while they're getting's good and sell. How do you look at it? Well, I think the first thing to keep in mind is that, yes, we have. more lock-up expirations, which means that there are more shares available to be traded. If you were an early investor, you weren't allowed to sell your shares, and then suddenly after that earnings report you were allowed to, which was why there was an expectation that we'd have so much selling pressure. That's not what we saw, and I think a large part of that is because there was a lot of short interest in the stock leading up to that event.

But again, and this goes to Tim's point about the volatility, we should recognize the float is still very small. We're only at 11 percent, and the average float at an IPO is around 20%. So we have seven more rounds of lockup expirations that are going to come by the end of the year. And my view around that, yes, I think there's going to be a lot of volatility, but ultimately I think it's going to be a lot of selling pressure from people who want to take their SpaceX winnings because they were an early stage investor in the Series B or the Series C, and then they go out and they buy themselves a boat or a house or maybe even a plane. That would be my expectation for what they're going to do. We'll be back in a minute.

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but Tim, you've noted SpaceX has built the biggest space launching operation in the world, as well as Starlink, the largest satellite system in low orbit. The company is aiming to launch its 14th test flight of Starship, which is its big rocket this month. Explain why the rockets, their size, reusability, and payload capacity are important to the strategy. And how do they factor in SpaceX's current business and interplanetary ambitions? And others are catching up, let's be clear, not as fast as they are, but they're certainly on their way. Yeah, I mean, maybe it would help just take a quick step back in the history of SpaceX. The whole company was created on the idea of creating reusable rockets to lower the price of going into outer. And, you know,

space, the idea that it could be become so cheap that it would just become a regular thing. That was the original big dream. And along the way, as they look for a business, there was this realization that internet-based satellites, internet was going to be something that they could do. And they started developing that Starlink. And they had this huge moat because they can send rockets up all the time. So they built this kind of incredible low earth orbit satellite business that It has really had profound effects beyond just the business world. Geopolitical issues have arisen. They're really able to provide Internet to basically the entire world where they're allowed.

And that's given them a great business and a lot of political leverage in various places. And that's the kind of the crown jewel right now, the Internet business. But it's very dependent upon having that ability to get up into space. And that has also helped fuel some of that development. The idea is they're going to build this bigger spaceship called Starship that can really take just a ton and ton of stuff into space. The idea that there could unlock potential on the moon with mining and facilitate NASA's ambitions of taking humanity back to the moon and Musk's bigger vision of going beyond Earth and moon to Mars and all sorts of things like that. that's built upon this idea of being able to take massive amounts of materials in outer space. Right, right stuff. So they've got to be this big. And it actually, he built his, the only profitable business using that, particularly if people understand.

So SpaceX is one of NASA's biggest contractors. This has also become embedded in national security as a defense contractor. The U.S. government is reportedly SpaceX's largest single client. Last year during his feud with Musk, President Trump discussed ending some of SpaceX contracts, but ultimately didn't because they were too important. Bethany, what do you make of the U.S. government's reliance on SpaceX and vice versa? Well, there are a lot of people out there doing work on this and who are skeptical of it. I think Quinn Slobodian is among them with his recent book about Musk. And there can be a view that I guess this is a positive or a negative, that Musk is so embedded with the U.S. government that SpaceX will simply never be able to fail. and that can be a positive. I think if you're not a fan of corporate cronyism, this is potentially a worrying sign that you don't like to see yet another company that is too big to fail. We've lived through that before, and it's not a great recipe for the way capitalism is supposed to work. So I think it might provide some comfort to SpaceX's shareholders, but I'm not sure that it should provide much comfort to us as a democracy and a supposedly capitalist society. And what could happen, say, a change of president? Well, the thing is, if SpaceX really is that embedded in NASA, the change of president won't make a difference because you see when these things happen that it is bigger than any one person and that when a company is that embedded in the U.S. government or in any kind of government, then they may be despised by a new president, but that doesn't mean the new president will be able to change something. Then again, as we saw when Trump briefly turned on Musk, the stock did fall. So there is also, you know, be careful, friends, you may be.

Meanwhile, a piece of SpaceX Falcon 9 rocket crashed into the moon last week with a force of nearly three tons of TNT. So SpaceX is now adding lunar litter on top of orbital space junk. Orbal space junk is quite common, by the way, for people don't know. It made headlines just before the company's reported earnings. And with SpaceX's valuation now under more scrutiny, are incidents like this getting more attention than they would have before an IPO? Or is it just interesting to crash into the moon? There was a very funny threat or something. The moon didn't feel it at all because it was so small. But does it matter to investors or is it just sort of a side-like weirdness? I don't think it does matter to investors. And I think the reason it doesn't matter is quite interesting. I mean, one, yes, things crashing into the moon. That's a spectacular story. Everyone wants to hear about that. I'm fascinated by that myself. But I think if this were

five years ago, four years ago, even three years ago, yes, it would have mattered because SpaceX was a space business. SpaceX is no longer a space business. It's an AI business, or at least that is the story that they are trying to tell us. So, I mean, if you look at the amount that actually the space business is contributing to their overall revenue, at this point, it's like a tenth of the business, and it's not the story that they're trying to tell. And we saw that in the story that was told in the IPO prospectus, where they mentioned the

word AI more than 1,250 times. which is actually more features than the word Jesus gets in the Bible. And that tells you something about what they're trying to do here. It's no longer about space. Space is too small of a prize. They want to go for something bigger. They want to go for AI. And that is what a lot of these investors are buying into.

It's what the Wall Street banks are buying into, whether you believe that their intentions are good or not. But at this point, I mean, any news that I hear on the space business, to me, it's like, okay, well, that's a footnote. because if we were just valuing the space business, then we're looking at a company that's maybe a couple hundred billion dollars in market cap if people are very excited about it. But we only get into the trillions when we start talking about an AI future serviced by humanoid robots.

And you mentioned the robotics. We should point out that the robotics business is part of Tesla. So the question now is, are they going to merge the two? I know you have predicted this. I think it's very, very likely, perhaps probable, that will happen. But anything going wrong in space, to me, less important than it used to be. So SpaceX's Starlink division focused on internet connectivity as the company's most valuable business, obviously, and it's only profitable.

Starlink's satellite service has generated $1.66 billion in operating income. So Starlink is really the engine of growth right now. Tim, is it sustainable given how ambitious SpaceX's goals are? And especially because there are going to be competitors in this space, lots of competitors. At X-A-I, which SpaceX acquired earlier this year, my co-host Scott Galloway likes to call X-A-I a money furnace. So it's linked to those in the idea of Orbal Data Centers, which would use SpaceX, plus all the other parts of it. Yeah, the Starlink part of the business is, like I said, is the Crown Jewel, right? And you look at the growth, it's been pretty impressive, right?

The second quarter subscribers added it was double what it was the previous year. lots of potential out there. You see Amazon trying to get into that game as well. They've got ambitions for low Earth orbit satellites with their Leo division. It's not operational yet, but they are saying that it is getting closer and closer. Perhaps this year we'll see that. And that will be, I think, one of the big tests to how much of a lock SpaceX has on this market as a big competitor moves in that space. Now, Amazon's ramp up is probably going to be slower because they've got a up. SpaceX has kind of head start. But if you're a U.S. government customer or you're a business customer of SpaceX Now, you might like the idea of having potential going with Amazon, especially if you're using Amazon's cloud service, AWS, and having that ability to be connected in to that ecosystem. So that's some of the stormy clouds ahead. The question that I have, and I think others have, is they listen to SpaceX and Elon and to his people talk about the potential for that market is, you know, what exactly is the market? They're almost suggesting that they're going

to be competing against the cell phone providers of the world. Right. They're looking to compete with the wireless carriers, a mobile phone service, right. And just the technical aspect of that, the Starlink works because there's basically an antenna on outside, they can see the satellite. And so it's not something that's going to naturally work if you're in your office. You've got to have an infrastructure to make that work. And so there's a lot of, you know, happy things. when you think about a business that's going to replace AT&T as your cell phone provider, right? So that doesn't mean it's not going to happen, but it's not a shoe-in the way that it's being suggested. He can't just buy a wireless service and then just be up and running.

He'll just be running a regular while of service. Exactly. Right. So both Bethany and Ed, these orbital data centers, this via Musil's XAI, which SpaceX acquired earlier this year, which I also said he would do. And again, Scott called it a money furnace. Talk a little bit. First, Bethany, about these orbital data centers, the idea that this somehow will all clip together in some terrific way? I don't think I'm going to be able to give a very good explanation for how it might clip together in some defensible way. I'm a little bit in Ed's camp on this one in terms of the way in which the big promises don't quite seem to make a lot of sense when you look underneath them. I also think I was thinking about this when you guys were mentioned. both the acquisition of XAI and then the potential acquisition of Tesla,

is that when we talk about robotics, who owns what? Do shareholders in each company think that they own something that the other company actually owns? So I think there are a lot of questions. Ed? Yeah, I think the orbital data centers are another example. I mean, it's not a controversial take to say that the orbital data centers are as close as you get to nonsense. We know that there has been this thing called the ELOILDES, Elon Musk premium. And that is he's clearly a genius on some level. He's clearly a great storyteller.

But my question is, at what point does this start to run out? At what point do people start to realize? Actually, he says a lot of stuff that doesn't really make sense and that actually doesn't come true. You look at Tesla, the stock's down nearly 30 percent year to date. I think investors actually are getting tired of hearing this. It's coming. It's coming. It's coming. Just wait. Just wait. It's going to be amazing. The future is incredible. And I think they're going to feel the same way about SpaceX when they start to realize that actually, no, we're not building orbital data centers in the next five years. I've talked to a number of physicists and mechanical.

They said it's absolutely impossible. What are you saying from a physics point of view? Every episode, we get a question from an outside expert. Yours comes from Aswat Demoderin, a professor of finance at the Stern School of business at NYU. Let's listen. When SpaceX went public and filed its prospectus, a big part of the SpaceX story was it was going to be a lead player in AI.

It's the biggest market of the three. That said, though, how would you reconcile that story with the fact that right now, XAI makes very little revenue from selling AI products and services, and almost all of its revenues come from leasing or renting out, compute power, to its lead competitors. Tim, go first, and then, Bethany, then add. You know, it's interesting because that's, in some ways, one of the bright spots, right? Even if you listen to their earnings call, the CFO is talking about the return on the payback for that investment can be within a year. And so they see a lot of potential there.

But during the lead up to the IPO, there was this confusing part because Elon was almost kind of downplaying that part of the business. In part, I think, because it's not very sexy. It reminds me of Tesla when he would kind of downplay a key part of the financing of Tesla, which was regulatory credits, money the company would. make because other companies weren't selling enough EVs and Tesla could sell them that. And it was a good part of the business and oftentimes would help them be profitable. But it was never sexy because it's not the story that Tesla was selling, just like with SpaceX. The story of SpaceX is not land-based data centers.

Yet, they have shown an ability to be able to get those things operational very quickly, to get the chips from Nvidia. And that potentially is something that could in the near term provide money for them. Right. At that same time, there's great number of lawsuits, for example, of how they put them up and growing, growing problem. We'll talk about that in a second. Bethany? I think it shows a side of Musk that people who talk about what a genius he is, which he is, don't often comment on, which is that he can be quite manipulative. He's quite good at spinning. And so the reality is that Grok was behind the other models and he's figured out how to position a loss as a win. And I think that that is potentially it is a win if he can keep selling excess capacity and produce profits on it. But it also puts SpaceX right on the edge of this enormous. mess AI, CAPX spend that is potentially a problem for the entire U.S. economy. And it's a gigantic risk for SpaceX that the productivity simply doesn't show up among the end users of AI in time to generate all of this massive spend. And then it leaves SpaceX perhaps more a victim of that,

even than other companies that are spending like this. Right. They're holding on to something that might not be as valuable if there's too much access capacity and it's in the ground and it's sitting there. It reminds me a little when AOL started selling its furniture and put it on as a, it was an extraordinary revenue and they hid it and I found it. And I'm like, you can't sell the chairs twice. And they're like, that is true. It was very strange. I had forgotten all about that. Remember?

I sold the chairs. That was a moment. Ed, go ahead. I think what Aswath is pointing out in that in his comments is the truth about SpaceX crying out for help. This is a company that originally. told us that they were going to be one of the leading frontier model providers similar to an anthropic or an open AI. And so the way that they were going to do that was they were going to build their own data centers, their own AI infrastructure, unlike Anthropic. As he did with Tesla

for people to understand. Exactly. Own the entire supply chain. And the idea was that that was how they were going to make money and GROC was going to be this incredible LLM. What Aswath is pointing out is that suddenly at some point this year, they turned around and said, actually, we're going to start leasing our AI infrastructure and our data centers to who? Anthropic, the very company that they were supposed to be competing with. And in fact, if you look at the revenue concentration of the company right now, they point out to their credit, they admit something, they admit that there is one customer on which they are relying for 20% of their revenue. That customer is called customer A. They don't say who the customer is. If you look into the

reporting, if you look into what's actually going on, you know that that customer is anthropic. So Asworth is pointing out a very important thing here, which is that actually they don't really know how they're going to monetize this thing. Is it that they're going to be the compute provider and they're going to compete with the hyperscalers like a meta, like an Oracle, like a Google? Or is it going to be that they're going to compete with Anthropic and Open AI? And the answer is they don't know. They haven't figured it out. And so they're kind of scraping the barrel here. And when you look at the valuation of this company, which is now trading close to 80 times sales, you compare it to the hyperscalers who I guess they're now competing with.

Met is trading at seven times revenue. Google's trading at 10. Microsoft's trading at 11. I mean, if these are actually comparable companies, then we need to get real about what the pricing on this company should actually be. Speaking of which, SpaceX announced a $60 billion do require AI coding startup called Curser. What's the strategy there? What does it signal about ambitions?

To me, that's them trying to get in the LLM game. That's them trying to compete with open eye anthropic. And I would also add that I think that, I think, that was their attempt and their way at trying to legitimize the idea that they had basically just bolted on this, this AI business onto the space business. So whatever they can do to bolster up that business and to say this is a real business and we have real traction and we've got all of these engineers, whatever they can do to support that narrative will ultimately be beneficial to the stock, or at least I think that is the intention.

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Ready for anything? Ready for AI. To learn more about how CoreWeave powers the world's best AI, go to coreweave.com slash ready for anything. So aside from these orbital data centers, which most of us think are kind of ridiculous, not kind of are ridiculous. By the way, Jeff Bezos is also really into the idea

of putting data centers in space, but I'm fine. That's his passion project. At least he's sort of honest about what that is. Yeah, that's whatever. That's the Botox talking. Tim, explain not the orbital data centers because there's real things happening on Earth.

Earlier this summer, writers reported Mississippi residents sued X-AI and SpaceX, residency of power plant fueling nearby data centers, this blasting, quote, omnipresent and inescapable noise that has eroded their health and home values. He was the tip of this sort, I think, when he did that. And there's lawsuits all over the place for other companies from Amazon and all of them. But this was the first one where he really put up all these engines that spewed all manner of things. It's a very big political shift. You just saw Vivek Ramaswani do a 180 on data centers.

So what impact will it have on the company and its valuation? Well, you know, it's interesting because to be fair to Musk, for several years now, going back to, you know, a couple years ago, he was really on the tip of talking about how the U.S. didn't. have the infrastructure in place that was going to be needed to provide the electricity for all of these data centers. So he was seeing that before. That was conventional wisdom. And I think, again, he had his fingers on kind of the pulse of where things were going with the idea of data centers in outer space, right? It is a very cynical view on where this country is going and its ability to allow data centers to be built, whether because of the need

for electricity or regulatory, the allowance of our local governments, state governments, or federal government going to allow these things to be built in the quantity that's being projected by these AI companies, right? So that's part of the story. The idea that it's easier to do this in space than it is on Earth. That is kind of the foundation of why he is saying data centers in outer space is such a good business, right? And it gets to this ability to see where the politics on these things are going.

In a lot of ways, AI is a scary thing for a lot of people. Yes. And for good reason. Some of the biggest minds in this technology have been warning that it's going to take our jobs, that it is going to totally rewrite the fabric of our reality in the near term. And, you know, people listen to that, and they don't necessarily like that idea. And there's concerns about this. And the data centers become the physical manifestation of this technology. Yeah, absolutely. And we're seeing at the city level, the county level, local level, a great kind of populace uprising. It's the one thing that the right and the left on the fringes kind of agree on is that AI data centers are bad and that they should kind of push back on that. And Musk, in his ability to kind of move quickly, some would say skirt regulations and kind of build these things became a flashpoint, right? And so it's an example of kind of tech,

leaders, tech titans, maybe not having their fingers on the pulse of kind of the populist movement as they push these things. I know. Let me bring something to you. Maybe they don't care. I think he pushed it through because he precisely knew this would be a problem, right? And he also didn't care about the residents. It seems to me between Musk's efforts in Mississippi and Kevin, the Shark Tank O'Leary's efforts in Utah, they're absolutely moronic villains in terms of creating this problem for everybody else, right? And I interviewed just this last week, a mayor of Lansing, and he had a good data center that had all the bells and whistles you'd want for safety and everything else. And he wasn't able even to get that one through. So even good ones, even ones that

are done with the cooperation and lack of NDAs and regulatory involvement and paybacks to citizens, they don't want them. The Wall Street Journal reported Musk is considering selling Tesla's China business. we mentioned this briefly, ahead of the potential merger with SpaceX, must dismiss this is fake news. I think he's going to do it. But then what would be the case for Tesla and SpaceX, aside from the fact that SpaceX already buys a lot of cyber trucks? Let's put that in mind. The reason cyber trucks are selling is because Musk's own companies are buying them. Other people, men with middle-aged crises also are buying them, but not in very many numbers.

So what is the case to do this? Tesla's on the decline. They haven't had a fresh new car in a while. course, humanoid robots is their new business. Talk a little bit about why he wants to do this. Well, I think the believer's case would be that they are actually both in the same business now, especially as Tesla increasingly does not position itself as an EV company, and that the overlap between the two businesses is pretty profound. Optimus included, why not just merge them and have them all be one? So there's not this question about which piece of technology is owned by which

company. They just announced the huge joint venture together to build the data center. Another sign that might be that you're, of course, right, and that might be a preliminary, preliminary sign that this is going to happen. And then there's the cynical case for why the merger might happen, which is that it's Tesla and Solar City all over again, that just as Solar City was starting to struggle, and Tesla swooped in and bought it before the signs of weakness could materialize. Must will fold Tesla into SpaceX, where he still has a narrative going before. the signs of weakness at Tesla becomes so overpowering that they threaten to challenge the narrative that Musk is invincible and that all of this always works out. Like with Twitter, like with,

yes, or with Twitter as well. And that has been now a playbook for Musk that when something is starting to falter, he figures out a way to fold it into another part of his empire so that you can't see the thing that is faltering. Because if that thing really did falter, then suddenly we would realize that Musk wasn't a God and that everything doesn't always work out. Right. And I think that would be a huge challenge for where we started this conversation, which is the Musk premium. And then there's the really cynical side, too, which is that for a visionary genius,

he also does care about his own pocketbook. And as the journal reported, I think, today or yesterday, he stands to make a lot of money should that merger go through. And so these things he has to meet. He has to meet. He has all these hurdles he has to meet in order to get the enormous pay package that he was promised by Tesla. and the journal reported that if this merger were to take place, that half of that pay package could become due to him now.

And so it would be extraordinarily enriching to him. So I think there are all sorts of reasons why we might see that merger sooner or later, good ones, valid ones, and ones that might make you a little more cynical. Right, or else that he's bored with the car business, like obviously hasn't created an interesting car in a long time. So before we talk about the bigger picture at the end, I want to take a moment to quickly assess some of these claims that you've been talking about, especially when SpaceX. Stack ranked three of Musk predictions from most plausible to least plausible and briefly explain why you chose that order. I'm going to read them out. Ed, you go first, then Bethany, and then Tim. Number one, SpaceX would build a self-growing city on the moon in less than 10 years. Two, he predicted last week that SpaceX would hit a trillion dollars in revenue

in 2030, not 2031, as they originally projected. And he said Starlink would provide a majority of the world's internet in less than 10 years. All right, each of you stack rank those, and from most plausible to least, and explain why. Ed, you go first. I honestly think it's an insult to statistical probability to even try to stack rank any of those claims. I don't think any of them will materialize, so if I can put them all at the bottom, maybe I'll go three, two, one, but I think that each of those claims are ridiculous, and I think that we could find many other claims that he's made that are also ridiculous. I mean, something that we haven't really talked about it either is the fact that a lot of Wall Street is kind of gobbling up these claims. You know, J.P. Morgan

saying this company is worth $3 trillion. Raymond James says it's worth more than $10 trillion. I mean, the conflicts of interest there are quite significant because this company needs to continue to raise hundreds of billions of dollars over the next several years just to cover its cost, which means that that's a lot of underwriting fees that the Wall Street banks can scoop up. and then translate into investment banking revenues. Which they did on this, they made enormous amounts of money on this. Which they did on the IPO, exactly. And so when you look at all of the Wall Street banks that recommended this company as a buy,

what are they all have in common? They were all underwriters on the IPO. A lot of people would say, well, why would they continue to pump this stock if they've already taken their money? The answer is there's a lot more deals left over in the pipeline, whether it's debt issuance or equity issuance, that they're going to take a cut up. Yep. All of them.

If I can respectfully abstain from Starlink. You may. You may. I actually ran into one of those bankers just trying to make the case to me, and I just went, hush. I'm not your customer on this one. So in the interest of not abstaining as well, I will take a shot at this. And I'm going to vote for Starlink first because, you know what, it's a real business. So I'm just going to say, if something is going to work, I hear Tim's very valid skepticism from earlier about Starlink, but I'm still going to put that one at the top of the list.

That could be not completely preposterous, but go ahead. It could be not completely preposterous. I mean, yes, in giving Ed credit for what he said and seconding all of that, less preposterous than the other two claims. Trillion dollars in revenue, I'm going to put that next because, you know what, I don't know, merge everything into something and buy something else using SpaceX's inflated stock and maybe you can somehow get to a trillion dollars in revenue. So I'm going to put that one next. And then I'm going to say that the least likely one, unfortunately, because that would be my personal favorite to come true is the moon. You would go to the moon? No, well, I wouldn't go myself, but I wouldn't mind having another place for humanity to flourish. I like that as a possibility, but I don't think it's a probability, so I'm going to put that one at the bottom. Yeah, I don't want to live on the moon. I mean, it's a good song, but Tim.

Okay, well, first of all, how do we define a city on the moon? Because, you know, I think that's, it's in the details there. It's a self-growing city, Tim. Will, I mean, is it a, is it a hut? I think once we figure out what a city is, I mean, there is a possibility of getting something on the moon. Made of mold. It's self-growing. Go ahead. Sorry. I mean, so the definition is there. So, you know, maybe a city. The trillion dollars a year in revenue, I think, is a really good example of, like, I can't do the math there. But the bravado kind of covers up something that he does have to brag about. And that is this idea of a $100 billion revenue run rate by the end of the year. And there is math. I think there is some math there that shows how they can do that. And that is kind of one of those things. where he's just can't stop from pushing it to beyond where, you know, a win.

He had a huge win, a potential win there. And, you know, the next idea on the majority of the Internet coming from Starlink, you know, okay, I understand how he thinks he's going to get there. So that's an exciting thing to watch for. Okay. So again, Starlink's the most plausible, although none of them are plausible to any of you. All right, let's end up by looking about why this matters. Before SpaceX went public, Reuters reported that NASDAQ changed its rules for the NASDAQ 100 to allow the newly public company to join in its 15th day of trading.

SpaceX requested the change. Former Fidelity manager, George Noble, is called this move wrong and irresponsible, saying it will lead to force buying for funds that are required to track the NASDAQ 100, for example. Bethany, what's the significance of the rule change? And does SpaceX inclusion into the index funds create more of a risk for people who aren't actively choosing to invest in a company like, say, Keraswisher? I think it does create more risk, and I also think, along with a very small, sorry, I also think along with a very small float that Ed had talked about earlier, it's another example of how this stock was manipulated from the get-go by having it included in the index funds. And by having such a small float, you almost guaranteed an upward trajectory, at least for some part of this. And so I think that that's another example of how this is not so much a story of just pure belief in all these beautiful and grandiose dreams as it is. some actually very calculated manipulation going into this as well. And this is something, say,

a next president can shut down, right? A new SEC head. You would think so. I'm not sure if a new SEC head could shut it down or would have the mojo to shut it down. And I think what's frightening about this is the broader societal impact of this is quite worrisome to me because you have a whole lot of people who's belief in capitalism and maybe fragile belief in the system that we're in, right now is predicated to some extent on SpaceX. And if this turns into a giant disaster and a giant wipeout as much as there's part of me that is very cynical about Musk, I don't think that that's actually good for anybody. It's not good for everybody's pocketbooks, and it's not good for people's belief in our system. All right. Other tech companies, including Anthroping and Open

Air, are poorly planning to public in the next few months. Tim, what does SpaceX's performance so far indicate about how those mega-IPOs go and how the market could respond? Probably most people feel Open AI will wait till 2027, but it's not clear at this moment. Yeah, huge interest in AI, right? They'd be able to gamble, be able to invest in this next frontier technology. I think that's what the SpaceX, the initial SpaceX pop suggested. I think Anthropic is a little bit more challenging, in part because it's become so politicized with the Trump administration. And it, an IPO this fall, it comes. comes kind of in some ways, is it the best time or potentially the worst time, right? As we head

towards midterm elections with AI being in a lot of ways, not on the ballot, but on the ballot as a proxy for concerns about technology. So I would anticipate, and we're already really seeing this, Anthropic getting beat up a lot in the political spear, but also heading towards a test of Wall Street's power as investors get a chance to vote on. where they think its future. And there might be some perverse marketing benefit that Anthropic gets. The more the White House raises concerns about its power and concerns about what it can do. It just tells investors that they have some kind of magic within their models that you want to be part of because it's going to be world-changing technology.

So in short, I think the SpaceX IPO, because it was so AI-focused, suggests there's a lot of, excitement for Anthropic. I would just linger on a moment on Bethany's points about the SEC and its inclusion in the NASDAQ and the changing of the rules to include this company in the NASDAQ. I think this is a genuine scandal. I think this is as bad as it gets. This is like the ultimate crossover event between corporate greed and regulatory capture that is encapsulating all of the things that are going wrong about markets today. I mean, the whole point of having these rules in the first place is to protect investors when they invest their retirement funds into passive indexes. That's why we have these rules. We just decided to get rid of them. And the answer is,

I mean, the question is, why did that happen? We don't know, but we can look at what's happened to the SEC over the past year and a half under Trump. This agency has been completely ripped apart. This agency has lost a fifth of its workforce. Enforcement actions have fallen 30 percent. Their enforcement director, Margaret Ryan, mysteriously resigned after she tried to investigate the Trump family for insider trading. Then she got word from her bosses and then suddenly she disappears. I mean, the rot is extremely deep here. And I will just go back to the points that I made about the conflicts of interest with the Wall Street banks. And this is where it gets really bad in my view. We used to have rules that were supposed to prevent the Wall Street banks from pumping stocks that they privately

believed were not good stocks. We saw this in the dot-com boom, this guy named Henry Blodgett, who went on to start Business Insider. He was a Wall Street analyst. He was banned from the securities industry because it was discovered that he had privately disparaged companies that he had publicly recommended in his equity research. The reason he did that was to win underwriting fees. Then the bubble collapses. Everything comes crashing down. The SEC says, okay, let's do something about this. And they create this rule called the Global Research Analyst Settlement. which was designed to eliminate the conflict of interest between the investment bankers and the research analysts. That was the idea. They created all of these frameworks, all of these rules.

In December of last year, that settlement was eliminated by the SEC. They decided to get rid of it. And in fact, the former SEC chair, Arthur Levitt, wrote a piece in the Wall Street Journal talking about how the SEC is now subjecting itself to the possibility of corruption and scandals. And so I look at what's happened to SpaceX, and you can call me alarmist, you can say that I'm having Elon derangement syndrome, but I look at what's happening. It's the same thing that we've seen over and over again. We are deteriorating our regulatory bodies because we know that if you do that, you can capture value through insider trading, through corruption, and through getting around the

rules. I see it as no different from what we've seen from Trump and his insider trading campaign as it relates to actual stocks and also cryptocurrencies as well. I would say people like to make fun of Elon's purchase of Twitter is a bad business decision. But I would argue that it was pretty wise for him because it's given him enormous clout and helped in these kinds of situations, right? It's allowed him a huge megaphone to weaken some of the cornerstones of public life, right? To go after the SEC, to go after proxy advisor firms like ISS, right? who have for years voted on shares and tried to ensure corporate governance that would protect against some of these things. It has allowed him to go after the media that might be looking into him.

And it's given him this enormous power to try to kind of weaken some of the guardrails that you point to that maybe would have changed some of these things. I agree. Absolutely. When he bought it, Mark Cuban texted me, he said, ignore the price. He's doing it for influence 100%. At first, it was abroad. Like, if he goes into the country as head of SpaceX, he's not as powerful as head of Twitter and SpaceX.

It creates an influence peddling thing. He said, don't pay attention to anything else. It was interesting. And by the way, we learned in these earnings, we got a little bit of an insight into how much he has destroyed that business. The revenues are down 70% from 2021. Yeah, the money doesn't matter.

It is actually worth the money. I was going to say it's just more insight into Eli. personality that he may, yes, be a genius, but he is also clever and he is also manipulative. And those are traits you don't often see together in one person. And I think people who credit him with being a genius often don't want to look at the other aspects. No, they don't. So that begs the last question. The SpaceX IPO and the IPO boom more broadly have been compared to the Enron era. The short-seller Jim Channos said that partly because of the valuations just don't add up. The math isn't mathing. I'd like to know if you agree. Bethany, you go first and you know

about this from having written a book about the rise and fall of Enron, then Ed and Tim, you get the last word. So Jim, yes, has called this the golden age of fraud, and he's been a skeptic of Tesla from the beginning and has been, at least in terms of the direction of the stock wrong, and is obviously a huge skeptic of SpaceX. I think the only thing, and I was thinking about this when Ed was talking earlier about how at some point the fact that Elon's promises don't materialize, it has to matter. I would have said that years ago, and I think Jim would have said that years ago. go and the runway keeps being longer than anybody would have expected. And so I completely agree with the sentiment, but as I tried to start this by saying, Elon has had a remarkable ability to buy himself

time. And as long as he can keep buying himself time, there is a chance that will all work out. I've often said there's a fine line between a visionary and a fraudster. And sometimes the visionary is just the fraudster who was able to keep going and keep raising money until it wasn't a fraud anymore. And then everybody looks back and says, ah, what a visionary. And so there's a still some chance that that could be Elon's trajectory. Ed, you next? I think Bethany put it perfectly. I mean, these things only become frauds once the price goes down.

That's what we learn from all of these companies. I mean, we're pointing out things that many would say and we'll look back on and be like, that was nuts. How do we let that happen? And the answer is, we're down with it because it makes people money right now. But as soon as the price goes down, then suddenly everyone's going to look at the damage, everyone's going to look at what happened and say, okay, Who do we blame for this?

How do we get our retribution? So we have ourselves to blame for this as well. The more that the price goes up and the more that we decide or neglect to actually think about the things that matter, think about regulation, think about protecting investors, the more we have ourselves to blame. So I think that the Enron comparison is aggressive, but I don't think it is completely unreasonable. If SpaceX were to crash tomorrow, then yes, everyone would be saying it's Enron. And said not. Tim, last word. You know, after the earnings shares dropped, but I feel there was really nothing there that investors shouldn't have known prior to the IPO, which is that the future of SpaceX is really built on a lot of hope, hope for a brighter future that Elon is promising. And if you're an investor in SpaceX, you're taking a huge bet on the ability to bring the light of consciousness to the world, right?

So it's hard, I think, to feel bad for investors who lost money in the last week or so because this is part of the ride they signed up for. Absolutely. I just want to just to push back slightly on that point. Sure. We should feel bad for the passive investors who invested in the NASDAQ and who didn't even know that SpaceX was being stuffed into their portfolios. I agree with you about the day traders who should have known that there are all of these risks associated with SpaceX. But I think that we get into dangerous territory and we start to actually do a disservice to investors when we start to put these into passive index funds and people don't know that they actually own SpaceX.

Those people I do feel bad for. Let me just jump in with one last comment on that, which is that I have come to believe that for all that they should have known and there's enough information out there for people to know, information travels still. The information you need to know travels in very, very, very tight loops. So, yes, maybe that's fair to some extent. it's not fair in total. There are things people know about Elon about what he's doing that those average investors have no chance of knowing. So that's correct. Anyway, I really appreciate this. This is a super smart discussion and you guys are brilliant and we'll see where it goes. We'll have you

back when it goes up or down. Thank you. Thank you. Thank you. Today's show was produced by Nashat Kurwa, Michelle Aloy, Catherine Millsop, Megan Bernie, Madeline LaPlante Duby and Kalyn Lynch. Special thanks to Dave Shaw, Bradley Sylvester, Devin Schwartz, Jim Mackle, and Manolo Marino. Our engineers are Fernando Aruda and Rick Kwan, and our theme music is by Tracademics. If you're already following the show, you're ready to slip the surly blondes of Earth. If not, we're exiling you to Elon's moon colony. Go wherever you listen to a podcast, search for On with Caraswisher and hit follow. Thanks for listening to On with Kara Swisher from Podium Media, New York Magazine, the Vox Media Podcast Network, and us. We'll be back on Monday with more. Support for this show comes from NetSuite.

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