The Rundown - SpaceX’s Real Crown Jewel Isn’t Starlink or AI (ft. Julie Zhu)

Episode Date: August 30, 2026

Julie Zhu, a research analyst at MoffettNathanson and co-author of a 93-page deep dive on SpaceX, joins Zaid to break down the company’s biggest opportunities and risks. Julie explains why SpaceX’s launch business, not Starlink or AI, may still be the company’s true crown jewel. They discuss the limits of Starlink’s broadband and mobile ambitions, the economics of orbital data centers, and whether today’s AI infrastructure demand can support SpaceX’s aggressive spending. Julie also breaks down MoffettNathanson’s $131 price target and how the firm thinks about hundreds of billions of dollars in potential “unknown unknowns.” They wrap with the biggest question hanging over the company: whether SpaceX and Tesla could eventually end up under one roof.

Welcome back to the rundown, interview edition. Today, we are talking to Julie Zhu, research analyst at Moffat-Nathanson, and co-author of a massive 93-page research report on SpaceX. SpaceX is a super interesting company, as you guys know, and also one of the hardest companies to analyze. They have rockets and Starlink and AI and data centers in space, and of course, there's the Elon factor. So in today's conversation, we talk about it all with Julie,

why she believes the launch business is SpaceX's crown jewel, why expectations for Starlink may be too high, and what it's like analyzing a company that has ambitions of going to Mars. This was a great conversation. I think you guys are going to really enjoy it, so let's get into it. All right, guys, today we are joined by Julie Zhu, a research analyst at Moffat Nathanson, and the co-author of a 93-page deep dive on SpaceX.

Julie, welcome to the rundown. Thanks, say it. be here. I'm super excited for today's conversation. I'm a big fan of Moffat Nathson, the research you guys put out. Before we get into everything, I'm just curious from your perspective. You've been covering SpaceX probably, you know, leading up to the IPO. It's probably been a big part of your life for the last few months. What has that been like, especially with all the hype around it? Were you able to have any conversation outside of SpaceX this summer? Was it all just SpaceX all the time? SpaceX has definitely been top of mind. And like you mentioned, I co-cover it with my colleagues, Craig Moffat and Nick Deldeo. I'd say it's kind of been a fire hose of news both before the IPO and post-IPO. Obviously, it's exciting to be able to talk about all the research and work right about now. But we were lucky to be involved in the process from the get-go, so have insight into the company leading up to this date.

And that, and like, I'm really curious to, like, a company like SpaceX, it's not just like, there's like so many, like many companies inside SpaceX. There's, there's so many, like, unknowns. You know, you've got the rocket stuff. You got the Starling stuff. The AI stuff. There's data centers in space. There's the Elon factor. So, like, how do you, how did you guys approach it as analyst when it comes to such a like a wide-ranging company with so many unknowns?

Right. Love that you use that word because that's probably how we'd bucket the different segments, too. So maybe for those who aren't as aware, SpaceX reports both in kind of in three different segments. The first is the space segment, so that's the rocket stuff. You've got the AI segment, which has both GROC and the space data centers, terrestrial data centers, etc. And then connectivity, which generates a lot of the money today, which is the broadband or internet business, and your discussions about kind of a mobile business that may be on the come. And then to your point about all these unknowns, the way we thought about it was really the Rumsfeld matrix.

So the known unknowns, known unknowns, et cetera. You've got the stuff that like equity research analysts like ourselves are super excited about, the stuff that you can do kind of price times quantity math on, projected out, do your DCF, etc. And that would be things like your Starlink business, the number of people who buy the internet service. per month and then multiplied by kind of the price per month. You've got the kind of known unknowns, which is something like an orbital data center. Do we know if the technology is going to come to the floor? Probably do we know if the economics are going to be as advantageous continuously into the future? That kind of depends on whether the bottleneck of terrestrial compute continues.

And then you've got the stuff that's the unknown unknowns, asteroid mining, going to Mars, colonies, kind of outside of Earth. That stuff is probably something that you can't put your finger on today, but because SpaceX owns the bottleneck to launch, you can imagine that once these opportunities potentially come up in the future in the space ecosystem, SpaceX is going to be able to kind of hold the moat on those areas, too. I think I saw in the report you guys were estimating, what, $750 billion for the known unknowns? Is that just, how, like, how?

How did you come out with that? Was that just like, all right, we're just going to take half and then add another half on top? Like, what was the process there? Yeah, and that's for the unknown unknowns. Unknown unknowns, thank you, yes. Yeah. The way to think about it, you're right, is that we have a target price of 131.70 of that is the traditional math and valuation metrics you might use. And then the other part is related to these unknown unknowns.

And candidly, part of it is just thinking about how big the opportunity out there could be. and being really cognizant of the fact that it'd be really high hubris of us to say, we know what the number is going to be. Not a satisfying answer, but a way that we try to put a framework around it. Yeah, I like that you're factoring it in. And speaking of the details, so like you said, you have a neutral rating on the stock with a price target of $131, which is right around with the stock IPOed at. I think what stood out to me was while most of the hype in conversation and the revenue

for that matter is coming from Starlink, right? You said the crown jewel of the company was the space business, the launch business, which again, that's kind of how the company started. It's a rocket company. But the launch business only accounts for 22% of the revenue. So why do you consider the launch business to still be the crown jewel? Yeah, it's a great question. If you look at the launch business as reported financials, you're right.

It's kind of tepid, right? It's like 7% growth last year. The margins are all over the map, but really not that exciting. But you have to remember that the way SpaceX reports that business is based on external revenue only. So anything that comes from launching Starlink broadband satellites up into space and there are about 10,000 of them in the constellation today, that's not factored in to the space financials. Beyond just looking at the numbers, you have to think, again, going back to the concept of the bottleneck without having this launch capability. And to just ground everybody, the U.S. sent about 200 launches into space in 2025.

170 of them were from SpaceX. And then 165 of those were from Falcon 9. And so all of that is kind of the dominant factor of SpaceX without having these, the ability to send things up reliably into space and having the kind of technical ability. for the reuse of the Falcon 9 rocket, you're not going to be able to have the constellation for Starlink broadband. You wouldn't be able to have the conversation for orbital data centers to begin with. All of that stems from the rocket business.

And clearly, I mean, that's where SpaceX has a huge advantage compared to their competitors. I mean, you can make the case that Blue Origin is, you know, their closest competitor about a decade away. For me, though, I guess what I wonder is, Is space overrated, right? Like, everyone talks about this tam and, like, space is going to do this and unlock all these different things and all these different industries. Maybe space is just going to be used for defense and taking pictures of the Earth and maybe some satellite connectivity. And, like, that's it.

Is that really, like, a massive, you know, massive tam there? It's easy to get excited about because it's space and it's cool. But, like, the economic tam is there actually a massive one there? So also a great question. and the point that you brought up on defense is a good one. I think you saw this in their latest quarterly earnings too about a couple of weeks ago, where a lot of the growth in connectivity business came from the government and enterprise unit, a bit of a black box, honestly.

But you can imagine that given the kind of balkanization geopolitically that's in place today and going to continue in the future, you're probably, unfortunately, going to see more of a defense use case in the future. from kind of space-related products or solutions. I think part of that calculation, too, comes back to our idea of this potential value coming from the space bottleneck. It's just tough to put definitively a number around

all of these things that could potentially take place in space. There's a lot of good reason scientifically why certain manufacturing might be better done in a zero vacuum environment or nearly zero vacuum environment, things like that. It's just tough to say today that X percent of the trillion dollar tam comes from this. But yes, all of that to say, large opportunity ahead. Well, I mean, SpaceX in their S-1 says their biggest tam right now is the AI is the AI segment, right?

Whether it's data centers in space or just their AI business. I mean, you know, the data centers in space, I think you can, You guys said it's pretty far away. How do you kind of see the AI portion, especially the their efforts to be like a NeoCloud right now, right? They're renting at all these, their data centers that they build up over the last couple years. They're making a lot of money on that, especially renting them to Anthropic and Google.

But is that just like a one-time blimp because they're taking advantage of the shortage right now? Or do you see that as like a sustainable business in the long term? So a lot of different threads to pull. I'll do them one by one. The first is GROC, and obviously the cursor acquisition closed a couple of weeks ago. That piece is a bit of a question mark in terms of how much that piece of the business is going to monetize, and frankly, whether or not they're going to take the lead in the landscape or frontier labs.

Beyond that, there is the whole tension between the U.S. and Chinese and how each, country kind of brings their frontier lab to the fore, that's difficult to say with conviction that GROC is definitely going to win. We've seen early data from different benchmarks that, from a coding perspective, Cursor has helped. GROC kind of go ahead and beyond where they were historically. But again, all of these things are product cycle related and these product cycles move quickly kind of on a two-month basis. The second piece that you asked about was the terrestrial data center component and the orbital data center component. In our view, those both sort of hinge on whether or not the supply and demand in compute continues to be very tight. So if you think about

it, the reason why you would have an orbital data center is because of nimbism permitting, it's very difficult to build out data centers on the ground. You use it as a release valve Because when you look at the economic comparison between a terrestrial and an honorable data center, you'd see that it makes less sense to go up into space, even if you can solve the problems of radiation, cooling, etc. in a vacuum. And the reason is because 80% of the data center, yeah, 80% of the value of the data center comes from an invidia chip. Those things should last for at least five years, but we've spoken to many operators on the ground. and for those servers, you have to kind of take out the tray and fix it or have some sort of human intervention,

anywhere from 3 to 10% of the time. You can't do that easily in space. So then what happens when you shorten the useful life of your most expensive total cost of ownership component in orbit? And then you come to terrestrial space. Terrestrial latest space. If you continue to have kind of tight supply and demand, then it's possible to imagine that you have what we call infrastructure as a service pricing, of 30 to 50 billion per gigawatt. That's for context, like two to three times with the new core.

And today I saw you guys had core we bought a few weeks ago. I know that those companies are kind of moving towards having shorter dated contracts, but really it's only possible for SpaceX to have these contracts because of their balance sheet and who they are as a business. It's tough to see that if the market turns and it's not as tight. anymore that they're going to continue to have this persistent pricing. Yeah, that's a great point. And that's why I'm really curious to see how all that plays out.

I mean, you make a good point about, you know, GROC. They were kind of left for dead a while ago. This cursor acquisition seems to be paying off now. I've heard good things about GROC 4.6. So, I mean, I think they're probably still in it, but, you know, we'll have to see. I do like how you did have a hot take in the report about moving on to the connectivity. part of what you said, how, you know, everyone's talking about Starlink. I think Starlink is the sexy part of SpaceX's business. And it's because, like, it's like a consumer product essentially,

right? Like, people know about Starlink. People know people that have Starlink. People, you know, have used it before. So, especially if you've flown denied it and used Starlink on the flight, it's incredible, right? And so everyone's like, oh, my God, this is going to be a massive business. But you, in the report, think that it might be more of a niche business, you know, there's always just talks about how Starlink could potentially replace cell phones and internet services and all these all these different things and the Tam gets massive but you guys are a little bit more contrarian saying that it might be more of a niche business can you talk more about that yeah um also I used the United Service a few weeks ago incredible mind

blowing I'm like literally streaming multiple YouTube videos and I'm like how is this possible on a flight it was amazing yeah exactly um and and that's kind of the power of the Leo satellite constellation versus the geostationary one that most people probably experienced before. But for the connectivity business would break it apart into two again, to your point earlier, they have so many different sub-businesses and Tams they're going after. The first is broadband, and that's the internet business. And they have already seen a lot of traction and success, not just with users who put it on the roofs of their houses, but also obviously the United other airline and aviation partners as well.

When we did the math and the way that these satellites work, not to get too technical, is that they shoot out these spot beams. And within each spot beam, you have enough capacity to serve a certain number of households. And these spot beams are, think about them as like maybe a flashlight. As you do things like lower the constellation, which SpaceX has done in the past year or so, you get a more concentrated light. So you get more capacity for those households. you can serve more households. If you have a stronger beam, you can obviously also serve a ton more households.

But when you do the math on the constellation that they have today versus the constellation that they'll have, we estimate by the end of 2030, 2031, what you realize is that in the U.S., the densities of households that you're able to serve maybe edge up from like the least dense most rural areas to the third to fourth last destination. And what that means is just in, yeah, okay, in New York City, where I reside today, you're probably not going to see people put Starlink up on your roofs and that naturally limits your tan.

And then when you move beyond the U.S. for broadband, you've also got a bunch of different geopolitical considerations. You can imagine Russia and China are going to be completely off limits. China is building their own constellation. I think it's called Thousand Sales. You can imagine. they're going to want their trading partners to use that consolation versus something that is U.S. based with a high-profile person like Elon Musk. So broadband were bullish on, but probably not as bullish as the rest of the street. And then you also get to your mobile business, which is the second part of connectivity. I think you saw a certain amount of skepticism from our team that SpaceX is going to become the fourth carrier in the United States after Verizon T-Mobile and AT&T.

And part of the reason is physics related when you think about high school physics like Maxwell's law, when you move away in distance, your signal that propagates weakens by a square of that distance. Did you learn that in high school? I don't know if I learned Maxwell law in high school physics. I might be, I might not have been in the smart classes. I don't know. It's been a minute.

But it is a really important concept here. Like you're not going to be able to serve with the same capacity when you have a constellation, which by the way, the mobile constellation is a completely different constellation from the internet constellation. You have a satellite that's 220 miles in the air, if not further, versus these macro towers that are maybe five miles away maximum. And so it's just a difficult proposition. And then at that point, what you're going to ask for is probably what's called an MV&O agreement. Right. Or the carriers who help wholesale in areas that you can't get to.

That's the more I read about, you know, like the challenges of the physics challenge that you have to overcome in order to make a phone carrier, the less convinced I become that SpaceX is an actual player here. And I think you're right. I mean, it makes sense as a great, like, alternative to have or a service to have on top if you're, like, driving out into the, like the, into the rural areas and you have satellite service. That's fantastic. In fact, I think T-Mobile has that because I think I've seen it pop up on my, on my phone sometimes. But as a standalone service, I don't really know what the, what the SpaceX play is.

So I appreciate you kind of, kind of explaining that. And I'll have to look up Maxwell. What was it called Maxwell's theory? What was it called again? Yeah, Maxwell's Law. Maxwell's Law. I'm going to have to do some more research on that called Maxwell's Law to really dig into, like into the science.

But so, so more big pick for, kind of moving on from that. You know, SpaceX did release their first quarter results recently, and that was after you guys published your report. You know, growth was strong, and I think what was kind of surprising was the amount of cap-x spending that SpaceX is doing. Maybe it's an indication that they're kind of doubling, tripling down on the AI side of the business. Was there anything from the first earnings report that changed, uh, you know,

your outlook on the company? Yeah, so there were a couple of interesting tidbits that came out at the second quarter earnings. The first of which is they spent a lot more than expected on CAPEX, as you mentioned. And most of that kind of overspend is the wrong word, but most of that spend above and beyond what consensus thought was in the AI segment. The team had mentioned that on the terrestrial compute side, they were seeing payback periods of under a year. Normally, you'd see it kind of two years or so.

And so as a result, they're trying to build clusters both as a way to couch kind of grok competitiveness in the industry, but also as a way to potentially monetize in the interim as people like Anthropic, like Google, are looking for clusters. Again, that brings up the question, is this pricing going to persist? Because if not, this is a lot of spending. The other thing that came up on their quarterly earnings is they had mentioned this small cell, or they call it FMTO cell mesh network in order to build out the mobile ambitions of the company.

As we mentioned earlier, it's difficult to see that this is going to be a solution to build a standalone carrier business. Most of all, because these small cells are going to run into the same permitting issues, maybe not as aggressively, but if you think about putting kind of a radio tower on someone else's broadband dish and asking people to put it on their roofs, it's a really big ask. And you're going to run into kind of the same, like I mentioned earlier, permitting. I also don't understand, like, this is not a high margin business either.

If you look at Verizon, 18 to all of them, it's like, These aren't, you know, 80% margin businesses. This is not, this is like a relatively low margin business. So like the obsession over this business unit is kind of interesting. Exactly. And if you think about the spectrum needs that they're going to have when they do a terrestrial buildout or if they do a terrestrial build out, how do you balance out whether you're going to spend the money on getting compute, which you're seeing under your payback or building out something to your point where the question is really around, are you going to see a Roik in that business or a return on investment in that business? Yeah, absolutely. So there's a lot of questions there. I want to wrap with this final question. I think this is probably the biggest question. The SpaceX Tesla potential merger, right? Everyone is talking about it. Elon's even hinted at it a little bit. Obviously, he doesn't want to, he doesn't say exactly. Where do you see this happening? Or do you see this happening at all? I mean, just kind of walk me through your thought process. Because I keep flip-flopping. Some days I'm like, oh, this is definitely going to happen. It makes too much sense. It'll all. be one Elon Empire.

And then I'm like, well, I don't know. Maybe he doesn't want there to be all under one company. So I'm really curious to get your thoughts on it. Look, your guess is as good as mine. Right. Speculation. And I can understand when folks talk about the potential synergies. But in my mind, the tie-ups that they have, you know,

people talk about the tariffab chip JV. These are all things that you can do at an arm's length. And you can do kind of separately. and have transfer pricing in there. So it's just, it's not super clear to me where the rationale comes in. All I can say is when the time comes and we have to build the merger model. You know,

not really looking forward to it. I was going to say, that's going to be, you might be locked in a room drinking Celsius and ordering DoorDash for a couple weeks there. That's going to be a tough one. Oh, I mean, that's, I think that's the question there.

And because, you know, the other thing is like, Tesla's valuation take a hit or like does the enthusiasm for Tesla stock take a hit now that there's SpaceX because of all the Elon fanboys. This is just me speculating. You know, all the Elon fanboys now have two options to buy, uh, to invest in Elon Musk now. So like you just put that all under one roof and maybe there's, there's some like, you know, alpha there. So I don't know. That'll be very interesting. Um, Julie, I really appreciate your time. Again, your, your research report was fantastic. I love all the work that Moffat Nathanson puts out there. We'd love to have you

back on in a few months to see where things stand and see what the revised, the revised, uh, the revised, uh, the revised forecast is from Maffa Nathanson. Awesome. Thanks, Dave. Thanks so much, Julie. Well, all right. Guys, hope you enjoyed that conversation with Julie. You know, I thought this was a really interesting one because SpaceX is such a difficult

company to wrap your head around because so much the valuation today depends on what the company you might be able to build in the future. And some of the things they're trying to do is very, very ambitious. I also really liked how Julie broke down and why she thinks the Starlink business is overhyped and some of the technical challenges that it faces. Let me know what you guys thought about today's conversation. Does it change the way you think about SpaceX?

Drop your thoughts on Spotify and YouTube. And while you're there, if you have five extra seconds, consider giving us a five-star rating or thumbs up as well. You know, all that engagement really does help us out and it helps other people find the show. Thank you guys again for listening, watching, and commenting. Shout out to Mike for all the work behind the scene. And we'll see you guys back here on Monday.