Latest / Bloomberg Intelligence / Earnings Special: SpaceX’s AI Splurge Puts a Damper on Debut Earnings After IPO

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Earnings Special: SpaceX’s AI Splurge Puts a Damper on Debut Earnings After IPO · Bloomberg Intelligence

• 0:02
  Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is a breaking
• 0:10
  Speaker 1: news update from Bloomberg instant reaction and analysis from our
• 0:15
  Speaker 1: three thousand journalists and analysts around the world. The SpaceX
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  Speaker 1: the company out with its first report as a publicly
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  Speaker 1: traded company. Revenue exceeded Wall Streets expectations reported seven point
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  Speaker 1: eight billion dollars. The company reporter and operating loss though
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  Speaker 1: of one point twenty six billion dollars from its AI business.
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  Speaker 1: That's better than the consensus expectation. Shares a plunge since
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  Speaker 1: that IPO raising more than a trillion dollars in market
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  Speaker 1: value from their peak.
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  Speaker 2: All right, let's get to it with our team. We've
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  Speaker 2: got a great team too.
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  Speaker 3: Mandy Pep Singh is with us right here in studio
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  Speaker 3: in our Bloomberg Interactive Brokers studio is Bloomberg Intelligence, Global
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  Speaker 3: head of Technology Research, and out there in our San
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  Speaker 3: Francisco news bureaus, of course, our own ed Ludlow, host
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  Speaker 3: of Bloomberg Tech. Let me just kick it off with you.
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  Speaker 3: What jumps out here? I know you're also on the
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  Speaker 3: live blog, but you know, investors just kind of reading through.
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  Speaker 4: Yeah, I mean overall revenue and sales came in above consensus.
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  Speaker 4: But you go into this saying, this was the first
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  Speaker 4: quarterly earnings for SpaceX since they became a public company,
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  Speaker 4: and it will be their first earning school and there
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  Speaker 4: was a lot of acceptance that the consensus numbers out there.
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  Speaker 4: There was a bit of skepticism, Right, they're a bit
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  Speaker 4: squishy because we don't have a whole lot of contemporaneous data.
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  Speaker 4: But it's really interesting, you know that the status quo
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  Speaker 4: is still that starlink is the is the driver on
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  Speaker 4: the top line, and also sort of the cash cow.
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  Speaker 4: But they really improve the economics of this business in
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  Speaker 4: the quarter of yes, it's a rocket company, but renting
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  Speaker 4: compute capacity to other technology companies, you know, that has
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  Speaker 4: proved to be a strong business for them. There's a
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  Speaker 4: lot of discussion in that in what's a very limited
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  Speaker 4: earnings release.
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  Speaker 1: Mandy, if I want to bring you in here, if
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  Speaker 1: you were to look at the three different segments the
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  Speaker 1: reportable segments ed mentioned the cash cow and in terms
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  Speaker 1: of where the revenue is still coming from in terms
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  Speaker 1: of growth in your view, which segment is the most important.
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  Speaker 5: I mean, they reported a backlog number of forty seven
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  Speaker 5: point five billion that tells you most of the backlog
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  Speaker 5: is likely coming from AI and what is not captured
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  Speaker 5: in this print is the Entropic and Google deals.
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  Speaker 1: Said, yes, okay, that's what I was going to ask you.
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  Speaker 1: When you say a backlog that means companies like Anthropic
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  Speaker 1: and Google coming to xai part of SpaceX and renting compute.
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  Speaker 5: That's right, yes, And in fact we know some of
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  Speaker 5: the deal terms. Entropic will be paying SpaceX about one
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  Speaker 5: point two five billion dollars a month. So next quarter
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  Speaker 5: when they report, there will be at least three point
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  Speaker 5: seventy five billion dollars from Entropic and another probably two
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  Speaker 5: billion plus from Google when the report, so six billion
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  Speaker 5: bump just from these two deals x quarter. That sound
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  Speaker 5: pretty important, I think. So that's why the backlog number
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  Speaker 5: is very important because in that forty seven billion dollars
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  Speaker 5: is that Anthropic deal and the Google deal and there's
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  Speaker 5: one more company, I think, Reflection.
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  Speaker 1: And what what can XAI offer these firms that that
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  Speaker 1: Mandeep mentioned that like a Google Cloud and Microsoft Azure
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  Speaker 1: and AWS or even a Neo cloud can.
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  Speaker 4: Offer space that they're not currently using. So it is
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  Speaker 4: what it's a commodity, a little bit. So like in Tennessee,
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  Speaker 4: Xai now Space Xai set up a number of data
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  Speaker 4: centers in very quick order, Colossus one, Colossus two, and
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  Speaker 4: Colossus three. And what was explained to me in great
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  Speaker 4: detail by sources is that once they had built all
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  Speaker 4: of them, they were like, Okay, how do we use
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  Speaker 4: this ourselves? And they realized that in Colossus one, which
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  Speaker 4: is a big tin Can data center, they had multiple
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  Speaker 4: generations of Nvidia GPUs all mixed together. Some were Hopper generation,
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  Speaker 4: some were Black Well, some were even as old as
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  Speaker 4: the A one hundred generation, and so they decided the
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  Speaker 4: best use of that capacity was to rent it out
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  Speaker 4: with attractive economics for those renting it at a premium.
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  Speaker 4: Many would say, I think Mandy has been over that
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  Speaker 4: really well in the past, and for them, like they
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  Speaker 4: run it really operationally efficiently, it can be a high
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  Speaker 4: margin business. But it was all born out of the
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  Speaker 4: fact that for their own models and running them, not
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  Speaker 4: just training later generation models, they couldn't work out how
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  Speaker 4: to use that capacity for themselves to best effect.
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  Speaker 2: Yeah, I mean.
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  Speaker 3: The worries that we've had man deep about this company
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  Speaker 3: and feeling like we didn't know some things should investors.
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  Speaker 3: I know, we never give investment advice, but feel all right,
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  Speaker 3: we're getting more information about the business that we can
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  Speaker 3: kind of figure out and cross with kind of where
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  Speaker 3: this company's going. The valuation means the valuation is still
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  Speaker 3: a little crazy.
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  Speaker 5: Right, it is crazy. But what I think may work
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  Speaker 5: in their favor is this is a company that will
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  Speaker 5: likely have accelerating top line growth at least for the
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  Speaker 5: next three or four quarters with margin improvement, and that
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  Speaker 5: is a type of story that investors typically like. I mean,
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  Speaker 5: we just saw what Pealantier did today, you know, with
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  Speaker 5: their quarter partly because of that accelerating top line growth,
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  Speaker 5: and there is no doubt in my mind, given that
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  Speaker 5: forty seven point five billion dollar backlog number, SpaceX will
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  Speaker 5: have accelerating top line growth at least for the next
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  Speaker 5: three quarters.
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  Speaker 1: We're speaking with Man deep saying our Bloomberg Intelligence global
• 5:35
  Speaker 1: head of Technology Research. Also with us Ed Lovelow out
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  Speaker 1: there in San Francisco. He's the host of Bloomberg Tech.
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  Speaker 1: I want to remind everybody, if you have questions about
• 5:42
  Speaker 1: SpaceX's earnings, the company's report, send us a question Bloomberg
• 5:47
  Speaker 1: dot com, slash Ask Radio. That's bloomberg dot Com slash
• 5:50
  Speaker 1: Ask Radio. It's only for Bloomberg dot Com subscribers. You
• 5:53
  Speaker 1: can submit questions for us or for any of our
• 5:55
  Speaker 1: guests this afternoon.
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  Speaker 3: You know, I'm just looking at you know, you pull
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  Speaker 3: up the SpaceX, do the ticker. Do you know cnbn
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  Speaker 3: spacexa's business growing across all three segments. SpaceX exceeds revenue
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  Speaker 3: estimates in the first quarter, first earning since IPO. You know,
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  Speaker 3: SpaceX's first earnings offer a chance to reverse the stocks
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  Speaker 3: plunge that was earlier in the day, top of mind
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  Speaker 3: and come on back in because.
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  Speaker 2: I'm just thinking, how much of what we we didn't know?
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  Speaker 3: So this is kind of our first real picture of
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  Speaker 3: a lot of what the business is about. There were speculations,
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  Speaker 3: certainly coming off the IPO, and there was numbers and
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  Speaker 3: there were estimates, but how much of this is.
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  Speaker 2: Like, oh, okay, so this is the business at least now.
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  Speaker 4: Yeah, yeah, So what you can do is you can
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  Speaker 4: compare with the backward looking data we have from the
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  Speaker 4: IPO perspectus, the S one and the amended versions of it,
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  Speaker 4: just the two Aikey points because I think it's really
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  Speaker 4: interesting to get Mandiv's take on this is AI is
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  Speaker 4: probably inflecting a little bit faster than the street expected.
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  Speaker 4: So the AI revenue are two point five six billion dollars, right.
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  Speaker 4: Compare that to the first quarter, which is data we
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  Speaker 4: got in the perspectives about eight hundred million, so it's
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  Speaker 4: quite a jump sequentially quartered a quarter and then on
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  Speaker 4: an adjusted ebit DAR basis, which you know, let man
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  Speaker 4: deep into this one because I know how the street
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  Speaker 4: feels on adjustedy a bit DAR, but AI adjusted ebit
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  Speaker 4: DAR did term positive AI specifically, and so like right now,
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  Speaker 4: with the knowledge that all of these other business lines
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  Speaker 4: are futuristic, orbital data center, the space economy, and enterprise AI,
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  Speaker 4: what they have done is move pretty quickly on their
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  Speaker 4: AI instructure business. And you know, Mandiep's outlined the deals
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  Speaker 4: that they did to get there.
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  Speaker 1: Okay, let's just reset here a little bit, because we're
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  Speaker 1: seeing shares of SpaceX down about six and a half
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  Speaker 1: percent after the company reported results. Starlink growth continues to
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  Speaker 1: be a revenue driver. Shares are slumping though as investors
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  Speaker 1: digest this. Mandy, what's the sort of I don't know,
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  Speaker 1: from a guidance perspective, the expectations about what we'll hear
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  Speaker 1: on the call that's different from what's in the press release. Again,
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  Speaker 1: first time we've had a call for this company, so
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  Speaker 1: we can kind of only go with what Tesla has
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  Speaker 1: done in the past. But what do we expect in
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  Speaker 1: terms of guidance.
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  Speaker 5: I mean, when I look at this Starlink number, to me,
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  Speaker 5: that's slightly misconsensus in terms of number of subscribers. And
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  Speaker 5: given we talk about how that's the cash cow that's
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  Speaker 5: funding you know, the other businesses, that is probably the
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  Speaker 5: number one question that I feel they're going to get
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  Speaker 5: on the earnings call, but along with that backlog, which
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  Speaker 5: I think will help them in the quarters upcoming quarters,
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  Speaker 5: but clearly that Starlink business was slightly below consensus.
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  Speaker 3: All right, we're going to continue watching shares the SpaceX,
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  Speaker 3: as we mentioned, definitely down right now about eight and
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  Speaker 3: a half percent, so giving kind of everything back that
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  Speaker 3: they got in the regular trading session. In the meantime,
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  Speaker 3: I want to since we've got Elon, we have Elon here. Hey, Elon,
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  Speaker 3: thanks for calling it. We've ed here, and of course,
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  Speaker 3: man Deep, let's also bring in AMD into the mix.
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  Speaker 2: Hey, it could happen. You don't ever know right, I
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  Speaker 2: could see him probably careful what you wish for.
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  Speaker 3: I know, let's take a look at shairs of AMD,
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  Speaker 3: because we've seen them under pressure as well, down about
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  Speaker 3: eight percent as we speak. And this is after let's
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  Speaker 3: just go to the red headline here on the Bloomberg.
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  Speaker 3: The company sees third quarter revenue of twelve point seven
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  Speaker 3: billion to thirteen point three Street estimate was twelve point
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  Speaker 3: fifty one. Says data center sales to accelerate in the
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  Speaker 3: second half of twenty twenty six. Cees third quarter justin
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  Speaker 3: griss margin of about fifty six percent. Street estimate was
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  Speaker 3: just a hair higher at fifty six point two percent,
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  Speaker 3: And if you look back at the quarter that was actually,
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  Speaker 3: let me give you one more on the third quarter,
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  Speaker 3: so the outlooks he's third quarter revenue actually I said
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  Speaker 3: this twelve point seven to thirteen point three billion. Street
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  Speaker 3: estimate was twelve point fifty one billion. But looking backwards,
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  Speaker 3: second quarter just at EPs was four cents better than
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  Speaker 3: the street was expecting. Second quarter justed operating margin was
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  Speaker 3: twenty seven percent, slightly above the twenty six point nine
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  Speaker 3: percent the street was expecting, and second quarter revenue it
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  Speaker 3: was eleven point five to four billion. That two was
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  Speaker 3: above street estimate of eleven point thirty one. But again
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  Speaker 3: that stocks down within seven percent here, yeah.
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  Speaker 1: Down at this point eight percent as we speak. You
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  Speaker 1: mentioned the numbers. I want to bring in, Man Deep
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  Speaker 1: in ed who are watching this closely, Man Deep, your
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  Speaker 1: first reaction to AMD's report.
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  Speaker 5: I mean, it seems to be an in line print.
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  Speaker 5: And you know, with all these stocks, the visper number
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  Speaker 5: is much higher than what you see in consensus. So
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  Speaker 5: to my mind, the fact that data center number is
• 10:28
  Speaker 5: mostly inline is or slightly two percent above consensus is
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  Speaker 5: not enough. And you know Nvidia is going to post
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  Speaker 5: a quarter that will be you know, eleven twelve times
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  Speaker 5: bigger than AMD's number when it comes to data centers.
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  Speaker 5: So clearly they're not kind of catching up to Nvidia
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  Speaker 5: in anywhere right now.
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  Speaker 1: And what's that jumps out to you about AMD's reports.
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  Speaker 1: Shares am down about nine percent.
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  Speaker 4: You know, there's there's no massive out performance in the print.
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  Speaker 4: I just note that going into today's close, AMD's are
• 11:00
  Speaker 4: one hundred and forty percent year to date, and they're
• 11:02
  Speaker 4: telling the story to investors that in the second half
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  Speaker 4: of this year, data center sales are going to accelerate,
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  Speaker 4: but there's nothing sort of outstanding in the sales outlook
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  Speaker 4: for the third quarter that kind of is additive to
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  Speaker 4: that sort of commentary, and that the last bit, the
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  Speaker 4: only bit I see really is that they see gross
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  Speaker 4: margins of fifty six percent in three Q and consensus
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  Speaker 4: was a touch higher fifty six point two. That you know,
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  Speaker 4: doesn't account necessarily for the drop in after hours.
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  Speaker 2: It's also up what one hundred and forty percent year
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  Speaker 2: to date.
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  Speaker 1: Yeah, I get that's kind of what I'm thinking, right Yeah, Hey,
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  Speaker 1: I want to get back to SpaceX. We're still watching
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  Speaker 1: what's happening with all of these companies, and we're lucky
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  Speaker 1: to have both of you guys with us who can
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  Speaker 1: speak to AMD and SpaceX shares a SpaceX down about
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  Speaker 1: six percent in the after hours. I mentioned that we
• 11:54
  Speaker 1: have Bloomberg dot com slash Ask Radio as a way
• 11:57
  Speaker 1: for our subscribers to get in touch with us and
• 11:59
  Speaker 1: ask questions not just to us, but to add and
• 12:02
  Speaker 1: man deep in all of our guests. SpaceX's a question
• 12:05
  Speaker 1: about SpaceX coming in right now, guys. Sanjay out in Irvine,
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  Speaker 1: California writes that the fact that SpaceX is valuation is
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  Speaker 1: already high. Does that make today's earnings more or less
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  Speaker 1: in line with the high expectations? I want to send
• 12:19
  Speaker 1: that one over to man Deep first valuations question. We
• 12:22
  Speaker 1: talked with Max Chafkin earlier about the so called Elon
• 12:25
  Speaker 1: premium and the idea that Tesla is valued more than
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  Speaker 1: any other carmaker despite the fact that you know, in
• 12:31
  Speaker 1: terms of revenue it doesn't even crack the top ten.
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  Speaker 1: Valuation question about SpaceX, what do you make of it?
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  Speaker 5: Yeah, I mean at one point five trillion, you know,
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  Speaker 5: for a company of SpaceX size, there is a lot
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  Speaker 5: embedded in that number in terms of, you know, growth
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  Speaker 5: expectations and how investors see margins improving. So that's why,
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  Speaker 5: you know, even though I feel like they will do
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  Speaker 5: very well over the next three quarters and in terms
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  Speaker 5: of top line driven by AI, but at this valuation,
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  Speaker 5: and you know, it hypeered at even a higher valuation,
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  Speaker 5: So it's always hard to keep up with the expectations.
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  Speaker 5: And unless you come out and show positive surprises the
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  Speaker 5: way Nvidia has done that constant consistently, I think it
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  Speaker 5: will be hard for SpaceX just to kind of keep
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  Speaker 5: this multiple. So they really have to grow into that multiple,
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  Speaker 5: which I think they should be able to given the
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  Speaker 5: backlog number we are seeing. I mean, all the cloud
• 13:34
  Speaker 5: companies had backlogs of four hundred billion dollars plus you
• 13:38
  Speaker 5: know when they reported, and they had an excellent quarter,
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  Speaker 5: all of them, you know, Google, Amazon, and Microsoft. So
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  Speaker 5: from that perspective, SpaceX reporting a forty seven point five
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  Speaker 5: billion dollar backlog. If they keep growing that I think
• 13:51
  Speaker 5: will be positive for that SpaceX story.
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  Speaker 3: I also want to mention we're getting some additional headline
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  Speaker 3: SpaceX second quarter AI segment cap x a fifteen point
• 14:00
  Speaker 3: eighty three billion versus an estimate on the street of
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  Speaker 3: thirteen point zero nine billion. I know ed you were
• 14:05
  Speaker 3: on a live blog like looking for more insight when
• 14:08
  Speaker 3: it comes to Capex.
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  Speaker 2: Yeah.
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  Speaker 4: No, I think they have positioned this in the CFO
• 14:15
  Speaker 4: commentary about having a really strong liquidity position. Right, they
• 14:20
  Speaker 4: have the proceeds of the IPO and then they immediately
• 14:23
  Speaker 4: went to the corporate debt market and so they have
• 14:26
  Speaker 4: one hundred billion dollars to play with. But you again
• 14:30
  Speaker 4: can go back to the prospectus on how capital expenditures
• 14:33
  Speaker 4: were tracking in the first half of this year. The
• 14:36
  Speaker 4: consensus number, again there's a note of caution on all
• 14:38
  Speaker 4: the consensus numbers because this is their first ever quarterly
• 14:41
  Speaker 4: earnings as a public company. The expectation was they'd spend
• 14:45
  Speaker 4: about forty five forty six billion dollars this year. A
• 14:49
  Speaker 4: lot of that's still to come right this, you know,
• 14:51
  Speaker 4: it's really key information because across those nascent business lines
• 14:57
  Speaker 4: Starship as a launch sister, orbital data center, and then
• 15:02
  Speaker 4: the business of like actually selling ais the software at scale.
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  Speaker 4: It's still going to take a lot of spending.
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  Speaker 1: And is this is this report? Are we getting the information?
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  Speaker 1: It's sort of an inside baseball question, but is the
• 15:16
  Speaker 1: information coming at a cadence that's on par with what
• 15:18
  Speaker 1: we get from Tesla?
• 15:20
  Speaker 2: No?
• 15:21
  Speaker 4: So this I find this really interesting. So, you know,
• 15:23
  Speaker 4: Tesla presents a pretty detailed shareholder deck each quarter, and
• 15:31
  Speaker 4: it is multiple pages long. It has a lot of information,
• 15:35
  Speaker 4: for example, the headwinds and tailwinds to the top and
• 15:38
  Speaker 4: bottom line, the macro impacts they felt, any political impacts.
• 15:44
  Speaker 4: They're sort of forward looking strategy as it relates to
• 15:47
  Speaker 4: software in different markets, et cetera. This is a very
• 15:49
  Speaker 4: modest release where there's zero commentary from Elon Musk, who's
• 15:53
  Speaker 4: the CEO of space X. There's zero commentary from Gwyn Shotwell,
• 15:56
  Speaker 4: who's the president and COO and de facto runs the company,
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  Speaker 4: just the CFO commentary from Brett Johnson, and it's you know,
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  Speaker 4: it's very modest, so there's a lot still to learn.
• 16:07
  Speaker 4: You know, there's not the same level of detail. There
• 16:09
  Speaker 4: are fair questions like will Elon must be on the
• 16:12
  Speaker 4: Earning School? You know, we just we have no definitive
• 16:15
  Speaker 4: answer in that one assumes. So what kind of role
• 16:17
  Speaker 4: to Gwyn shot Well and Brett Johnson play on the
• 16:19
  Speaker 4: Earning School? Are like are they the stars of the
• 16:21
  Speaker 4: show or is it like Tesla where Elon's still the
• 16:24
  Speaker 4: star of the show. We just don't know, and that's
• 16:26
  Speaker 4: kind of fun.
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  Speaker 2: So do we have an idea man deep of how
• 16:30
  Speaker 2: much cash they're burning through?
• 16:32
  Speaker 5: I mean, they are investing fifteen billion plus in capex
• 16:37
  Speaker 5: every quarter and they're not generating any free cash flow
• 16:43
  Speaker 5: as of now. I mean, the startling business is the
• 16:48
  Speaker 5: only one that seems to be generating free cash flow
• 16:51
  Speaker 5: and that seems to have misconsensus. So from that perspective,
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  Speaker 5: I mean, they have this challenge in terms of meeting
• 17:00
  Speaker 5: expectations around free cash flow, unlike the hyperscalers that clearly
• 17:05
  Speaker 5: have strong balance sheets to invest in, you know, capex.
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  Speaker 5: So from that perspective, I feel there is a ceiling
• 17:13
  Speaker 5: to how much higher they can go in terms of
• 17:15
  Speaker 5: capex increases. I do think they will raise the capex,
• 17:20
  Speaker 5: but even at sixty billion dollars rund rate, how high
• 17:23
  Speaker 5: can they go given they don't have the balance sheet
• 17:28
  Speaker 5: and the free cash flow that the other hyperscalers.
• 17:30
  Speaker 4: Have ed Come on in, you have a question, Yeah,
• 17:35
  Speaker 4: so I have a question with it. I rely on
• 17:37
  Speaker 4: man Deep's expertise and he's modeling. So in the first
• 17:41
  Speaker 4: half of the year, SpaceX had about three point five
• 17:45
  Speaker 4: billion dollars operating cash flow, but the capital expenditures for
• 17:49
  Speaker 4: the first half of the year were like twenty nine
• 17:51
  Speaker 4: billion dollars. So you just do the operating cash flow
• 17:54
  Speaker 4: minus the capex and that gives you a sort of
• 17:57
  Speaker 4: an approximation on the negative free cash flow overall? Am
• 18:00
  Speaker 4: I doing the maths right on that?
• 18:02
  Speaker 5: That's right? Yeah?
• 18:03
  Speaker 4: So I see again like this is me doing math
• 18:06
  Speaker 4: in my head and though in my high school teachers
• 18:08
  Speaker 4: it wonn't my strong point, but I see, let's say,
• 18:12
  Speaker 4: let's say twenty five billion dollars of negative free cash
• 18:15
  Speaker 4: flow and aggregate across those businesses in the first half.
• 18:19
  Speaker 5: Yeah, Look, I think what you will see is the
• 18:23
  Speaker 5: cloud rental business is going to be a lot better margins.
• 18:27
  Speaker 5: So that's the part that you know, when you do
• 18:31
  Speaker 5: the first half calculations and analyze it, you you're expecting,
• 18:37
  Speaker 5: maybe you know there will be negative fifty billion dollars
• 18:39
  Speaker 5: for the full year, But my guess is that cloud
• 18:43
  Speaker 5: rental business is going to be positive in terms of
• 18:46
  Speaker 5: the margin profile. Now, it's not going to be as
• 18:49
  Speaker 5: high as the hyperscalers. So Hyperscalers, as we have seen
• 18:53
  Speaker 5: this quarter, they have mid thirty percent margins when it
• 18:56
  Speaker 5: comes to their cloud businesses. In the case of space.
• 19:00
  Speaker 5: Even in a best case scenario, that AI segment would have,
• 19:04
  Speaker 5: you know, low to mid teens margins, but at least
• 19:07
  Speaker 5: it's positive. So from that perspective, if you see AI
• 19:11
  Speaker 5: business at the end of the year around a twenty
• 19:14
  Speaker 5: five billion dollar run rate with low to midteens margins,
• 19:18
  Speaker 5: then it will offset some of that negative twenty five
• 19:21
  Speaker 5: billion dollar you know, burned that you've seen for the
• 19:25
  Speaker 5: first half. And that's where I think there's a good
• 19:28
  Speaker 5: story to tell in terms of margin improvement driven by
• 19:31
  Speaker 5: that cloud rental business.