Latest / Elon Musk Podcast / SpaceX merges with xAI for IPO

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SpaceX merges with xAI for IPO · Elon Musk Podcast

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  SpaceX, led by Elon Musk, filed for a public offering targeting
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  a $1.75 trillion valuation, merging its rocket operations
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  with the artificial intelligence startup XAI.
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  Yeah. And the offering they're calling
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  a project Apex internally involves this massive
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  underwriting syndicate of 21 banks, including Morgan Stanley
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  and Goldman Sachs. But it it introduces this really
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  unusual condition, forcing those exact banks to purchase AI
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  subscriptions just to participate.
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  So the question we are looking at today is why is a highly
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  profitable launch provider absorbing a cash burning AI
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  startup? And, you know, how does moving
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  computing into orbit actually work?
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  Right, because the math on the valuation it requires looking at
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  the individual pieces of the company 1st.
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  Which are huge on their own. Oh, absolutely.
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  So we have the Starlink consumer broadband division, which is
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  valued around $380 billion with a it's 9.2 million subscribers.
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  And then there is the XAI segment, valued independently at
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  $258 billion. But if you do the math on those
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  individual segments and add them together along with the
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  traditional launch business in the defense contracts, the total
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  falls roughly 30% below that target IPO price.
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  Yeah, there is a big gap there. Right.
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  So investors are paying an enormous premium for the synergy
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  of the combined entities. They are basically betting that
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  fusing a rocket company with an artificial intelligence company
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  creates something far more valuable than the sum of its
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  parts. Well, you also have to factor in
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  the current XAI burn rate to understand the financial
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  pressure here. The AI division reports losses
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  of over a billion dollars per quarter against much smaller
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  revenues of 430 million. Over a billion 1/4.
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  Exactly, Building and training large language models requires
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  an unbelievable amount of capital.
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  I mean they are buying 10s of thousands of specialized
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  processors and the electricity bills alone are staggering.
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  Wait, back up. Why attach a profitable rocket
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  company to an AI software project that loses money?
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  That seems like dragging an anchor behind a speedboat.
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  Because doing so opens up the compute and orbit model.
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  By funding the AI development with space revenues, SpaceX aims
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  to build orbital data centers. OK, Orbital data centers.
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  Yeah, on Earth, AI data centers are severely limited by the
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  local energy grid and intense cooling requirements.
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  Servers generate an incredible amount of heat.
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  Right, they run incredibly. Hot and running the industrial
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  air conditioning systems required to keep those servers
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  from melting takes massive amounts of electricity and often
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  millions of gallons of water. Moving the physical hardware
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  into orbit changes the physics of the operation entirely.
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  You get continuous solar power because you are above the
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  weather and the day night cycle of the atmosphere.
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  I am. Stuck on the cooling aspect
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  though. If space is a vacuum, how do you
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  cool a server? You cannot blow cold air over a
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  motherboard if there is no air. That is a great engineering
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  question. You are right, there's no air
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  for convection cooling, which is how like a fan works on your
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  laptop. Instead, they have to use liquid
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  cooling loops attached directly to the processors.
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  Those fluids absorb the heat, pump it out to massive external
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  radiators, and those radiators release the heat as infrared
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  radiation directly into the deep freeze of space.
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  Oh wow. Yeah, it requires completely
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  redefining how a server or rack operates, but if you solve it,
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  you eliminate the terrestrial grid constraints holding back
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  artificial intelligence expansion.
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  And SpaceX has a plan for 1,000,000 solar powered
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  satellites acting as AI data centers, 1,000,000.
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  That is just a staggering amount of hardware floating above the
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  atmosphere. It is, but Blue Origin has a
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  competing plan called Project Sunrise, which plans for 10s of
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  thousands of its own AI data center satellites utilizing
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  optical inter satellite links and the Terra wave
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  communications network. Optical links.
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  Yeah, instead of bouncing signals back down to Earth like
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  traditional satellites, these optical links use lasers to
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  transmit data directly between the satellites themselves.
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  How exactly does a laser network in space function?
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  So imagine standing on a mountain with a flashlight
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  signaling someone on another mountain.
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  Now imagine doing that at the speed of light, with thousands
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  of moving targets in low Earth orbit transferring terabytes of
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  data per second. That sounds impossible to
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  coordinate. Well, because there is no
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  atmospheric interference or weather up there, the lasers can
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  actually maintain incredibly stable high bandwidth
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  connections. It creates a fully meshed
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  routing system in orbit. The data never has to touch a
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  ground station until it reaches the end user.
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  So space transitions from a communication relay to a
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  physical location for global computing infrastructure.
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  We are moving from bouncing terrestrial signals off
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  satellites to doing the actual heavy processing up there.
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  Exactly. And that realization sets up a
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  fierce regulatory fight. Amazon petitioned the Federal
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  Communications Commission to block the SpaceX application
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  entirely. And SpaceX fired back almost
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  immediately, arguing that the exact same scrutiny must apply
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  to Blue Origins filing. Right, they're basically
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  pointing fingers at each others applications.
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  Meanwhile, Amazon is simultaneously in advanced talks
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  for a $9 billion acquisition of Global Star to fast track its
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  own satellite deployment. They have a strict regulatory
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  requirement to deploy half of their constellation soon or they
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  risk losing their spectrum rights.
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  Yeah, the clock is ticking for them.
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  So buying an existing network like Global Star provides
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  immediate functioning infrastructure.
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  But how does Apple's 20% stake in Global Star and its dedicated
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  capacity for Emergency SOS limit Amazon's flexibility in that
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  deal? It's a huge limitation.
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  Imagine you are trying to buy a massive toll road, but you find
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  out your biggest rival already owns an unbreakable ironclad
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  contract for the express lane. Oh, I see.
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  Sure, you own the asphalt, but you cannot dictate the traffic
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  flow if another company has guaranteed rights to the most
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  critical lanes. You acquire the physical assets,
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  but you inherit severe operational limitations.
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  So they are restricted before they even begin.
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  Exactly. Apple has already secured its
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  bandwidth for the iPhone emergency features, meaning
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  Amazon has to work its entire global cloud strategy around
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  Apple's existing traffic. That is wild.
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  And going back to the financial side of this, the 21 bank
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  syndicate handling the 75 to $80 billion capital raise is
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  uniquely structured. Right, because raising that much
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  money requires the combined balance sheets of almost every
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  major financial institution on Wall Street.
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  And Elon Musk mandated that these banks purchase
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  multimillion dollar subscriptions to the Grok AI
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  tool to get a seat at the table. Hold on.
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  So the banks have to buy the software just for the privilege
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  of selling the stock? Yes, that creates serious legal
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  jeopardy. We need to look at the Bank
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  Holding Company Act, specifically Section 106.
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  This law prevents banks from conditioning services on buying
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  a non traditional bank product from an affiliate.
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  How does that apply here? To put that in everyday terms,
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  there are exceptions for traditional banking products
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  like a bank can absolutely require you to open a checking
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  account before they approve you for a mortgage.
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  Right, that happens all the time.
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  But forcing an institution to buy an artificial intelligence
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  software subscription definitely falls outside that protection.
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  It also bumps against Federal Rule 5110.
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  That rule dictates that all items of underwriting
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  compensation must be reasonable and fully disclosed to the
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  public. The regulators want to ensure
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  the fees banks collect for taking a company public are
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  entirely transparent. And if the software is
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  overpriced, regulators might view the subscription as hidden
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  underwriting compensation. Exactly.
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  If a bank pays $20 million for software access that the open
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  market values at 5 million, the remaining 15,000,000 could
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  easily be interpreted as a kickback to the issuer to secure
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  the business. This changes the power dynamics
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  between Wall Street and private tech, forcing financial
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  institutions to assume regulatory risk just to
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  participate in a mega offering. Usually it's the other way
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  around. Right.
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  Banks usually hold all the leverage in these deals.
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  They dictate the terms, the pricing structure, the fees.
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  Here, the company is leveraging its sheer size and the massive
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  potential payout to force the underwriters into a commercial
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  software contract. Which brings up another massive
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  risk. Brock faces intense global
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  scrutiny for generating non consensual explicit images.
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  France raided corporate offices, the European Union ordered data
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  retention under the Digital Services Act and authorities in
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  the UK and India are actively investigating.
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  It is a global legal issue at this point.
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  And to be clear, we are purely looking at the legal and
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  business vulnerabilities outlined in our sources.
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  But the platform has been flooded with prompts altering
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  images of women and children in sexually explicit ways.
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  Yeah, management claims individual users hold the
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  liability. They point out that the terms of
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  service explicitly prohibit this behavior, arguing the company
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  cannot control every keystroke of millions of users.
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  But legal experts argue Section 230 protections might fail
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  because the platform's own AI actively develops the content.
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  Let us talk about how that law works.
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  Section 230 protects Internet platforms when they merely host
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  content created by a third party.
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  Like if you post a defamatory comment on a message board, the
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  person who runs the message board is generally not liable.
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  Right, they're just the host. But when the platform's
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  proprietary algorithm takes a text prompt and generate a brand
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  new image, the platform transforms from a passive host
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  into a Co creator. Losing that legal shield could
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  open the company to thousands of civil lawsuits.
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  In consumer AI scandals threatened Spacex's massive
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  government defense contracts, like their $178 million Space
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  Force award for missile tracking satellites.
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  You think so? Definitely the military requires
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  strict compliance and 0 reputational friction from his
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  contractors. A consumer AI generating illegal
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  content creates immense vulnerability for a company
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  heavily reliant on federal dollars.
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  I see it differently, actually. I think the defense sector
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  prioritizes reliable launch capabilities over consumer
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  software controversies, meaning the government will likely
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  ignore the AI issues to maintain access to orbit.
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  You really think they would just overlook it?
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  Yeah, there is simply no other provider capable of launching
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  payloads with the frequency, reliability, and cost efficiency
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  of the Falcon 9 rocket. The military needs to put spy
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  satellites into orbit, and they need the Rockets too much to
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  sever ties over a chatbot investigation.
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  Well. Even if that's true, merging a
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  highly regulated defense contractor with an unregulated
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  consumer AI platform exposes the combined entity to constant
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  multi jurisdictional legal friction.
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  You have a business unit that requires flawless security
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  clearances handling classified military technology, operating
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  under the exact same corporate umbrella as a social algorithm
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  currently under criminal investigation by multiple
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  foreign governments. The compliance departments alone
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  will be at war with each other. Absolutely.
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  Moving to the offering itself, the IPO plans allocate 30% of
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  the shares to retail investors, vastly exceeding the typical 5
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  to 10% we usually see in public offerings.
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  Which is necessary because to raise $75 billion, institutional
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  money simply isn't enough. The offering requires retail
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  volume. It's just too big for Wall
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  Street alone. Right.
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  There are only so many mutual funds, pension boards and
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  sovereign wealth funds willing to take down a capital raise of
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  that size at once. The company has to tap directly
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  into individual brokerage accounts to absorb the massive
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  supply of new shares entering the market.
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  And underwriters are considering abandoning the standard post IPO
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  lockup period, allowing insiders to sell immediately.
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  Which is highly unusual. Normally, employees, founders
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  and early venture capital investors are restricted from
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  selling their shares for 180 days after the public offering.
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  This prevents a flood of selling that could crash the stock price
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  before the public market figures out what the company is actually
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  worth. Yeah, and they are also
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  implementing a dual class share structure to preserve Musk's
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  voting control, ensuring super voting shares remain with the
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  founder even as public equity expands.
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  So you could buy the stock, but your shares have a fraction of
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  the voting power, meaning you have zero say in the corporate
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  governance. Exactly.
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  If this is such an exclusive financial opportunity, why are
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  insiders opening the door so wide for retail investors to fit
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  the bill? Well, there is a push for
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  accelerated entry into major stock indexes, skipping the
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  standard price discovery period. When a company is added to an
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  index like the S&P 500, every passive, the mutual fund and
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  retirement account that tracks that index is forced to buy the
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  stock, regardless of the price. They just.
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  Have to buy it mechanically. Exactly, if you have a standard
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  401K, you will become a shareholder whether you manually
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  click buy or not. Fast Tracking index inclusion
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  creates automatic guaranteed buyers to prop up the valuation.
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  Which shifts the risk of an unproven valuation directly onto
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  individual investors and passive retirement accounts, while
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  insulating the founders from losing control.
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  If insiders can sell without a lockup period while retail
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  investors are actively buying, it creates A mechanism for early
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  stakeholders to cash out at peak valuation before the market has
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  a chance to fully assess the combined company's true long
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  term profitability. You are essentially providing
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  the exit liquidity for the early investors.
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  So to pull all of this together, SpaceX is utilizing its
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  dominance in rocket launches to fund an unproven space based AI
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  infrastructure and opening the door for retail investors to
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  finance the expansion. And if a single private company
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  manages to secure the physical hardware of the Internet in
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  orbit and the artificial intelligence running through it,
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  it completely centralizes control over global digital
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  infrastructure. If you're not subscribed yet,
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