# The $3.5T Bailout: Elon's Plan To Merge Tesla And SpaceX

Markdown copy of https://realalpha.app/v/sxlPYNAERL4/ on Real Alpha, the best minutes from long interviews with the people building AI. Cite and link the page, not this copy.

Scott Galloway and Ed Elson debate whether a Tesla–SpaceX merger would refresh Tesla’s story or shift valuation and control risks to shareholders.

- Show: Prof G Markets
- Hosts: [Scott Galloway](https://realalpha.app/people/scott-galloway/) & [Ed Elson](https://realalpha.app/people/ed-elson/)
- Published: Oct 26, 2026
- Length: 1 h 20 m

## The best minutes

- [7:58](https://realalpha.app/v/sxlPYNAERL4/?t=478) [The merger shifts attention from Tesla’s weakening car business](https://realalpha.app/s/the-merger-shifts-attention-from-teslas-weakening-car/) (8 min)
- [18:43](https://realalpha.app/v/sxlPYNAERL4/?t=1123) [A SpaceX merger could dilute Tesla shareholders’ protections](https://realalpha.app/s/a-spacex-merger-could-dilute-tesla-shareholders-protections/) (5 min)
- [55:55](https://realalpha.app/v/sxlPYNAERL4/?t=3355) [Public markets price AI risk more cautiously than private markets](https://realalpha.app/s/public-markets-price-ai-risk-more-cautiously-than-private/) (5 min)

## Also worth watching

- [34:04](https://realalpha.app/v/sxlPYNAERL4/?t=2044) [Merger committees should test premiums against alternatives](https://realalpha.app/s/merger-committees-should-test-premiums-against-alternatives/) (5 min)
- [51:03](https://realalpha.app/v/sxlPYNAERL4/?t=3063) [AI chip delays may reflect power bottlenecks, not weak demand](https://realalpha.app/s/ai-chip-delays-may-reflect-power-bottlenecks-not-weak-demand/) (3 min)
- [1:08:45](https://realalpha.app/v/sxlPYNAERL4/?t=4125) [Meta's filing suggests AI funding could become harder](https://realalpha.app/s/metas-filing-suggests-ai-funding-could-become-harder/) (4 min)

Skip the opening sponsor reads, awards and movie chat, the Ukraine-Starlink discussion, and the week-ahead event rundown.

## Full analysis: Scott Galloway says $2T plus $1.5T merger could mask Tesla weakness

- Ed guessed $3.5 trillion combined from $2 trillion for SpaceX plus $1.5 trillion for Tesla.
- The deal could shift attention from weak car economics, but its exchange ratio and voting terms remain unknown.
- Boards should test the premium, control rights and index assumptions before calling the combination value-creating.

Its 6 sections, what it means for you and what to watch are on [the page](https://realalpha.app/v/sxlPYNAERL4/#analysis), free with an account:

- [8:10](https://realalpha.app/v/sxlPYNAERL4/?t=490) The merger lets SpaceX's growth overshadow Tesla's cars
- [19:09](https://realalpha.app/v/sxlPYNAERL4/?t=1149) A paper premium depends on SpaceX's trading price
- [21:55](https://realalpha.app/v/sxlPYNAERL4/?t=1315) The share class could shift legal control
- [31:50](https://realalpha.app/v/sxlPYNAERL4/?t=1910) Index eligibility could add demand, but remains uncertain
- [10:27](https://realalpha.app/v/sxlPYNAERL4/?t=627) Operating links do not establish a fair price
- [34:30](https://realalpha.app/v/sxlPYNAERL4/?t=2070) Committees must separate synergy from valuation

## Summary

Galloway sees the proposed Tesla–SpaceX combination as a way to shift attention from Tesla’s weak auto performance to SpaceX’s stronger story; Elson warns Tesla shareholders could receive overvalued SpaceX stock and lose voting rights. They debate whether the deal would mainly refresh Tesla’s valuation or consolidate Musk’s control, and whether it could help SpaceX enter the S&P. On AI infrastructure, Galloway sees a correction rather than a collapse, while Elson says public markets have priced in much of the risk but private AI valuations remain exposed. They close with Galloway’s case for Meta as a leading AI winner and Elson’s prediction that a Tesla acquisition could take SpaceX into the S&P.

### Minute by minute

- [5:28](https://realalpha.app/v/sxlPYNAERL4/?t=328) **Galloway sees Tesla as the weaker merger partner.** Elson frames the merger review against diverging results: SpaceX revenue rose 161% year over year, while Tesla revenue was flat and auto deliveries fell. Galloway says the boards are likely to approve a deal and contrasts SpaceX’s $4.4 billion net income and 60% EBITDA margin with Tesla’s 2.6% operating margin. He says Tesla shareholders would gain exposure to SpaceX’s story, while SpaceX holders would take on the risk.
- [11:41](https://realalpha.app/v/sxlPYNAERL4/?t=701) **Elson sees Tesla’s story losing force.** Elson says Tesla has lagged the S&P and trails Waymo in robotaxis, while Musk’s next narratives include orbital data centers, asteroid mining and Mars colonies. He argues that combining the companies could blur Tesla’s weak auto performance inside SpaceX’s more compelling story; he cites price-to-sales multiples of 14 for Tesla and 87 for SpaceX.
- [18:43](https://realalpha.app/v/sxlPYNAERL4/?t=1123) **Elson warns of lost shareholder control.** Elson says SpaceX would likely acquire Tesla and exchange SpaceX shares for Tesla shares; RBC predicts Tesla holders could receive a 20–30% premium. He warns that a falling SpaceX share price could erase it, and says SpaceX’s 15–20% public float makes its valuation less reliable. He also predicts Tesla holders could lose voting rights as Musk’s 80% voting control at SpaceX carries into the combined company.
- [31:07](https://realalpha.app/v/sxlPYNAERL4/?t=1867) **Elson sees a back door into the S&P.** Elson says a stock-for-stock deal could let SpaceX enter the S&P despite not meeting normal eligibility rules, including requirements around trading history and public float. He cites an exception for an acquirer issuing stock to shareholders of an index company such as Tesla. Galloway notes that JP Morgan estimated index inclusion could create passive buying equal to about 10% of the combined company’s free float.
- [38:25](https://realalpha.app/v/sxlPYNAERL4/?t=2305) **Galloway expects scrutiny over Starlink.** Galloway predicts congressional and regulatory scrutiny of Musk over reports that Starlink access in Ukraine was turned off, and says officials may question his role in the war. Elson says the DOGE and USAID actions could also draw investigation, while distinguishing scrutiny from a finding of guilt. Galloway also argues that concentrated wealth can buy political influence, citing Musk’s $366 million in midterm spending.
- [56:27](https://realalpha.app/v/sxlPYNAERL4/?t=3387) **Elson says public markets price AI risk.** Galloway says Anthropic lost $9 billion on $16 billion in revenue after excluding the accounting impact of convertible debt, and argues that coverage underplays its growth. Elson focuses on cash burn, negative free cash flow and the uncertain return on rising capital spending. He says public markets reflect caution, while private AI valuations may not yet account for the same risks.
- [1:02:04](https://realalpha.app/v/sxlPYNAERL4/?t=3724) **Big Tech spends to avoid missing AI.** Galloway says hyperscalers may fear underspending more than overspending, because they see AI demand and want to avoid falling behind. He says their commitments imply an AI market reaching $3 trillion in revenue, compared with $1.5 trillion for Big Tech today. Elson compares the cycle to railroad overbuilding and says delayed infrastructure and debt could leave newer data-center firms struggling or failing.
- [1:08:45](https://realalpha.app/v/sxlPYNAERL4/?t=4125) **Hosts split on AI capital availability.** Elson points to Meta’s filing that recent and anticipated AI capital raises are making the funding environment more challenging, and says startup investors are becoming more hesitant. Galloway reads the disclosure partly as preparation for Meta to raise money while preserving Zuckerberg’s control, and says Meta remains well placed to access capital. They agree that Meta’s spending needs funding but differ on how much the filing signals a broader slowdown.
- [1:12:13](https://realalpha.app/v/sxlPYNAERL4/?t=4333) **Galloway backs Meta as an AI winner.** The hosts preview September PCE, October consumer confidence, the Fed’s rate decision and upcoming earnings. Galloway expects Eli Lilly to beat estimates and says Meta could be a major AI winner because of its model, large business and consumer reach, and ability to monetize AI. Elson agrees with the case but points to Meta’s heavy capital spending and valuation.

## Transcript

Prof G Markets, hosted by Scott Galloway and Ed Elson.

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there. Where the podcast’s audio and the video part ways, some times are a minute or so off.

[0:02](https://realalpha.app/v/sxlPYNAERL4/?t=2) offer ends october 31st 2026 companies shouldn't have to choose between speed and control amex corporate connects cards with flexible spending controls, and real-time visibility to help teams adapt faster. Built to simplify, designed to scale. This is Amex Corporate. Get started at go.amex slash Amex Corporate. Terms apply. Today's number, $750 billion. That's how much Meta, Amazon, Microsoft, and Alphabet are expected devote to capital expenditures this year alone. That's more than the entire GDPs of Ireland or Beldam. Ed, true story, I decided to sell my homemade bagpipes made from colostomy bags on Amazon, but it sounded like shit. How are you, Ed? I'm doing very well. Very happy after that signal win we won in three categories yes big news and tell the fans what did you what did you win in or what did we win and i should say it's a team effort you little prima donna diva bitch what did you win uh prof g markets won best Money in Finance podcast. So thank you for casting your votes in that. Also, Daily Podcast. Thank you for that as well. And then my newsletter won Best Newsletter. So very excited about that. The only category in which our show did not win was Best Video Podcast, but that's okay. We'll get him next

[1:53](https://realalpha.app/v/sxlPYNAERL4/?t=113) time. Congratulations to you, to Claire. Who else is on this Joey Bag of Donuts cruise ship? Dan, Mia, Kristen, video team, Allison. Yeah, quite a few people here. Definitely see layoffs coming. I mean, great effort. Great effort. We can be leaner. Great effort. AI. Can AI do this? That's my favorite thing that I say to Catherine. I'm like, can AI do this? Can AI do it? Can AI do it? What else is going on? Anything else good? Well, I saw the Nathan Fielder movie, which everyone's talking about. Have you seen it yet? I just, she freaks me out. It's like, I don't want to go see a movie about the clown from It.

[2:29](https://realalpha.app/v/sxlPYNAERL4/?t=149) she just wigs me out. I find her frightening. So you're not going to see it? Or what's the plan here? Because you kind of have to see it. I'm going to wait till it comes out on streaming. Tell us about it. What's your official? It was great. I have a couple of criticisms, but it's not as fun if you haven't seen it. So go see it. And then you and I will have sort of a breakdown of the movie. But it was fascinating. And she is an extremely interesting person and um kind of a metaphor for our time i would say and he really got that out of her so you should see it why is she a metaphor i'll ask why is she a metaphor for our time well because she's uh kind of the quintessential tech founder slash grifter who kind of got away with convincing huge amounts of people with a lot of money that what she was doing was legit and then you see in the conversations that she she truly is lying or at least that is my take it's sort of up for debate at the end of the movie um but again you know you gotta go see it and then you and i can have the conversation i think me getting hairplugs in turkey and buying a porsche are sort of the metaphor for the age that too i think that there are plenty of plenty of things

[3:49](https://realalpha.app/v/sxlPYNAERL4/?t=229) that mark our time are you going to see the the zuckerberg movie so we got this we got zuckerberg movie elon musk movie which kara is in and then we have sam elton movie coming out in december So we got four big tech founder movies. I'll see the Sorkin one because I just like him and I really enjoyed the first one. And I want to see what happens in part two. Although I'm traumatized from seeing Sex and the City 2, I don't think I can ever see a sequel again. God, I'm so bad. And I'm a Sex and the City girl, Ed. I didn't know if you know that about me. I did not know that. I can't see the Musk one.

[4:31](https://realalpha.app/v/sxlPYNAERL4/?t=271) It's four hours. I just can't do that. Did you see How to Rob a Bank? No. What's that? I'm in that. Really? I'm not aware of this. I'm playing me, although they called me back and said, we'd like to get a Signal Award-winning podcaster to do the next one. Yeah, it's with Pete Davidson. What is How to Rob a Bank? It's a movie about a bunch of kids who, it kind of touches on income inequality and a lack of opportunity for young men. And these young men start robbing banks, or actually a young crew start robbing banks, and they start posting videos on how to rob banks on YouTube. It's actually a pretty good film.

[5:05](https://realalpha.app/v/sxlPYNAERL4/?t=305) And this just came out? Is it out? I should know that, shouldn't I? The only movie I'm going to go see in the theaters is the new Ali G movie. I'm going to go see that. I'm going to take my boys to that. We're excited about that. Interesting. Okay. I'm excited about that. Okay, well, we have a lot to get into. And by the way, if you like this show, please be sure to hit follow wherever you're listening or subscribe to us on YouTube. And also hit the bell icon, which gets notifications for all of our latest episodes. We appreciate it. It means a lot. Thank you very much. And with that, let's get into our show.

[5:37](https://realalpha.app/v/sxlPYNAERL4/?t=337) Now has been time to buy. I hope you have plenty of the well-resolved. Last week, Elon Musk's two biggest companies delivered very different results. Tesla's revenue was flat year over year, while its automotive business continued to struggle. Both auto revenue and deliveries fell compared with a year earlier. SpaceX, meanwhile, had a very strong quarter. Revenue surged 161% year over year. Profits beat expectations, and capital expenditures came in slightly below what investors had anticipated. But the biggest story wasn't in either company's earnings. Musk officially confirmed that special committees at Tesla and SpaceX are evaluating a potential merger between the two companies.

[6:05](https://realalpha.app/v/sxlPYNAERL4/?t=365) and investors are increasingly betting that a deal will happen. On Calci, the odds of a Tesla-SpaceX merger before... or 2028, have climbed to 81 percent. So, Scott, we can talk about the earnings, but to be honest, the merger seems more relevant and more important here. Elon has confirmed that both boards have formed these special committees to study potentially pursuing this merger. Elon said last week, quote, I do think there's a lot of merit to combining the companies as we are pretty much in the superintelligence singularity, and there is a lot to be gained from cooperating. And as I mentioned, the odds that this happens before 2028, at least according to prediction markets traders, is 81%. So this seems very, very likely that this is going to happen.

[6:57](https://realalpha.app/v/sxlPYNAERL4/?t=417) SpaceX is a $2 trillion company. Tesla is a $1.5 trillion company. Combined, I guess it'll be a $3.5 trillion company. What do you make of this? Well, I think actually, Kalsias is wrong. I think there's an 80% chance it'll get approved by the board. I mean, the board is sort of a, you know, the board is doing a lot of work here. And that is, when you're talking about decisions involving SpaceX or Tesla, the bride, the groom, and the officiant are the same person. And that is, this is just a formality so he can check an SEC box. Having said that, I think a real existential risk, and we'll circle back to this to Elon Musk, SpaceX, and Tesla, is I think on November the 4th, if Democrats take the House and the Senate, I just can't imagine the number of subpoenas and calls to testify before Congress that Musk is going to receive. I think that there is bipartisan anger around him throttling back Starlink in Ukraine and potentially, you know, neutering at the worst possible time the defense of the West. But anyways, so his board will approve it. And I think most likely it does go through, but let's talk about kind of the winners and losers here. The way I would describe them is they're both rocket ships, but SpaceX is busting into outer orbit and Tesla feels like

[8:17](https://realalpha.app/v/sxlPYNAERL4/?t=497) **Scott Galloway:** there's a decent chance one of the O-rings is about to come off. SpaceX revenue is up 161% with net income of $4.4 billion and a 60% EBITDA margin. Tesla's revenue is flat and operating

[8:30](https://realalpha.app/v/sxlPYNAERL4/?t=510) income is down 56% with a 2.6% margin and deliveries are down 2%. So what you have is a company, you have an automobile company, you pointed this out yesterday. that's trading at a PE of 300 versus an industry at 18. And this is effectively what's going on here. Musk has this, he's a genius on several levels, but something he really understands is, so back to Sex and the City. Carrie is dating Michelle Beristikoff. I don't forget the character's name. And she meets with, and he's constantly kind of putting her off and never asked time for it. And he's like, as soon as my art show's over, we'll do this.

[9:12](https://realalpha.app/v/sxlPYNAERL4/?t=552) and he meets with Mikhail Baryshnikov's former lover and says, why did you break up? And she said, I got sick of as soon as. And she kept saying, as soon as this happens, this will happen. Musk is literally the genus of as soon as. Okay, I have a better EV. It's gonna change the world. Wow, all right, no, other people are coming to the EV market. It's a shitty low margin company. Wait, we're gonna have autonomous. As soon as we have autonomous, I'll be able to justify this valuation. Okay, you're making no progress in Autonomous. Waymo's doing a half a million rides a week. You're doing very few with a safety monitor in the front seat.

[9:52](https://realalpha.app/v/sxlPYNAERL4/?t=592) Okay, as soon as we produce 5 million robots, everyone is running out of patience with this boyfriend called Tesla. So he is going to merge it into a company that distinct to the valuation, which I would argue is irrational, really has an incredible story. So he's taking shareholders who are getting 2.9 million of market cap per car. And I think that is really tenuous. And he's putting it into a company that has, quite frankly, a more enduring, sexier story. Now, to be fair, there are some real synergies here. SpaceX has purchased more than 1 billion of Tesla batteries and more than 100 million of Cybertrucks, although I would argue that's a related party transaction. Tesla knows how to manufacture at scale and SpaceX has compute that self-driving needs. It's a real merger with a fake premise. When Musk merges something into another, it's an acknowledgement that it's about to crater. When he bailed out a company he chaired that was owned by his cousins, I think it was called SolarCity, and he bailed it out by stuffing it into Tesla.

[11:02](https://realalpha.app/v/sxlPYNAERL4/?t=662) He stuffed Twitter into XAI, which then got folded into SpaceX. His M&A strategy is simple. When one of his kids are failing, he makes another... family adopt it. So right now, Tesla is the patient and SpaceX is the organ donor. SpaceX shareholders are the organ donor. So who wins? Tesla shareholders. They get to trade a declining shares in a declining car company for a stake in Starlink and AI. That's like trading your Buick for a piece of a Gulfstream. And he wins because he's going to get to maintain control. Largest merger ever bigger than the gdp of france um but again i think this is more he keeps pulling more and more rabbits out of the hat and he needs a new one for tesla and that new rabbit is spacex your thoughts i think that's exactly right i mean you look at tesla stock it's down 13 percent in the past year people people love to say tesla's been like such a great investment but over the past five or six years it actually hasn't um when you just look at the five-year time frame it's actually underperformed the S&P by about three times so this is a stock that has been lagging uh in recent years and it's because the business is actually in decline it's because revenue is falling it just fell again last quarter the car deliveries just fell as well uh the the

[12:31](https://realalpha.app/v/sxlPYNAERL4/?t=751) story that people are excited about is the robotaxi. But as we also know, the robotaxi is like millions of miles behind Waymo, which is the winner and the front runner in this race. And it's not even close. So the story for Tesla is certainly coming under a lot of pressure. And I think you're exactly right. The adoption analogy is perfect. It's like, I kind of think of it as sort of brand laundering, or maybe even multiple laundering, where you have SpaceX, which currently has a sexy story about satellites in space, or excuse me, data centers in space, orbital data centers, they already have satellites in space.

[13:14](https://realalpha.app/v/sxlPYNAERL4/?t=794) The next story is the orbital data centers. The story after that is the asteroid mining. The story after that is creating colonies on Mars. So he's creating all of these stories and currently investors are kind of lapping it up because you've got, I mean, Tesla, we already believe you and I agree that we think that Tesla is way overvalued trading it, you know, more than 300 times earnings and the average across the auto industry is 17. Now we can't do that with SpaceX because they don't have earnings, but we can look at the the price to sales multiple. Tesla's trading 14 times sales. SpaceX is trading at 87 times sales.

[13:49](https://realalpha.app/v/sxlPYNAERL4/?t=829) So he's kind of doing the same thing again. Okay, let's put them all in the same bucket together. And maybe people will stop asking questions about why are car deliveries declining? Why are your sales declining on a quarter of a quarter basis? Why is this happening? Maybe they'll stop asking those questions. And they'll say, oh, well, that doesn't matter because the main thing, The main prize is the asteroids, or it's the AI, or it's renting out the data centers. And to be honest, it's not a terrible argument to make. It just means that you're kind of, as you often say, smearing the Vaseline over the lens so that we don't actually have to dig into the reality.

[14:29](https://realalpha.app/v/sxlPYNAERL4/?t=869) And as you point out, he's done this plenty of times before. He did it with SolarCity. He did it with Twitter. He did it with XAI. I mean, you remember, we used to actually see all of the financial details of Twitter. We saw how much user growth was increasing or decreasing. Like, we had all of those details. Then suddenly it's bought up by XAI, and suddenly we don't really get that level of detail. Like, you know, technically that company is part of SpaceX, and we don't really get to see what the revenues actually look like, what the financials look like, because it doesn't really matter anymore to the story of the business.

[15:03](https://realalpha.app/v/sxlPYNAERL4/?t=903) So it does seem like that is pretty much the game plan here. we're going to distract away from the fact that tesla is seemingly in structural decline at least when you look at its core business who knows what happens with the robotaxi um but spacex is is the sexy hot new ai company look a brand if you will is one part promise one part performance and elon musk has become the master the jedi knight the you know the sensei of promise And the moment the performance begins to catch up to the promise, he shoves it in another vehicle with more promise. And also, there's a lesson to be learned here. And I say this admiringly, even at a small business.

[15:53](https://realalpha.app/v/sxlPYNAERL4/?t=953) So this has been great for Tesla shareholders or Tesla because it creates cheap capital such that he can pull the future forward. I mean, that ridiculous circus act of a flying car with five seconds of thrust that takes five hours to fuel on an empty shell of a car. I mean, that's just. that's not going to happen. And it's, look over here. Does that make you bullish when you see that? Like, I see that, and I know that's the idea, is that, oh, look, the car is flying. Look at our engineers. Look how talented they are. But I look at that, I'm like, why are you doing that? Like, why are you spending money on that?

[16:32](https://realalpha.app/v/sxlPYNAERL4/?t=992) No, he's running out of rabbits. And he did it, notice how he did it two days before the earnings call, where they announced that this company trading at 300 times earnings is in structural decline. is flat to down anyways but there is a lesson here and that is as a leader of a company you always want to be painting a promise that's something to reach for because it not only gets quote-unquote the markets excited and we don't have shareholders other other than the employees but you want to give the employees something to think okay we have a vision here we're moving towards something bigger that will make the company worth more and is exciting to work on And I think you always want to be, I think it was Al Pacino said, what is God if not grasping beyond your reach?

[17:16](https://realalpha.app/v/sxlPYNAERL4/?t=1036) You always as a leader want to be a little bit, I don't want to call it, not God-like, but give people something, say, okay, this is what we're going to reach for next year. He has done that like no one in history. and he also has a great sense for okay when do people when do people start figuring out that i'm full of shit and that there aren't going to be there likely won't be i won't be producing five million robots a year and then my autonomous is just not living up to expectations i know shove it into the rocket thing because that's going very well uh but there you do a little bit, and I'm sure the movie you referenced has some of this, there's a pretty thin line between being a visionary and committing outright fraud. And that is, if you can paint an extraordinary enough vision and you are credible, and to be fair, he keeps delivering for shareholders.

[18:12](https://realalpha.app/v/sxlPYNAERL4/?t=1092) Shareholders want him to continue to do this. I'm a Tesla shareholder. Oh, God, this does feel kind of scary. Oh, wait, I'm going to own SpaceX? Great. And then he can stare down the SpaceX shareholders who I believe are on the wrong side of this deal and say, bitches, I have always delivered and I will continue to deliver. And this is the reason why we're doing this. It's going to add a lot of type line revenue. It's going to add a lot of manufacturing scale. But the idea of a brand being promised versus performance, he exudes, no one has ever at a greater ratio of promise to performance, even distinctive as incredible accomplishments, than Elon Musk. So I totally agree. I do think, though, that this isn't necessarily good for Tesla shareholders. And I think that's right. We should just discuss like how this merger would actually work. Like how would these two things come together? What would probably happen is that SpaceX would acquire Tesla and they would offer Tesla investors SpaceX stock and then Tesla shareholders will convert their existing Tesla shares into SpaceX shares. The price will be determined by the boards. It's expected or RBC predicts that Tesla shareholders will get a 20 to

[19:28](https://realalpha.app/v/sxlPYNAERL4/?t=1168) 30 percent premium. So you might think, oh, that's good. Like you get paid more than it's currently trading at right now. You're going to get rich. But you also have to remember that the currency is going to be the spacex shares and the price of those shares is based on whatever the current market value of this of spacex is so you know your shares will convert and you'll look like you're 20 rich you're like oh my god that's great but then if spacex stock falls by 20 the next day then you're not actually getting a premium and my view is that that that could very very easily happen and the reason i think that is because i think the spacex valuation is basically bullshit and the reason it's bullshit is because the float is still incredibly small it's still around 15 to 20 percent and you look at a company like NVIDIA or microsoft these actual multi-trillion dollar companies they have floats of almost 100 all of their shares are trading and so the spacex shares right now are not experiencing genuine price discovery because only a fraction of them are

[20:31](https://realalpha.app/v/sxlPYNAERL4/?t=1231) **Ed Elson:** actually being publicly traded and the smaller the float the more you can manipulate the price with extremely large shareholders.

[20:37](https://realalpha.app/v/sxlPYNAERL4/?t=1237) And we have every reason to believe that that is happening, especially for this company, which is saying it's going to raise hundreds of billions more dollars in the future, which is why I believe all of the investment banks are pumping up the price in their investment research such that they have a better chance of underwriting these debt and equity offerings that are going to come down the pipeline, which is exactly how the investment banks make money. And, you know, I get that that right there is kind of a conspiracy theory, but I do believe it's true, especially considering what we saw last year where the SEC eliminated the one law that was designed to prevent this conflict of interest from happening.

[21:13](https://realalpha.app/v/sxlPYNAERL4/?t=1273) happening. So now I see this happening. They got rid of the law. It's like, yeah, I think that these price targets from these banks are total bullshit. I think it's ridiculous that Raymond James is saying that SpaceX is worth $10 trillion today. So I believe that the price is being extremely inflated right now. I think it's being manipulated. And Elon is deciding, OK, now that my shares, these SpaceX shares, are worth saying that this company is worth $2 trillion, even though that is a bullshit number in my personal view. I'm going to use that as currency to go out and buy Tesla. And the ultimate reason why I think that he is doing this, one is the multiple and the brown laundering.

[21:53](https://realalpha.app/v/sxlPYNAERL4/?t=1313) But I think the biggest reason is that this is going to consolidate massive amounts of power. And that is that SpaceX has a dual-class shareholder structure. Elon has 80% of the votes. Tesla does not. he only has around 20%. And this is why he's had problems when there have been shareholder lawsuits. And he's tried to reincorporate the company in Texas. And he was able to kind of get around some of those things and bend the company to his will. But ultimately, he only has 20% of the votes. But by converting Tesla stock into SpaceX, and they're going to use the non-voting SpaceX shares as currency here, that is my prediction, he is going to eliminate essentially all of the shareholder protections that have gotten in the way of him doing whatever he wants at Tesla.

[22:40](https://realalpha.app/v/sxlPYNAERL4/?t=1360) So it's going to basically mean that he has 80% control over this entire merged corporation, whereas before he only had 20% of Tesla. So this essentially just gives him more power. It consolidates more of the influence into his hands. I think that that is his ultimate goal. And he said this before. He says he doesn't like being a public company because it means he has to deal with shareholders and shareholder lawsuits. That's why he moved from Delaware to Texas. This is like his whole thing. So ultimately, what it means for Tesla shareholders, I think, is you're giving up your voting rights once you do this.

[23:16](https://realalpha.app/v/sxlPYNAERL4/?t=1396) And I think that's definitely going to happen. And then also, you're buying into a company whose $2 trillion valuation is extremely precarious right now. And based on what I believe is a lot of financial manipulation. We'll be right back after the break. And if you're enjoying the show so far, send it to a friend and please follow us on YouTube, Spotify, or wherever you at your podcasts. inspect, edit, and publish in one place at a whole new pace. On Framer, agents and humans work in tandem. Agents bring speed and scale while people bring taste, judgment, and control. And that all takes place in the same workspace where the real site is designed, managed, reviewed, and published.

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[25:25](https://realalpha.app/v/sxlPYNAERL4/?t=1525) Hear from iconic investors, including Stan Druckenmiller, John Gray, Rick Reeder, and Gene Hines as they revisit the calls that worked, the ones that didn't, and the moments that changed their thinking. You'll hear in their own words how they built conviction, what happened when certain calls didn't play out as expected, and what they learned from those moments. Watch or listen to Hard Lessons wherever you get your podcasts. support for the show comes from bcx the public ticker for private tech for generations american companies have moved the world forward through their ingenuity and determination and for generations everyday americans could be a part of that journey through perhaps the greatest innovation of all the u.s stock market it didn't matter whether you were a factory worker in detroit or a farmer in omaha anyone can own a piece of the great american companies but now that's changed today our most innovative companies are staying private rather than going public the The result is that everyday Americans are excluded from investing and getting left further behind while they select.

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[27:56](https://realalpha.app/v/sxlPYNAERL4/?t=1676) like in the world of bullshit pick your fighter bernie madoff or elizabeth holmes in terms of valuation here i get why you would say and we've said this that spacex is dramatically overvalued But SpaceX still has the promise of—Tesla has no moats. BYD is making a better Tesla for half the price. The entire rest of the world has 8% of the launch payload capacity right now. I can tell you personally, there is nothing like Starlink. Nothing. I think there will be eventually, but there's nothing like it. XAI, the AI portion of SpaceX, is up 9x. Now, granted, it's off a small base, but that story has legs.

[28:42](https://realalpha.app/v/sxlPYNAERL4/?t=1722) The Tesla story is running out of steam. It's like, I feel like it's one of those TikToks you see of the guy in the 26th mile who collapses and this great guy who would have won the silver medal picks him up and we're all like, oh, well done. They're in a triathlon and Tesla is out of. I'm out of steam here because, and when you talk about governance, oh, he'll get control. For God's sakes, he committed securities fraud at Tesla. And the board didn't even kick him up to chairman for a week and then make him see it. They gave him a trillion dollars off. Yeah. So the notion that Musk isn't in charge of Tesla is, I mean, maybe it makes it harder for shareholder lawsuits, but be clear.

[29:28](https://realalpha.app/v/sxlPYNAERL4/?t=1768) I mean, there can only be one. and he sits on the iron throne. The board members aren't even allowed to, I don't even know who's on the board. They're not even allowed to talk. It's like his brother, yeah. Yeah, so basically he puts him on the board and says, bitch, I'm gonna make you rich. And occasionally you can, you know, you're gonna come to product demos and you're gonna make a bunch of money, but be clear, you're not a fiduciary for shareholders. You're a fiduciary for Elon Musk. Anyways, the governance is not the motivation here. It's a free, he's like, while we're at it, let's make sure I'm in control of both companies legally and not just practically.

[30:00](https://realalpha.app/v/sxlPYNAERL4/?t=1800) But it's something that Tesla shareholders technically lose. And I think this is my view. It's like, I can see how Tesla shareholders might feel that they're getting a good deal, but I think we should be real about all of the ways in which they're also getting screwed and all of the ways in which the bag that they're going to be holding is equally premised on BS narratives about the future. like the gift that he's giving them is their current narrative bs narrative about humanoid robots that one is running out of steam and people aren't buying it anymore and so he's doing this grand kind gesture of okay here's another narrative which is also bs but it's just newer and so it's more exciting and also i think it's financially manipulated because the float is so small So it's easier to pull off this circus act.

[30:50](https://realalpha.app/v/sxlPYNAERL4/?t=1850) But to me, it's like, okay, I can see how that will be, that might be good for shareholders in the short term. But ultimately, I think you're running into the same problem, which is like, this is still a bunch of bullshit. Like, this is still a bunch of, you know, as you said, pulling rabbits out of the hat that, you know, God bless Elon Musk for finding another rabbit. it i'm just gonna uh propose my my final little conspiracy here i was thinking about this like okay we're all tesla shareholders because we all own the s&p so i own tesla whether i like it or not what's gonna happen Ben. to my Tesla shares when they get acquired by SpaceX.

[31:35](https://realalpha.app/v/sxlPYNAERL4/?t=1895) I mean, for one, I'm immediately, those shares, I mean, we'll see what the S&P will do about it. Sometimes what the S&P does is they remove it from the index. But I think this is worth really digging into because my new conspiracy theory is that I think that this might be his way of false tracking SpaceX into the S&P, which currently it cannot join because the S&P has these strict laws on profitability on the float requirements on how long you've been trading publicly all of these things which make spacex not eligible for index inclusion and it won't be for quite some time of course they got included in the nasdaq because they cut a deal with the nasdaq and they decided to change the rules but everyone was was kind of breathed a sigh of relief when the s&p came out and said we're not going to include spacex but i just want to read to you one of the exceptions to the rules. And this is, I'm quoting from the S&P's bylaws, quote, non-S&P composite companies that acquire S&P composite index constituents, but do not fully meet all of the eligibility criteria may still be added to the S&P index at the discretion of the committee if the merger consideration includes the acquiring company issuing stock to target company shareholders,

[32:51](https://realalpha.app/v/sxlPYNAERL4/?t=1971) which is exactly what's going to happen. And the committee determines that the addition could mitigate turnover and enhance the representativeness of the index as a market benchmark. In other words, there is an exception to the rule, which is you might not be profitable, you might have an artificially low flow, you might not have been trading for very long, but if you are large enough to go in and inquire another company that is systemic to the S&P, which Tesla is, then the S&P committee has the right to say, okay, that's good enough, and we're going to include you. So I could see this turning into the grand circus act of Elon's going to acquire this company and that way SpaceX is included in the index. And then none of us have a choice. We all own SpaceX, which puts enormous amounts of buying pressure on the stock, which artificially inflates the price even more. I know I'm being conspiratorial and I'm open to that not being the case. But honestly, given Elon's track record, I genuinely think that that is going to happen here. Well, JP Morgan said that a stock for stock merger could give the S&P committee grounds to make exceptions to some eligibility rules, right? Because you noted.

[34:01](https://realalpha.app/v/sxlPYNAERL4/?t=2041) You're supposed to trade for 12 months. And other laws, other restrictions, which they don't meet. And other restrictions, yeah, float, et cetera. And JP Morgan also estimated that inclusion would create a passive buying equal to about 10% of the combined company's free flow, which is real. Now, what you said that I don't, and I don't know the mechanics of this, but I think this is going to be a merger, not an acquisition, in the sense that the special committees, so you form a special committee, and the special committee is supposed to do real work with the investment bank to say, does this make sense? Can we justify it? What happens if this goes wrong? Is the CEO just building an empire? CEOs have a tendency to want to do acquisitions. Why? Because their compensation is driven by a compensation committee on the board that hires Towers Perrin because we don't like to do any actual real work. And Towers Perrin, who we pay $200,000, comes in and says, okay, Janet Robinson is the CEO of a $5 billion media company. And on average, the CEO of a $5 billion media company makes $8 million a year. And then what happens is we go, well, Janet's a good person and she's working hard. We don't want to pay her at 50%. We'll pay her at 60%,

[35:10](https://realalpha.app/v/sxlPYNAERL4/?t=2110) which doesn't sound like a lot. But when you're paying 20% above the mean every year, what that means is every three or four years, CEO compensation is doubling and is the reason why in the last 40 years, CEO compensation has gone from 30 times the worker to like 600. Yeah, well, it's just been totally out of control. So my point is there's an incentive to make acquisitions even when they don't make any sense. And every CEO is hoping for a transformative acquisition like what Zuckerberg did with Instagram.

[35:38](https://realalpha.app/v/sxlPYNAERL4/?t=2138) **Scott Galloway:** The reality is about 7 in 10 acquisitions end up destroying shareholder value.

[35:43](https://realalpha.app/v/sxlPYNAERL4/?t=2143) Now, if I'm on the special committee representing SpaceX shareholders, I'm like, okay, they're making an argument around scale. The company has manufacturing, supply chain expertise. It's going to give us a lot of top line revenue. All right. But Jesus Christ, 300 times earnings. And wait, you want me to pay a premium? Fuck you. I mean, no, I think they're going to have I think the special committee at Tesla is going to have a lot more eye rolling at current valuations. They're going to say our total addressable market is the universe, is the galaxy. And, you know, go on to list all the things I'm talking about.

[36:22](https://realalpha.app/v/sxlPYNAERL4/?t=2182) And we're paying 300 times for a company that's revenue growth is flat. And you want us to pay. pay a premium because supposedly we're on top here and we're the acquirer. You're saying, sorry, the SpaceX board is going to roll their eyes. Excuse me, the SpaceX board. I think of any special committee. Of which, by the way, he has 80% of the voting power. Assuming these guys want to write a report such that they're at least defensible in court, you know, in assuming these people actually do their job and are counseled by anybody, they're going to go. Why do you think that? They don't. I mean, we saw what they said in court.

[36:59](https://realalpha.app/v/sxlPYNAERL4/?t=2219) They don't have a spine, right? I mean, that was Tesla that we saw. Okay, stock price. The day after it starts trading as a combined company, right? SpaceX is, okay, SpaceX, you not only overpaid, you grossly overpaid, right? So I just don't, I think they're probably going to end up in just a like for like. Like, what is the share price on the day of closing? And we do a like for like exchange. I don't see why SpaceX would pay a... and part of what you do on a special committee is you do benchmarking you say okay the first benchmark is what would someone else pay for tesla and the answer is they pay 30 cents on the dollar there is no one out there that would even pay the current price much less a premium who on earth who apple would apple pay apple for a premium what is tesla 1.4 trillion or something what would Apple is literally like the probably the only company viable competitor or viable acquirer from Tesla. Tesla has a 1.5 trillion. They would have to pay $2 trillion. They're going to take a 30 or 40% dilution to buy Tesla. No, they would never do that. So the special committee, if they do anything, and the special committee owns shares of SpaceX. So they do have a vested interest. My point is, I don't think there's any way Tesla is going to be able to

[38:23](https://realalpha.app/v/sxlPYNAERL4/?t=2303) argue on any level and also not create a fairly significant ugly hangover the first day that starts trading as a post as a windup. Now, having said all of this, Ed, I think this all may be moot. I think the wolves are coming for this guy. And when I say this guy, I don't mean these companies. I mean, this guy, I think there are so many elected representatives who will be hitting subcommittees on commerce, defense, intelligence. They're going to go, let me get this. This guy was throttling back. Starlink? As inbound projectiles from Russia came in? Bitch, you have some splaining to do. Oh, and by the way, you want us to approve or not have CFIUS reviews up your ass and all sorts of antitrust up your ass?

[39:19](https://realalpha.app/v/sxlPYNAERL4/?t=2359) And just to clarify for listeners, what you're referring to is what we heard last week, which is that in Ukraine, their drones, which rely on Starlink and StarShield, which are SpaceX products, their drones started falling out of the sky because Starlink just was turned off randomly. And reports say that it was Elon who did this. That is what The Wall Street Journal has been reporting on. But Elon saying, oh, no, I don't make these decisions. This is a decision by the government. And then Trump came out and said, I wasn't responsible for this. So everyone's kind of pointing fingers as to like who was responsible for this decision. But it's clear, I mean, at least to me, I mean, read between the lines however you'd like. Seems to me like Elon, who has expressed that he doesn't want to be seen as someone who's providing protection for Ukraine in a war, who I believe has criticized Zelensky publicly.

[40:14](https://realalpha.app/v/sxlPYNAERL4/?t=2414) — Zelensky has gone too far, was his tweet from two weeks ago. — Right. So the idea that it wasn't Elon Musk who turned those things off seems to be a little bit ridiculous, especially given his track record of lying. So you're pointing out, like, you know, that's worth an investigation. Is Elon Musk controlling the trajectory of geopolitical warfare, a war in which we're supposed to be defending our ally in Ukraine? Is he controlling that trajectory and then denying it? in which case does that warrant review does that warrant congressional testimony probably probably warrants a federal investigation these guys are going to ask this guy to put his elbows in the tail table and cough for the next four years they are going to probe him like i he's going to wish he could go for a five-year colonoscopy versus what's about to happen to him because can i just clarify that like because you're saying that you know democrats are going investigate him he's going to be having his arms over the table coughing elbows i know that car elbows by the way which means you haven't had your prostate checked it's never too early to start ed it's never too early to start elbows so uh because i saw that cara swisher

[41:26](https://realalpha.app/v/sxlPYNAERL4/?t=2486) uh said something similar on the bulwark where she was like this guy might go to prison. And I know that she's getting a lot of flack and a lot of- Let's be clear. She said that he'll be investigated. He'll be investigated. Okay. Well, she's getting criticized for suggesting that we use political power. And when the Democrats take over, we just investigate people and send them to prison. And that's how Elon has responded to her. And he said, like, okay, game on, essentially. And it's flaring up into kind of like a pretty intense and nasty political debate. The criticism of her was, what are you investigating him for?

[42:04](https://realalpha.app/v/sxlPYNAERL4/?t=2524) What is the problem? Or are you just saying, I don't like Elon Musk, let's investigate him and let's send him to prison. I know that's, I don't think that's what she's saying. But for you here, what do you think that he is going to be investigated for that will warrant bringing him in for congressional testimony? I think that the Ukraine thing is certainly something. That seems pretty bad. But is there anything else that you're referring to? He is a traitor to the West, a traitor. And to think that he's not going to be have a full fucking body cavity search around the decision making and how on earth in a democracy we let an unelected official decide geopolitical strategy and warfield and and battlefield technology that threatens the sanctity of the West from an unelected.

[42:58](https://realalpha.app/v/sxlPYNAERL4/?t=2578) megalomaniac who sleeps with a loaded gun next to his bed who's addicted to ketamine. Let me repeat, Elon Musk is a traitor to the West. Your thoughts, Ed? I agree. I agree. I just wanted to clarify. I think the other thing that he could be brought in for is what he did with Doge and USAID. I mean, that's an investigation waiting to happen. The argument that is unfolding is that they're going to say this is lawfare. You're using political power to pursue investigations wrongfully. And then, you know, the Democrats will say, no, this is us using political power to pursue investigations correctly and righteously.

[43:40](https://realalpha.app/v/sxlPYNAERL4/?t=2620) And the question is— He may not be guilty of anything. I'm not sure he's even broken any laws. Right. But— But he's going to get hauled in front of Congress to explain his actions. Exactly. I mean, the idea that he's not going to be held to account at all for what has happened with the Ukraine-Starlink situation, that he thinks that he can basically just say, oh, I didn't know why that happened. I thought that the president of the United States... States was responsible for that. And that'll be the end of it when you're Elon Musk and you're worth a trillion dollars and you have control over companies that were three and a half trillion dollars combined. And you spent three hundred sixty six million dollars on the midterms after saying you weren't going to spend any money on the political midterms that you had done with politics. And after you spent all this money on Doge, which was a disaster and got shut down.

[44:21](https://realalpha.app/v/sxlPYNAERL4/?t=2661) So, yeah, I'm with you. I just wanted to hear a clarification because I know what the pushback is. they're going to say the libtards carol swisher and scott galloway are willy-nilly accusing elon musk of being uh a criminal and saying he should go to prison for no reason whatsoever and i just want to clarify that there is reason i don't know if he's a criminal i'm comfortable calling him a traitor to the west and by the way i i don't think he could have done this without trump's probably implicit approval i think trump's lying i think they both i think they're co-conspirators around this Ukraine thing. I agree. But the bottom line is he is going to be hauled in front of Congress. And if they think a bunch of AGs are just going to rubber stamp and not get in the way of this merger, oh my gosh, there's all sorts of reasons or quote-unquote legitimate concerns that regulators will have. It's going to be such a mess.

[45:19](https://realalpha.app/v/sxlPYNAERL4/?t=2719) Oh, it's going to be, he is going to be so busy fending off incoming. He's probably smart to be putting $300 million into the Senate races. If the Democrats take control of the Senate. 366, yeah. If I was worth $100, and I thought, okay, I really don't want Senate chairs calling me in front of the Intelligence Committee and the Commerce Committee, whatever it might be, I'll spend $0.30 to see if I can reduce the likelihood of that happening. That's what it is. If you're worth $100, would you spend $0.30 to try and get political advantage? It's no burner. I mean, Gary Stevenson said something so powerful.

[45:55](https://realalpha.app/v/sxlPYNAERL4/?t=2755) he said taxes prevent us from corruption. There are protection against trillionaires amassing too much power. When you can spend $300 million on a whim and basically buy a corrupt senator or try to with Paxton, why wouldn't you? So you need to tax. We can't have anyone aggregate that much power. It's never worked out. We never look back and think, wow, I wish Genghis or Khan had had more power. We never think that. We never think any individual. should have more power. We wish they'd had less. When they aggregate too much power and they have no checks and balances, as you could argue right now, two of the three branches of government are no longer a check on the president. That's when we get into trouble.

[46:44](https://realalpha.app/v/sxlPYNAERL4/?t=2804) But this is, we've spent the last 40 years thinking about how to create wealth. I think we're going to spend the next decade talking about the obligations of wealth. We'll be right back. And for even more markets content, sign up for our newsletter at profgmarkets.com. trust, check out LegalZoom. Say you're registering a business yourself, looks easy, sure, but getting one thing wrong can lead to penalties down the line. LegalZoom has 25 years and 5 million businesses worth of experience, so they can help you start off on the right foot. Once your business is up and running, they can also help you stay compliant. Tracking deadlines and filing reports so you're not hunting down answers yourself. And when it comes to creating a will or trust, LegalZoom helps you protect what matters, and they're accepted in all 50 states.

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[48:13](https://realalpha.app/v/sxlPYNAERL4/?t=2893) Go to Shopify.com slash ProfMarkets today to hear your first... Hi, everyone. I'm Kara Swisher. And I'm Sky Galloway. Twice a week, we get together on Pivot to sort through the biggest stories in tech, business, and politics. And we're taking the show back on the road for a live tour in November. So we'll bring hot takes. I'll bring the insight and the dick jokes. And Kara will try. Keyword is try to keep me in check. You'll get to see her hit me in person live. I'll do it. If someone has to do it. We'll cover AI, whatever chaos Washington has cooked up that week, and every billionaire misbehaving. That's all of them. And you'll also get to participate in audience Q&A. So bring your best questions. Scott will probably answer ones you didn't ask. We also have secret special guests, which you'll enjoy for every city.

[48:45](https://realalpha.app/v/sxlPYNAERL4/?t=2925) Get tickets at PivotTour.com. That's PivotTour.com. We are selling out, so don't wait. And we look forward to seeing you. We're back with ProfG Markets. We know the hyperscalers are spending enormous amounts of money on chips to fuel the AI build-out, but new reporting raises questions about how quickly those chips are actually being put to use. According to Business Insider, Amazon is spending billions of dollars a month on NVIDIA server racks and GPUs that it cannot immediately install. And as a result, a lot of those racks are sitting in warehouses waiting to be used. That raises a bigger question for investors.

[49:23](https://realalpha.app/v/sxlPYNAERL4/?t=2963) If demand for AI infrastructure is so strong, why are so many of these expensive chips sitting idle? Plus, the delays may extend beyond the hardware itself. Since September, eight data center listings have been pulled postponed or repriced raising further questions about the pace of construction and the viability of some of these ai projects um okay scott there's so much we can get into here with ai um just a lot of red flags last week i mean there there were the the the ipos for a lot of these data centers that were either pulled or they were delayed. We had Firmus, which cancelled their IPO. SP Energy delayed their IPO.

[50:07](https://realalpha.app/v/sxlPYNAERL4/?t=3007) Elise, which is another data center company. But they went public, and immediately the stock just craters more than 30% on day one, which kind of is a canary in the coal mine for what happens when AI data center companies go public. They don't do very well. We're seeing that the credit markets are souring on AI. We're watching credit default swap spreads exploding every day, and they're hitting record highs on some of the very big AI names like Oracle, even NVIDIA is rising, and CoreWeave, of course, hitting record highs. We have the ramp data showing that corporate token spending is slowing down. And then there was this warehouse story where we don't have many numbers on it, but it's a really interesting and concrete example of maybe the hyperscalers did overbuy because Amazon has a warehouse filled with GPUs and AI chips that were supposed to be generating cash today. That was what we were told. But instead, they haven't plugged them in. They're collecting dust and depreciating in real time. It all spells for anxiety in the AI trade. Lots to get into, but let's start with your initial reactions. I would argue you've been spending a little too much time with Paul Kedrosky and Ed Citrin. I think we're in the midst of a correction,

[51:23](https://realalpha.app/v/sxlPYNAERL4/?t=3083) but not an implosion. And that is, so first off, with respect to the GPU stacking up in Amazon,

[51:28](https://realalpha.app/v/sxlPYNAERL4/?t=3088) **Scott Galloway:** which is arguably the best supply chain operator in history, the bottleneck has moved from chips to electrons. And so the idea that when there seems to be the scarce resources chips and Amazon

[51:42](https://realalpha.app/v/sxlPYNAERL4/?t=3102) uses its muscle to stockpile them, thinking that's a smart move, and then we find that the bottleneck is around either power or data centers themselves, I don't think that's that unusual a story. And media has, media narratives have a momentum. Everyone gets in favor of something or you can just feel the momentum around what is the narrative. And the narrative right now is that the catbacks in AI is way out over its skis and there's no way they can get an ROI there and we're going to see a 99 or a 2000 like implosion. and part of that narrative i've been reading is that okay uh anthropic if you look at their numbers the media is saying all right on 16 billion in revenues they lost 80 billion all right that sounds very scary but what they fail to say is that 72 of that 80 billion dollar loss was the loss the accounting loss they have to take because of convertible debt that converts into equity.

[52:39](https://realalpha.app/v/sxlPYNAERL4/?t=3159) because the equity keeps going up in value. So really the kind of accurate number is they lost $9 billion on $16 billion in revenue. And I think they 9X'd their revenue year on year or something. So I do think these companies, the AI trade or the technology is still showing an unprecedented level of velocity, both in terms of revenues and adoption and new products and capital formation. Now, is that not to say there won't be a correction? I agree there's going to be a correction here. But right now, the narrative is kind of turned into this is so clearly a bubble waiting to pop viciously. And I'm just not sure I buy that.

[53:27](https://realalpha.app/v/sxlPYNAERL4/?t=3207) The neoclouds, Nebius is down 26 percent, Corio is down 27, Cypher Digital is off by half. And people are saying that the neoclouds are kind of the subprime lenders of AI, borrowed money, long-dated promises, and no power. But the thing is, everyone's saying there's a glut. In a glut, prices and margins fall. And it appears that the opposite is happening. AWS's operating margins rose from 33% to 39%. Google Cloud's operating margins went from 21% to 36%. If there was a glut, margins would be collapsing. Instead, they're expanding. There isn't too much supply. there's too little power. And construction delays are obviously really hurting here, but they're normal. They usually, I mean, if you've ever renovated a house, that's what usually happens here. But I think, I mean, what you're hoping for is a bit of a soft landing. And that is these things come down 10, 20, maybe even 50%. But at some point, the revenues, if these companies continue to grow, I read Anthropics S1 and everyone was like, came for them with knives out. And I thought, actually, this business just looks, it's kind of living up to the promise is the way I read it. You read the S1 or some of the reporting on the S1? Some of the reporting on the

[54:41](https://realalpha.app/v/sxlPYNAERL4/?t=3281) S1. Yeah. Okay. I mean, I don't want to read, I didn't want to read 68 pages of like how it's going to destroy humanity. The S1 isn't out, right? No, but this is, this is what it'll be though. It'll be 50 or 60 pages. I already know what it's going to say. It'll be 50 or 60 pages. the numbers have basically been linked by the bankers it'll be 50 or 60 pages of the business and then typically an s1 is uh let's describe the business then let's have a risk section will be 50 or 60 pages on the business and 100 pages on the risks. It'll be usually it's here's the business and these are the risks of the business. This S1 will be here's the business and the biggest risk is that the business is so successful it destroys humanity. It's going to be a very interesting read. But when I read the numbers that have been leaked or are a result of their latest round evaluation, I think the media is unfairly characterizing or playing down on the success of this company right now.

[55:41](https://realalpha.app/v/sxlPYNAERL4/?t=3341) Now, I think there's other threats on the horizon I'm going to talk more about in my prediction. But my sense of when I talk to people kind of in the know that work at these companies or are investing these companies, they're like, yeah, they're skeptics in the media. And then you sit down with them and you see their numbers and their growth. And there's just like, we've never seen anything like it. I disagree with you. Go for it. Yeah. I actually think that the media is not buying into necessarily this thing is going to be a disaster. I think when you look at a lot of the reporting, they're actually playing along with a lot of the accounting gymnastics that are making these businesses seem better than they are.

[56:17](https://realalpha.app/v/sxlPYNAERL4/?t=3377) I mean, the $80 billion loss, I don't think anyone took that seriously and was like, oh my God, they lost $80 billion. Like everyone knows that there is the giant caveat of the $72 billion write-off. So I think what people are more focused on is the $8 billion or the- It's not a write-off. It's the way it's accounted for. Conversion, excuse me. Convertible debt, the conversion. Yes. Yeah, it turns to a loss. I think what they're focused on is the $8 billion, which is a lot of money. And you point out that, like, the margins are expanding on these cloud businesses. But yes, but also the free cash flows are getting obliterated and they're now going negative.

[56:54](https://realalpha.app/v/sxlPYNAERL4/?t=3414) And the CapEx, you know, we're not seeing that in the margins because the CapEx has to get depreciated over time. But, you know, Amazon is negative free cash flow. Google, Meta just reported their earnings. negative free cash flow as well. And it's still up for debate, like, will the ROI appear? Will MetaMuse be enough to justify the $145 billion in capital expenditures that they're going to spend this year? And as they just told us this week, that might go up to $800 billion over the next few years. So they're going to spend hundreds of billions of dollars. And I think it is still an open question as to whether any of that will pay off.

[57:36](https://realalpha.app/v/sxlPYNAERL4/?t=3456) I think it is a very big one. Where I would agree... with you is that when you look at the stock market right now all of that anxiety all of that risk i think is being priced in and and you look at the stock performances of some of the names that you just mentioned uh nebius which is another neocloud down 31 over the past month core weave down 52 over the past month the bigger names oracle negative 15 micron negative 18 the the semiconductor basket, the whole ETF is down 15% in just the past month. And then you look at the multiples on some of these names, like NVIDIA, where, you know, its stock has gone up, but its earnings have exploded even higher than the stock. And so essentially what's happened is that the forward earnings multiple has gotten cut in half over the past year. And to me, that is investors saying like, yeah, we know that profits are rising, but we're anxious about the sustainability of these profits. So we're going to discount the future value of this company because we don't think that it's necessarily as reliable as we might have thought a year or two ago. And so that to me is the market saying like, no, we get the risks. We understand them. Like, I think investors are actually pricing this stuff in. And I don't think that was necessarily true

[58:53](https://realalpha.app/v/sxlPYNAERL4/?t=3533) for a lot of these AI names a year ago, but that's why a lot of them have kind of, you know, Some of them have lagged. Some of them have come down in recent months. So I think that there is significant risk here. I think that there is, I mean, I think we're seeing all of the telltale signs of a boom and bust cycle where, similar to the railroads in 1873, you buy a lot of this stuff. There's a gold rush. Everyone's excited about it. We buy as many chips as we can. And then we learn, oh, hold on. Actually, it's going to take a long time to build the data centers. it's going to take a long time to get the power generators and the power transformers connected to the data centers and connect this stuff to the grid. So actually, maybe we overbought because I know this because I'm looking at my warehouse and we've got billions of dollars of chips right now that are just sitting around collecting dust. So I think all of that stuff is happening,

[59:45](https://realalpha.app/v/sxlPYNAERL4/?t=3585) **Ed Elson:** but investors are pricing it in. The only place where I think that the bubble is not being acknowledged and is not being properly priced is in the private markets where i think that their

[59:58](https://realalpha.app/v/sxlPYNAERL4/?t=3598) risk profile is totally different i think that vcs in silicon valley are basically just like we love the technology this guy's an awesome founder who cares one and a half trillion dollars two trillion dollars doesn't matter but i think that when anthropic and opening i go public they're going to be entering into a different world where investors are going to be a lot more um discerning uh and i think that they're going to be in for a rude awakening because of that and we might have discussed that last week but to me the bubble in terms of where prices or or assets are not being correctly priced or risk is not being correctly priced it's in the private markets, whereas the public markets, you look at the valuations and they seem to be reflecting a cautious optimism about the whole thing. They seem to recognize that, yeah, CoreWeave might default. And that's why credit default swaps are skyrocketing right now. So I think the bubble's there, but it's priced. So when I was a sophomore at UCLA, I know you want more personal anecdotes. I do. I do. Every summer, by the middle of the summer, I would be or by the middle of school year, I'd be putting everything on credit cards because I'd run out

[1:01:10](https://realalpha.app/v/sxlPYNAERL4/?t=3670) of money. And my fraternity house bills would come and I wouldn't pay them. And the quote-unquote trustees of the fraternity were nice and would let me rack up debts. And I had 12 weeks over summer to make and save about $3,000. Otherwise, I wasn't re-enrolling at UCLA. And I would live on top ramen and bananas and milk, which I read you can live on. And you can. But as a treat, Every Sunday night, I used to clip a coupon out of the Daily Bruin and go with some of my teammates from the crew team. And for $3.99, we could go with our student ideas down to the Sizzler. And we could have all-you-can-eat salad bar and all-you-can-eat fried shrimp for $3.99.

[1:01:52](https://realalpha.app/v/sxlPYNAERL4/?t=3712) Wow. It would open at 4 p.m. on a Sunday evening or close for lunch. It would open at 4 p.m. We'd be there waiting. We would gorge for an hour. and then we would walk around and some guys who were crazy would run and then we'd go back at 8 p.m. and eat another 11 million calories. And I remember sitting there eating like seven pounds of bad fried shrimp and I was scared to stop eating because I'm like, all I have is bananas and top ramen for the next six days. And I feel like that's basically big tech and CapEx. I feel as if they're afraid to stop spending. They do see evidence that this shit is paying off and that the demand on a lot of scenarios feels infinite.

[1:02:39](https://realalpha.app/v/sxlPYNAERL4/?t=3759) Worried about falling behind and missing, it's like when Janet Yellen in stimulus, COVID stimulus, was just criticized, $7 trillion, flush in the economy, incredible inflation, 85% of recipients didn't even spend the money. You overdid it, Janet, or, you know, chair, Fed chair. Was she Fed chair or was she the head of? Treasury. Oh, she was head of Treasury. You, you know, Secretary Yellen, you blew it. And she said the risk of overspending was dwarfed by the risk of underspending. And I think that's how these guys are approaching it. The risk of missing AI and not making these huge expenditures.

[1:03:18](https://realalpha.app/v/sxlPYNAERL4/?t=3798) And also, it's kind of a moat. There's only a small handful of companies that can make these kind of expenditures. So they think capital as a point of differentiation, I'm meta. I can spend $40 billion, you know, whatever. Or I forget what they were spending per quarter. But what other sector could spend three quarters of a trillion dollars on CapEx? And sure, if it goes away, if it doesn't work out, notice how they're trying to offload a lot of these expenditures to other investors in the private credit markets and create separate entities such that if these things default, it won't hit their equity.

[1:03:53](https://realalpha.app/v/sxlPYNAERL4/?t=3833) Quite frankly, that's really financial or prudent financial management. But the existential threat here is the one you outlined, and that is the level of CapEx commitments these companies have made connotes the following, that this market will grow to $3 trillion in revenues, and right now all of big tech is $1.5 trillion in revenues, that AI is going to treble the spend on big tech with applications and B2B services that it is currently now. That is sort of the overhang or the existential risk. But, you know, the railroads, right? The technology survived, changed the world, a ton of bankruptcies along the way.

[1:04:35](https://realalpha.app/v/sxlPYNAERL4/?t=3875) And I think a lot of people are saying the same thing here. But I do think a lot of the, unfortunately, I think a lot of the traditional players are going to be the big winners here. And a lot of the newer players are going to be the ones that suffer. Agreed. I think that's all exactly right. it's like it's it's a classic boom bust it's a classic bubble and it's it's not like these companies there's not some you know grand conspiracy theory behind the thing like you look at the railroad company boom as an example those companies went bankrupt not because they were grifting their customers they went bankrupt because essentially because they had mismatched durations, which we've talked about a lot.

[1:05:13](https://realalpha.app/v/sxlPYNAERL4/?t=3913) They laid down too much railroad for traffic that didn't never come. It just didn't come on time. And so the companies that miscalculated their timelines and took on too much debt, they went out of business. They went bankrupt. And we're seeing the same thing here. It's like, I look at those chips in the warehouses, you know, in our conversation last week with Ed Zitron, And credit to him because he predicted that we would see exactly this story, that we would see warehouses filled up with chips that aren't being used. And to be credit to him, people were calling him crazy, saying it was ridiculous.

[1:05:50](https://realalpha.app/v/sxlPYNAERL4/?t=3950) Where I disagree with him is this idea that it was this sort of grand conspiracy theory that was concocted by Jensen Huang to sell more chips than the system actually needed. But no, it's just they thought that they were going to be able to get them online. They ran into this snag, which is that it's actually very, very difficult to get data centers online as quickly as they had hoped. And so now they have all of these chips that are depreciating. That is a bad thing. It's a problem that there is a snag in the supply chain here because it probably means that we're going to see more delays. It probably means that in their next GPU order, it's going to be significantly lower. It probably means that a lot of these data center construction companies are going to continue to struggle to actually start generating profits from those data centers. And they also have locked in these very, very high rates because they've been taking on debt, companies like CoreWeave, like basically all of the neoclouds.

[1:06:40](https://realalpha.app/v/sxlPYNAERL4/?t=4000) And yeah, it's going to be the same thing. It's going to be a handful of companies like them going out of business. And again, the markets are telling us that. Like you look at the names, the neoclouds, which are being taken to the woodshed right now. That's the markets just telling us exactly the story that we're laying out. So I guess it's kind of an interesting thing because it's all of the telltale signs of a bubble, but it's almost like the market is so aware of bubbles. Like we've watched the big short so many times. We're so familiar with what happened in 99 and 2000 that we're actually displaying a level of caution that maybe we haven't seen in previous boom bust cycles because it seems like the market continually is pricing in the possibility that this does go wrong.

[1:07:33](https://realalpha.app/v/sxlPYNAERL4/?t=4053) So until valuations go totally crazy, I'm not so worried about it. I think that this bubble is... And I certainly think it's infecting prices in the private markets. But, you know, I would want to see these hyperscalers trading at ridiculous valuations, trading at like, you know, 50, 60, 70 times earnings. I would want to see something like that before I say, oh my gosh, you know, stock markets about to crash. I don't think it's going to happen because I think investors are generally pricing things for the stocks that matter, pricing them sensibly, would be my view. Not true of anthropic and open air.

[1:08:13](https://realalpha.app/v/sxlPYNAERL4/?t=4093) Yeah, so you're saying the markets are sort of behaving rationally. And, I mean, what would Josh Brown tell us to do? He would tell us to buy NVIDIA, which is what, trading at 17 times earnings? What's it trading at? Yeah, I think 17 times forward, something around there. It's come down significantly. I've been thinking about it. It seems so cyclical. And as soon as it runs out, I don't know. I'm stuck on NVIDIA because it does feel a little bit dislocated, but I don't see how we don't see a massive slowdown in the AI cycle. And I don't see how the sentiment wouldn't continue to hurt NVIDIA. But on the fundamentals, I don't know. I'm a little stuck on NVIDIA.

[1:08:57](https://realalpha.app/v/sxlPYNAERL4/?t=4137) There you go. My final thing that I just want to bring up to you that I thought was really interesting, just looking at Meta's 10Q filing. So they said, quote, recent significant capital raises at other notable companies and others soon anticipated to take place to fund the same AI growth. For example, Alphabet, SpaceX, Anthropoc and OpenAI, here's the most important part, have resulted in an increasingly challenging environment for raising capital. um that to me was probably the most important sentence in the filing because they're basically

[1:09:35](https://realalpha.app/v/sxlPYNAERL4/?t=4175) **Ed Elson:** saying like this ai boom which has generally been funded with investors money not with profits that might be about to run out and i talk to my friends who run ai startups or who are investors

[1:09:48](https://realalpha.app/v/sxlPYNAERL4/?t=4188) in that ecosystem a lot of them are saying the same thing which is that the vibes seem to be shifting and capital isn't drying up but it's certainly a lot more a lot more hesitant you could go out and raise a billion dollar round easy no problem a month ago but that's not true today um that's what i'm hearing and it seemed to be reflected in that 10q are you hearing the same thing? It's the K-shaped economy. The companies backed by Sequoia and Andrews and Horowitz are eating Wagyu and Nobu, and the smaller companies and everybody else are buying groceries on buy now, pay later. There's just so much capital available, I think, for the perceived winners. I read the same thing you read at Meta. I read it as justification for them trying to figure out new stock issuance that lets Zuckerberg maintain control such that if the wealth tax passes, he can raise money without giving up his control of the company. I saw it as them trying to create a new class of stock that's non-voting such that he can maintain control and if he needs to raise what I think is like he needs to raise like $15 billion kind of overnight if Prop 40 or whatever it is goes through.

[1:11:04](https://realalpha.app/v/sxlPYNAERL4/?t=4264) So I didn't see that as a reflection on capital. I think it's both. I think it's both. I think they're saying like, we need to issue these shares because Mark needs to maintain control because we need to sell $800 billion worth of shares because we need to raise money for the CapEx. But I mean, they're going to spend this amount of money and they're running out of cash flows and they don't want to keep raising debt. But I think they're also, so that's one part of it. And then I think they're also saying, by the way, we might struggle. I think it's both. I think Meta's on such a role that I don't think everyone would pray for their problems in terms of their ability to raise capital.

[1:11:47](https://realalpha.app/v/sxlPYNAERL4/?t=4307) They're able to off-balance sheet a lot of their capital commitments. They're able to offload that risk to other private credit sources. Their stock, I think, is trading at a near all-time high. Their business is just firing on all 12,000 cylinders. If you want something that marks the age, it's meta up 26% with fewer employees. I mean, that's every politician and citizen's nightmare and every shareholder's dream, that a company this big can grow 26% a year with fewer employees. That's just, okay, where does that take us? But I didn't read it that way. Okay. Let's take a look at the week ahead.

[1:12:27](https://realalpha.app/v/sxlPYNAERL4/?t=4347) We'll see the Personal Consumption Expenditures Index for September and Consumer Confidence for October. We'll also get the Federal Reserve's latest interest rate decision on Calshi. The odds they'll hold... Steady are at 93%, and earnings will keep rolling in from Visa, Coca-Cola, Boeing, Google, Microsoft, ServiceNow, Amazon, Eli Lilly, Intel, and SanDisk. Scott, any predictions? Well, a small one and a bigger one. Eli Lilly has become, I think, kind of the AI trade of your waistline. I think it's going to show. I think it's going to even blow away its incredibly ambitious estimates. I think this is the most interesting company, at least to come out of Indiana.

[1:13:07](https://realalpha.app/v/sxlPYNAERL4/?t=4387) But I think that GLP-1s, and again, I've said that I think GLP-1s are going to be more transformative than AI, but I think we're going to see that in their upcoming earnings. My bigger prediction is my friend Whitney Tilson sent me a WhatsApp me with a friend of his views on a company. And if I were to ask you, what company in three years do you think will look back and think that was the big winner of this AI boom? Who would you say it would be? Honestly, meta. Oh my God. In my view. Wow. The student becomes the master. Is that your answer? Yeah, I feel like I'm on. Well, no, it's good. We agree.

[1:13:49](https://realalpha.app/v/sxlPYNAERL4/?t=4429) I think I'm on what's it called? The starship or the Death Star. And I'm Obi-Wan Kenobi aging with my shitty little limp dick laser or lightsaber. And you're about to send me back to, I think I turned back into Anakin Skywalker. Do I get some sort of redemption? Anyways. But let's hear it. Yeah. Meta. AI strategy is finally bearing fruit, and it's a business model only meta can execute on. Think about this. A lot of technologists are saying meta is arguably a parity with Anthropic and OpenAI in terms of the quality of their LLM. And here's the moat, the mother of the Amazon-like moat. Unmatched distribution. They have direct relationships already with 500 million businesses, which the other AI foundation models have relationships with thousands and a small number of them make up a huge percentage of their revenues. I don't think any one business or advertiser is more than like a third of a percent of Meadows revenues. So, okay, 500 million consumers? No, 500 million businesses. How many consumers? 3 billion every day. So when we talk about the future of AI, everyone said it's going to be, and Mark Benioff's been talking about this for years, the agentic layer where my travel agent is going to go talk to the agent, you know, the

[1:15:07](https://realalpha.app/v/sxlPYNAERL4/?t=4507) the compatible AI agents at Delta or at the Waldorf or wherever and negotiate with each other. Who can set that marketplace up faster than a company that already has 500 million relationships on the business side and 3 billion on the consumer side? So, and then it's app Muse is already number one in the app store. A huge moat in revenue unlock potential. And also they're talking about that Muse is moving to a confidential voicemail where even Meta can't see content trying to kind of address privacy concerns. If Zuckerberg just, and I agree, but by the way, but let's be fair, consumers have shown they talk a big game about privacy and really don't care.

[1:15:52](https://realalpha.app/v/sxlPYNAERL4/?t=4552) I know, it's not a bragging point for Muse for me. I get it. But if you take, I mean, I hate to admit this because I think he's a sociopath. I think Zuckerberg is arguably the best operator in business right now. And if you take these 500 million businesses, these 3 billion daily active users, and you layer on top of it a parity model and cash flow to support the ridiculous capex that's required here, these advantages compound. And so I see messaging, I see commerce. To me, and also just this is anecdotal evidence, I cannot get over how addictive and good Instagram has become. And it's AI. I literally feel as if they're reading my mind in terms of, Scott, we have an idea to keep you here for another 3, 5, 30, 60, 90 minutes.

[1:16:50](https://realalpha.app/v/sxlPYNAERL4/?t=4610) And they keep mixing videos with Great Danes and then Vivek Ramaswani's new Kalshipal. It's as if they're literally reading. They know what I want before I know. Yeah. And we see it in the numbers. I mean, the ads are double-digit growth in terms of impressions and also double-digit growth in price per ad. Targeting, they get higher CPMs because they can use that. But here's the crazy thing. So I 100% agree with you. And by the way, my victory lap is I bought it this year. I loaded up at 564. We're at 640. So I've locked in a kind of a big win on Meta. But still, one point. $6 trillion market cap.

[1:17:38](https://realalpha.app/v/sxlPYNAERL4/?t=4658) Anthropic is supposedly $2 trillion. Like, if there's any example of the dislocation between the private and the public markets here, it's like, that's ridiculous. Not only is Meta competing neck and neck with Anthropic, they also have one of the most profitable, best businesses in the world right now. The only thing that downside is that they're spending a shit ton of money on the CapEx, and it does look a little bit crazy. But in terms of the health of their underlying businesses and, like, who's really getting a return on AI, I mean, you've got to say, if we believe that the strength of the recommendation algorithm is a function of AI and machine learning, meta, it's right there.

[1:18:19](https://realalpha.app/v/sxlPYNAERL4/?t=4699) It's right there in the earnings. So, you know, how do you play, people are constantly, how do you play the AI trade? Is it NVIDIA? Yeah, that's a good, that's a decent one, decent PE, but it's the E that scares everybody. But I think on a risk-adjusted basis, the biggest upside in this AI world right now, if it's delivering it, both from a consumer standpoint, has the biggest moats, has the capital to engage in this arms race, and is showing they know how to leverage AI for their own internal purposes, I hate to admit it, it's Mark Zuckerberg and Meta right now. I think I agree. I think I might wait for a better entry point.

[1:18:56](https://realalpha.app/v/sxlPYNAERL4/?t=4736) You did agree. You guessed it. I did. Yeah. Correct. I'm just looking at the price now. I guess. You're starting to sound more and more like a signal award winner. My prediction, this is a hot take. I don't know if it's actually going to happen, but it's fun. I think that SpaceX is going to join the S&P, not because it actually qualifies for joining the S&P, but because it's going to take the backdoor option of acquiring Tesla. And that's going to be its shortcut into all of our portfolios. I hope it doesn't happen, but I think it will. this episode was produced by claire miller and allison weiss and engineered by benjamin spencer our video editor is jorge carty our research team is dan chelon kristin o'donoghue and mia silverio jake mcpherson is our social producer drew burrows is our technical director and katherine dylan is our executive producer thank you for listening to prof g markets from prof g