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Sign up for your one euro per month trial and start selling today at Shopify.nl. Go to Shopify.nl. That's Shopify.nl. Power your business with the platform trusted by millions today. Today's number, 3.5 million. That's how many Epstein files were released by the Department of Justice last week. Mentioned in the files was Elon Musk, who apparently did not go to the island, but he did try before being politely rejected. We're not sure what's worse. Money market's mad. If money is evil, then that building is hell. The show goes on! The folks in there are ones that show, show! Welcome to Profit View Markets. I'm Ed Elson. It is February 4th. Let's check in on yesterday's market vitals. The major indices declined amid a broad tech sell-off. Software companies weighed down the market after Anthropic released an automation tool for legal work. The tech drawdown hit Bitcoin as well, dragging it to its lowest level since November 2024. Meanwhile, Disney shares slid again after the company named Josh DeMauro, chairman of the Experiences division, as its next CEO. By the way, Rich Greenfield predicted that on our episode yesterday. And Netflix shares fell as the Senate antitrust hearing on the Warner Brothers deal kicked off. A couple of stocks bucked the downward trend. Walmart rose as much as 3% and joined the $1 trillion market cap club. And Palantir gained more than 6% after reporting record revenues and profits for the past quarter. Outside of the stock market, gold and silver paired some of their losses. And finally, oil rose after the US shot down an Iranian drone headed towards an aircraft carrier in the Arabian Sea. Okay, what else is happening? Elon Musk's empire is consolidating. SpaceX has acquired XAI, creating a combined entity worth $1.25 trillion. That makes it the most valuable private company in history. Musk is calling it, quote, the most ambitious, vertically integrated innovation engine on and off Earth. And the logic behind the deal is bold. It is a bet on space-based data centers, which Musk believes are, quote, obviously the only way to scale AI. The all-stock deal comes just a week after Musk announced that SpaceX will go public later this year. Okay, here to discuss the deal. We are speaking with one of the reporters who actually broke this story. Ed Ludlow, co-host of Bloomberg Technology on Bloomberg Television. Ed, thank you for joining us on Profit Your Markets. Yeah, thank you for having me in. Big story. Big story. So I guess just tell us the basics. You're the one who broke this. SpaceX and XAI merging together. What do we know so far? Yeah, it's an all stock transaction that values the kind of entire entity at 1.25 trillion dollars the spacex bit 1 trillion the xai bit 250 billion dollars but there's like some structural things that are important which is the xai basically operates as a subsidiary of spacex which is important because spacex is subject to itar rules right rules that govern the use of technology and defense applications and so like my understanding and our understanding and our reporting is that, you know, even though they're now combined, XAI kind of continues to operate independently as its own company. How does this change things for the IPO? Because obviously SpaceX is going to be the biggest IPO of the year, one of the biggest of all time. Does this change things there? Yeah. Isn't that the $1.5 trillion or more question? Right. Our reporting and our understanding is that the work continues for SpaceX and now the combined entity to do an IPO. In the summer, we had reported it would be at the midpoint of this year. And while out there from the sell side, from lots of people that follow these companies closely, there are still questions about whether it happens. The ultimate rationale behind this, right, is data centers in space. And at the time that we broke the story on why SpaceX would go public and its motivations for needing to raise tens of billions of dollars, it was quite simple that there is an ambition in place for space-based data center infrastructure. But somebody's got to buy the GPUs, right? That's the kind of fixed cost. And based on our reporting in the days around this, all of that is still holding true. So this data centers in space thing, which, yes, that is what they've said. He wrote, the idea is space-based AI. That's the only way to scale. So could you just break down what that is? That is literally, let's take these data centers that exist on the ground, and instead of having them on the ground, we're going to have them in orbit in space because there's not enough space in the ground. I mean, why do we need to put data centers in space? To Elon Musk's mind, literally, you know, pardon the pun, there's more space in space. The simple way that Musk explains it is that right now, the limiting factor for scaling AI on Earth is energy, right? You know, there's a great burden on grids across North America and other countries and other jurisdictions. Water consumption is an issue, impact on communities, and literal space to build the data centers. if you put a data center in the form of a satellite and put it into orbit the energy question is solved by solar to the mind of those advocating for this uh you have to handle cooling and and space is a vacuum and into the mind of the engineers working on it that's easily solved and you have plenty of real estate let's call it in space to build on and and that is the vision that that elon musk is pitching here um it's it's a horrible term when you're when you're a financial news journalist but but what we're talking about basically is vertical integration deeper vertical integration right starship provides the rocket that carries these satellites into orbit and deploys them they are data centers to all intents and purposes xai has trained the models but also those models need to be run inference which you guys know That is all outlined in the public comms that SpaceX and XAI put out there, but also the internal comms that we've reported on around this too. As I am somewhat of an Elon Musk skeptic, and as the musk skeptic my view when i see this is he's saying that the idea is that we got to put these data centers in space how do we do it don't ask too many questions the ideas we'll get there we'll figure it out at the same time xai is a company that is competing with the likes of open ai and anthropic these companies that are burning through billions of dollars in cash and they're having to raise billions of dollars in cash, and XAI is itself burning, I believe, a billion dollars a month. And so when I see this, my initial reaction is, this is the saving grace of XAI. If things aren't looking difficult over at the AI company, well then why not just roll it up into the bigger company, which perhaps has more cash to play with to invest in the AI models and training. Is that too cynical? What do you think of that perspective? There are lots of investors and people in the markets that are skeptical about the financial rationale for this arrangement, combining private XAI with private SpaceX. And what we had also reported last week is that Elon Musk had looked at two distinct scenarios. One scenario involved SpaceX combining with Tesla, which is, of course, a public company. um bloomberg has reported that xai is burning a billion dollars of cash per month and on a quarter basis you know you can put that in aggregate it also has a large debt burden which is now on the balance sheet of space spacex technically um those that would push back against those concerns would say well we also learned quite a bit about spacex's financials revenue is growing with starlink now a majority contributor as opposed to launch being a majority contributor. And on an EBIT basis, at least, it is profitable. And so they're not concerned about SpaceX needing to service the XAI debt or account for the losses at the XAI unit. But again, the public commentary from SpaceX and from Musk is that this is about deep vertical integration. It makes the use of the talents and resources of both companies to the maximum effect, which is AI development, whether that's here on Earth or up in space. So, Ed, I know you've been looking at this for a long time, reporting on it, observing what's happening, and, you know, your job is to be objective on both sides. I would love to know what you think the real motivation is, because it seems like there are two things at odds here. There's the financial picture. You bring up the amount of cash they're burning. You bring up the debt picture at XAI, which is, you know, a question. And then there's the deep vertical integration pitch, which is coming from SpaceX. And they're probably saying, no, it's not about the financials. It's because there are synergies here on the business side. What do you think? What is the true strongest primary motivator for Elon Musk to merge these two things together? Yeah, none of this is that big a surprise. It's kind of consistent with what we've called Elon Inc. Elon Musk has many ventures. They've always had historically close engineering and financial ties. There have been engineers that have worked on materials at Tesla and worked at SpaceX. Some of the results of SpaceX's more recent success, like the heat shielding on Starship, A lot of Tesla engineers touch those hands. A lot of Tesla engineers were the reason that XAI could build its data centers in Tennessee so quickly. This kind of intercompany cooperation is not new. The financial part is also not that new, right? XAI has been a buyer of Tesla's energy products. From Tesla's earnings recently, the company disclosed a $2 billion equity investment in XAI. It's all kind of linked. last august we we did this as the cover of business week magazine you know that that you know six months into the the trump administration's term in office um what was it that elon musk was trying to get out of being in and around the white house working with doge and it was that a lot of the priorities that he had for his different companies were kind of aligned all around ai you know and and having proximity to that administration allowed him to try and influence things that would help those priorities. But yeah, it is AI at the end of the day. Tesla is hard pivoted away from cars. It now needs to develop the software part of AI for autonomous driving and the Optimus Humanoid Robot program. XAI, per the regulatory filing in the week, it's not just a financial investment that Tesla's made. They have a framework to now share and work on the technology. So fast forward, the future is that all of these companies kind of work in parallel. What will the space data centers actually be doing? Inference in space, right? Running inference on Optimus or running inference on models that are underpinning something else, be it the RoboTaxi network. It's kind of been hiding in plain sight a little bit. Do you think ultimately they all merge with Tesla? I mean, the way you describe it, Elon, Inc., It's a good point. They're all kind of collaborating. It seems as though maybe the ultimate goal is, yeah, just roll it all up into one company. How likely do you think that is? Yeah. Our reporting is still that like the SpaceX XAI combined entity is going to do an IPO later this year. But actually loads and loads of people's immediate reaction to the news was, okay, Tesla must be next. Fold Tesla in some way. People just think that that is the logical step to make. When we did the August edition of Business Week, it was well reported. And in conversation with all of these sources in close proximity to the companies and Elon Musk, there is a perception, a realization that if you took these massive companies and tried to fold them into one conglomerate in any environment, that would be tricky. Regulators will look at it for one reason or another. The mechanics of it would be difficult. And again, I go back just to the reporting about the two options that we believe were looked at, SpaceX plus Tesla or SpaceX plus XAI. And in the first instance, they went with SpaceX plus XAI. But there were a body of SpaceX investors with a meaningful footprint on the cap table that looked at it. And to them, the Tesla combination made a lot more sense than the XAI one did, not just because of the sort of financial health of such a transaction, but because what they were working on, you know, at scale, manufacturing, vertical integration of those more analogous industries. So to those investors, it was completely obvious. Really fascinating. Ed Ludlow, co-host of Bloomberg Technology on Bloomberg Television. Ed, thank you very much for joining us. Thank you for having me. After the break, Oracle takes a plunge. And for even more markets insights, you can subscribe to my weekly newsletter, simply put, at edwardelson.substack.com. cash flow to semiconductor suppliers growing revenue over 20% a year over year. You can literally type any prompt and put the AI to work. It screens thousands of stocks, builds a one-of-a-kind index, and lets you backtest it against the S&P 500. Then you can invest in a few clicks. Generated assets are like ETFs with infinite possibilities, completely customizable and based on your thesis, not someone else's. Go to public.com slash ProvG and earn an uncapped 1% bonus when you transfer your portfolio That public slash prop G Paid for by Public Investing Burford Services by Open to the Public Investing Inc Member FINRA and SIPC Advisory Services by Public Advisors LLC SEC Registered Advisor Generated assets is an interactive analysis tool. Output is for informational purposes only and is not an investment recommendation or advice. Complete disclosures available at public.com slash disclosures. we're back with prof g markets oracle has set investors on edge on sunday night the company announced plans to raise up to 50 billion dollars to fund its cloud infrastructure it launched the first part of that financing on monday with a 25 billion dollar bond sale that actually drew record demand. But enthusiasm quickly turned to concern as questions resurfaced about a related matter, specifically NVIDIA's investment in OpenAI. As a reminder, back in September, NVIDIA announced it planned to invest up to $100 billion in OpenAI. However, CEO Jensen Huang recently clarified that that figure was, quote, never a commitment, and it appears that the investment has stalled. That poses a serious risk for Oracle as roughly half of its $625 billion in future revenues are made up of spending commitments from OpenAI. So the question is now louder than ever. Will OpenAI be able to pay up? In total, Oracle stock has fallen roughly 10% since Sunday night. Here to walk us through the situation at Oracle, we're speaking with Gil Luria, head of technology research at DA Davidson. Gil, thank you for joining us. Thanks for having me. So there are a lot of moving parts here. Oracle says that they're going to raise $50 billion worth of debt and equity. They go out and they raise the debt successfully, but the stock is sliding down around 10% in the past couple of days, and it seems to all have to do with OpenAI. Can you just give us the play-by-play? What on earth is going on with Oracle right now? You're exactly right. There's just a lot of moving pieces, especially the last couple of days. So let's just start with the fact that all of software is down a lot. And more than all of Oracle's cash flow comes from its software business. Let's not forget that. Oracle is mostly, almost entirely, a company that sells database software, enterprise resource planning software. That's where they get more than all their profits. And right now, the market feels like software is just a bad idea in general. So that's been happening at once. And then you have the fact that they're raising capital. and then they said that this is all the capital they're going to need this year. That's good. The fact that we're able to do at least part of the debt, we're not sure they're done, but at least part of the debt, that's good. Then you start getting into some of the other challenges. One is, that's it for this year, but for them to be able to build the capacity that they promised OpenAI, they're going to have to do this again next year and probably again the year after that, meaning raise another $50 billion next year and the year after that. What's happened is if you look closely at this debt issuance, it was not cheap. The rating agencies gave their secure debt, the senior secure debt, a triple B minus rating, which is to say just above junk bond status. This is a 50-year-old company that is now issuing debt almost at junk bond rates. So that's not good. They won't have any cash to pay that debt down. They're going to have negative cash flow this year. So a year from now, when they need to go back to the debt markets, that's going to be junk bonds. So even higher yield, higher interest expense. To add insult to injury, there's also the equity offering. They're doing what's called an at-the-market offering. That means that instead of doing a full issuance overnight, they're going to sell a little bit of stock every day. And our back of the envelope method, I can walk you through it, is that that's probably 10 weeks of them selling 10% of the daily active trading volume every trading day. So that's going to keep putting pressure on the stock possibly for the next 10 weeks. So those are some of the puts and takes here in what is a very dynamic, complicated situation. And where does OpenAI fit into all of this? because, you know, there was reporting that OpenAI had this deal with NVIDIA that maybe isn't as secure as people once thought. And then Oracle puts out this really fascinating statement. They say, quote, the NVIDIA OpenAI deal has zero impact on our financial relationship with OpenAI. We remain highly confident in OpenAI's ability to raise funds and meet its commitments. And then that statement goes viral. And everyone's kind of laughing and pointing fingers at the statement and at Oracle right now. So talk a little bit about how OpenAI fits into this slightly ugly picture for Oracle. Yeah, well, then there's all that. And that tweet was also unfortunate. That would do protest too much, right? And this is what a corporate account should be tweeting. I would take a look at that and I'm not sure what the instructions were but we've talked about the fact that Oracle is raising all this capital to build data centers for OpenAI so Oracle has to raise a lot of capital to build data centers for OpenAI for OpenAI to be able to pay for this compute capacity they need to raise a lot of capital as well and in fact, if you think about where Oracle stands in line it's important to see how much open AI can raise. If they can't raise enough, Oracle's not getting paid. Because Oracle's probably third or fourth in line in terms of who open AI is going to get paid, who open AI is going to pay when they raise the capital. If open AI doesn't raise enough capital, only Microsoft gets paid. Maybe Amazon. Oracle has to hope that open AI raises $100 billion or more to be able to afford its grand ambitions which include this open AI capacity. So one company raising debt at almost junk ratings in order to build capacity for a startup, a money-losing startup, that's still struggling to raise capital so that it can pay for it. We've talked about this. This is bubblicious behavior. This is not okay. This is unhealthy behavior. It may still work out because this AI stuff is great, but it's very, very risky type of situation for really for both companies. And it's really fascinating how it all kind of ties back to NVIDIA because it was all about NVIDIA investing the money into OpenAI and then that's the money they're going to use to pay Oracle. But there was this fascinating interview with Jensen Huang, which I would love to get your reactions to. He was asked about this $100 billion commitment deal that was talked about with OpenAI. He was asked about what's going to happen with that. And this is what he said. There was never a commitment. They invited us to invest up to $100 billion. And of course, we were very happy and honored that they invited us. But we will invest one step at a time. It seems that he's kind of frustrated in that video that people are saying that, oh, you're going to invest $100 billion. And he said, no, that's not what's happening. I would just love to get your reactions to how he sounded and also what he said. Yeah, there's a lot of things going on there, too. So, first of all, that $100 billion that was talked about a while ago, that was really just a framework for what I would call a rebate. NVIDIA agreed with OpenAI for every gigawatt of capacity that you get out there we invest billion at your current valuation which at the time was billion OpenAI hasn even deployed a gigawatt yet so they haven gotten that first billion So that was a framework. And I understand that Jensen's saying that. By the way, the conversation now is for NVIDIA to actually invest tens of billions of dollars actually at this level, not as a rebate, as is the discussion from Microsoft and Amazon, and to also invest in OpenAI. So again, it is quite possible that OpenAI raised this capital, but there's a lot of noise. In the last couple of days, there were news items about NVIDIA being frustrated with OpenAI spreading itself too thin in terms of the businesses it's deploying, in terms of the chips that it's buying. So there was frustration in NVIDIA. And coincidentally or not, there was a link from OpenAI that they're frustrated with NVIDIA's chip performance. So a little bit of childish conflict here, but at some point, the adults are in the room. NVIDIA has a very significant interest that OpenAI does well, right? Remember, if there's no OpenAI, there's no Anthropic, everybody's using Google TPUs. So NVIDIA needs OpenAI to do well, and it has the capital to invest, as does Microsoft, as does Amazon. So it is likely that those three will fund the continued expansion of OpenAI at least this year. But if you can imagine, if NVIDIA invested OpenAI, there are strings attached. There's no more discussion of other chips. And there certainly will not be communication out of OpenAI about NVIDIA chips not performing. So that's where we're at. A little bit of middle school drama. But at the end of the day, there's a lot of incentives going around to make sure that the investment continues. The debt picture that you described at Oracle in concert with the capital problem over at OpenAI and the fact that they need more money to spend on these commitments than they actually have, it's all very concerning. It's just like very flashing bright red signs when you hear that. we were, you know, a couple of years ago when Oracle started to position itself as a real AI player, we were quite bullish on the company and that actually, you know, paid dividends going forward. But it's now getting to the point where there are so many red flags here. Do you think that this is just a company that investors probably shouldn't touch at this point? Are we getting into a territory that is genuinely dangerous if you're buying Oracle? Or is it safer than I'm portraying? It is risky. And let me just put it in context. Oracle is still trading at 20 times forward earnings on what looks like low teens growth next year. Salesforce is going to grow low teens growth next year. It's trading at 16 times. Adobe is going to grow low teens next year. It's trading it 12 times. So Oracle, again, given where we are on software, Oracle is not cheap by any stretch of the imagination. The baseline database business does generate a lot of cash. The baseline Oracle cloud business was okay. It was growing fast, not very profitably, growing fast. The AI part of the business, the AI compute part of the business appears to be such low margin that it's not even clear that they should be investing in it. And yet again, to your point, they just borrowed a lot and they're issuing at least 5% of their shares in order to fund this, which again, may grow their revenue a lot, but may not add any profit anytime soon. Certainly not any cashflow anytime soon. So very risky, especially compared to much better software companies that are trading at a lower multiple right now. Okay. Okay, Gil Luria, Head of Technology Research at DA Davidson. Thank you so much, Gil. Lots of crazy stuff happening in tech world. I really appreciate you taking us through it. Thank you. So, lots of AI drama this week. And at the center of it all, again, it's OpenAI. Through multiple reports, we now know that those $100 billion that NVIDIA was going to commit to OpenAI, whatever that means, that is now, quote, on ice. But what might be even more interesting is the extent to which Oracle has been implicated in all of this. And even more interesting than that is perhaps what Oracle said about it. This was the public statement from the official Oracle account on X, which I said to Gil, they said, quote, The NVIDIA OpenAI deal has zero impact on our financial relationship with OpenAI. We remain highly confident in OpenAI's ability to raise funds and meet its commitments. There are several things that are striking about this. Number one, why is a large corporation commenting on a third-party deal with which they are not involved? That is kind of strange. Number two, why do they feel the need to say anything about it? And number three, why bring more attention to this deal than it already has? These are all the questions that everyone's asking themselves. It's the question that I'm asking myself, but I'm only asking them because Oracle posted about this. If Oracle hadn't said anything, then perhaps we wouldn't be asking these questions. But they did, and so now we are. And the answer to those questions is quite obvious. They're saying these things because they are worried about them. When they say this has no impact on our relationship with OpenAI, that's how you know it does have an impact on their relationship with OpenAI. When they say they're highly confident that OpenAI will meet its commitments, that's how you know they're not highly confident that OpenAI will meet its commitments. This is public relations 101. This is what is known as the Streisand effect. And that is whenever you try to suppress or downplay an issue that you don't want lots of people talking about, all that happens when you do that is it makes people talk about it even more. And this is the perfect example. That statement, that press release, received 5 million views on X. To put that into perspective, that is more than double the primetime viewership of Fox News. I know people were not saying it was a good statement. It wasn't going viral for that reason. People said it was a bad statement. They were trolling Oracle. They were saying how embarrassing it was. And crucially, in the hours after that statement was published, Oracle's stock fell 6%. So this should be a learning moment in public relations. Then companies need to remember that business is now more popular than ever as a form of entertainment. It is a sport now. It is a series. You, Oracle, are now part of the show. And so what that means is when you screw up, like they did, the stakes are a lot higher because everyone is watching. Everyone is interested in how this plays out. Now, I don't know who made the call to post that statement. It seems to have come from someone potentially higher up in the company. But if you're running a half a trillion dollar company, which Oracle is, you need to be better. The language needs to be way less defensive. It needs to deal with these concerns a lot more delicately than it did. And most importantly, someone should have asked, do we really need to post this? And the answer should have been no. Maybe 10 years ago, people wouldn't have noticed this. But the year is 2026. We are in a digital era. We live in an age of virality. The costs of these mistakes are higher. And in this case, it costs them roughly $25 billion in market cap. It is quite simple. You've got to be smarter. Okay, that's it for today. This episode was produced by Claire Miller and Alison Weiss, edited by Joel Patterson, and engineered by Benjamin Spencer. Our research team is Dan Shalan, Isabella Kinsall, Chris Nodonoghue, and Mia Silverio. Thank you for listening to Prof G Markets from Prof G Media. If you liked what you heard, give us a follow. I'm Ed Elson. I will see you tomorrow. Thank you.
