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EMERGENCY SpaceX S-1 Breakdown! Plus, More Earnings Coverage $NU $NVDA $ABNB
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- [00:00]
A
For the past three years, IBKR individual clients averaged 24.3% annually, beating the S&P 500's 23.1%. Lower costs and 170 plus global markets matter. Interactive Brokers Member SIPC Visit ibkr.com performance welcome to Chit Chat Stocks, the podcast that helps you find your next great investment. Today we have an emergency podcast episode. We rarely use that term, but we've been waiting for this episode. SpaceX dropped their S1, so we've got a full look at their financials and there was a lot to unpack here. A lot of pretty images, a lot of interesting numbers, a lot of surprise numbers, some crazy compensation hurdles and a whole bunch more. But we will get to that in a second. We're going to talk for the majority of this episode about SpaceX because it's a massive topic, but we've also got some other news. We've got Nvidia earnings, which only on a week when SpaceX releases their S1 would Nvidia earnings fly under the radar right now. But we've also got Constellation Software's annual shareholder meeting, which I attended and we missed last week. So we've got a couple other earnings reports that we can get to. But before we do, I want to introduce my co host here, Brett Shaffer, the one and only. And remind listeners that if you enjoy these episodes, please, please, please give us a review. It helps a helps the show grow. Brett, first thoughts? What was the first thing you thought when you saw the SpaceX S1?
- [01:45]
B
First thing I thought was clear my schedules. We 200 pages to read. There's a lot of not nonsense but busy words for individual investors in these S1s. So if you look at the document, there's certain places you want to go and there's a lot of repetition. For whatever reason, they have to state their overview of their business three times. I think we can clear up that formatting. SEC people looking at the thing though, looking at the document, I thought ambition. I thought 20 different business lines that they're planning like three or four actually in business right now or making significant revenue. And then I thought they're losing a lot of money. I guess I won't bury the lead. The last note I have here for my section, we both made notes is that they had and this is buried in the bottom. It's go to the month. The, the Q1 cash flow statement that I think was in the footnotes. I mean, it's not like that. It's a mystery. It's in the document, I'm sure everyone has seen it, but they're not prominently displaying this. They had negative free cash flow or free cash burn, however you wanted to describe it, of $9 billion last quarter. They're spending like crazy.
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A
Let's dig through this. I think, I think some of the most recent quarters results, my guess is that they knew they were going to go public, they knew they were going to raise money. It may have changed the way they ran their business in the last couple quarters. But let's dig through this. I'm going to start with sort of eating our veggies and going through just some of the overall numbers and then we can talk about maybe some of the interesting finds or things that surprised us. So first off, for anyone who hasn't read the document, the S1 starts with just 14 pages of pictures of rockets, which I guess that's kind of to be expected because you got to do something to get people excited since it's such a boring SEC document. And as Brett mentioned, very repetitive. But as far as the business goes, SpaceX is broken into three parts. So there's space, which is their rocket launching business. There's connectivity, which is Starlink, and then there's AI, which is at the moment still basically just Twitter. There's also it's Twitter GROK and AI infrastructure. So basically providing compute to AI companies. The largest piece of that puzzle on the AI side is advertising, which is the core legacy Twitter business that Elon acquired. Combined, the three businesses generate just under $19 billion in revenue. That's at least what their revenue figures were in 2025. That was growing 33% compared to 2024. So 33% top line growth, 19 billion in revenue. Most of that revenue comes from Starlink at the moment. So starLink accounts for 61%, more than half of the overall sales. Space accounts for 22% and AI accounts for 17% on that 19 billion in revenue. SpaceX generates about 9 billion in gross profit. From there they spend 8.6 billion on R&D, 2.6 billion on sales, general and administrative expenses. So no real surprise there, but they are in the red and at basically negative 26% operating margins. As Brett mentioned, they are also burning a lot of cash at the moment because number one, all their businesses are pretty capital intensive. So AI is the most capital intensive. But even space and satellite business and Starlink are going to have a lot of purchases of property and equipment.
- [05:42]
B
Let we have a comment here. I was talking in our substack chat, which people should join it's much more fun than Twitter these days. I know we're actually talking about technically Twitter's business right now, but it's a lot of slop over there. You can read Ryan's charts which go viral from time to time of the fiscal AI account. But a lot of our discussion for the show stocks we follow stuff like that will be in our substack chat which the link is in the show notes. We have a James Emanue that brought up this interesting point on the R and D. We're not sure if this is exactly kosher. It could be the right word. He says I mentioned they're spending the $8.6 billion in R&D said over 3.5 billion in first quarter 2026 but they are burying depreciation in R and D which is deceptive. They're hiding their capital burn rate quote research and development increase to blah blah blah. This increase is primarily due to higher costs in our AI segment of $1.5 billion for depreciation of GPU hardware. So should that be in cost of revenue? It's kind of the first I mean of course there's going to be yellow flags. It's an Elon Musk Co. But maybe that's the first accounting thing that stood out when looking at the income statement.
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A
I mean we could there's going to be so many accounting red flags throughout this document. Honestly I think we'll get to the
- [07:03]
B
related party transaction later.
- [07:05]
A
I think you got to take every number with a grain of salt. The absolute hoops and hurdles that they had to go through that the investment bank had to go through to get their adjusted EBITDA line to where it was. I can only imagine. But let's keep going. Let's take these numbers at face value and just see where we get to the on the AI side they it accounts for 17% of revenue and 76% of total capex. So it's a drain on the capex.
- [07:35]
B
Good stat. Good stat side of things.
- [07:38]
A
Free cash flow for 2025 -21 billion Q1 -9 billion. I guess one last thing on the veggies side of things before we get into some of the I guess random findings and some positives.
- [07:52]
B
Starlink growing quickly, right?
- [07:54]
A
Yeah, yeah no doubt.
- [07:56]
B
It's not entirely we're not saying this is we work banning things but we're trying to dissect the S1 look at things that are interesting to us.
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A
Yeah, yeah there were I've got a negative tone to some of the things I'm saying because it was, you know, there were some red flags in this S1, but yes, I thought Starlink overall was very solid and space is going to be somewhat lumpy based on what they're able to provide. But people are probably wondering how are they sustaining the burn rate at least prior to this big issuance that they're going to have. And I thought this was interesting. They raised 16 private funding rounds over the years. They got to a Series N. Brett, have you ever seen a Series N?
- [08:47]
B
No, I think this is the first one. They've been private forever, so.
- [08:52]
A
Right. I think they were founded in 2002, so I guess that's somewhat to be expected. The other part here is they do have a decent chunk of debt, so $29 billion in long term debt. Most of that is coming due in 2029. They've only got 16 billion or so in cash. Some long term investments in there as well. I think they have like some crypto holdings if I'm not mistaken.
- [09:16]
B
So I don't know, a little crypto. Yeah, Dawson. In the bitcoin. Although I guess that doesn't play anymore. No one, no one really cares that. I don't know if we mentioned this, it was in the subscriber chat or on the show, but the bitcoin doesn't really do it for the retail crowd, the hype crowd. It's not doing it for them anymore.
- [09:37]
A
It's become boring. So I guess my takeaway here is that they kind of need to raise the money in a way. I'm sure they could have gone and done series M or O or whatever, but I think with a net debt position of 15 billion and plans to try to invest in the AI infrastructure and continued investments in space and Starlink, they're going to need some cash. So 75 billion I think is what they're planning or hoping to raise in this IPO, which would be larger than the three highest previous IPOs behind them, I think. I can't remember all the. What the 2, 3 and 4 were
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B
three highest bind combined. Yeah. Saudi Aramco, maybe Alibaba, I think Meta
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A
might have been in there. Or Facebook. Could be wrong on that one, but
- [10:32]
B
it probably didn't have to raise much money.
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A
No, maybe I'm getting it wrong. But nonetheless it's a massive ipo, the largest in history. Let's go through some of the standouts from the S1. I'm going to start with maybe what I found to be the most insane part of the S1, which was Elon's compensation package. I'm just going to read the quote directly. People can take it how they will. On 01-13-2026 so start of the year our board approved the grant of 1 billion performance based restricted shares of class B common stock to Mr. Musk. The restrict shares vest upon one our achievement of specified market cap milestones across 15 equal tranches. So the market cap milestones I think go from 500 billion to around 7. Oh, sorry, yeah, 7 trillion. Those basically as he hits those tranches the shares begin to vest and to the company's establishment of a permanent human colony on Mars with at least 1 million inhabitants and in, in each case subject to Mr. Musk's continued employment with us through the date on which achievement is certified by our board. For any tranche of the award to vest, both the applicable market cap milestone for such tranche and the human colony milestone must be met.
- [12:03]
B
Yeah, it's very strange because the market gap one seems fairly easy given the hype here. They're going to hit some of them already and then this Mars colony thing, I guess that's an interesting. Obviously it's an interesting milestone but is that really what's going to be creating shareholder value? I don't know. Sounds expensive. Sounds very expensive to me.
- [12:31]
A
Yeah. Yeah. The other part was just below this. It basically said like this compensation policy can be revoked at any time. Essentially it was like we, you know, this can be changed.
- [12:44]
B
So he controls 80% of voting I believe so it's really up to him. He's talking to himself. It's, it's deals with himself, deals with Tesla by himself. Xai merging with SpaceX. It's him shaking his own hand.
- [12:56]
A
It's all that I did think it was funny in the commentary of like in our, it would say like in our negotiations with Tesla. It's like what, what negotiations are going on here. Uh, but nonetheless, yeah, I thought that was a standout. Any big standouts from the S1 for you?
- [13:17]
B
Ooh, well, the cash burn, the Anthropic deal. We can talk about that. Maybe I can give you time to take a sip of water. That was fascinating. I, I didn't. Maybe I was on vacation when this happened. I don't know if it got announced last week formally, but seems pretty new. It says here, quote, In May 2026 we entered into cloud of services agreement with Anthropic for our Colossus data centers. Pursuant to these agreements the customer has agreed to pay US $1.25 billion per month through May 2029. With capacity ramping in May and June of this year, that's quite a bit. On the one hand, yeah, it's going to be a lot of revenue inflecting their AI segment. Good timing on the IPO because they're going to go From I think $1.3 billion for the Aixai segment for again which was a valuation of $250 billion that SpaceX had to eat and it's going to grow to what was 1.25 times 12 like 16, 16 billion in revenue pretty quickly just from this anthropic deal. So on the one hand that's going to be great for their, I don't know now are they a NEO cloud, are they a reseller, sort of like a core weave, a nebus? It's hard to tell. But then on the other hand this kind of shows that they built all this infrastructure, they don't have much use for it for their internal chatbot Grok. It doesn't seem like many people are using it.
- [14:41]
A
No, the subscription revenue is quite limited. I'll also give a shout out here. All the data, all the KPIs and financials are up on fiscal AI already for SpaceX. Which of these, I don't know if you saw this, but there's a segment called Future Markets. Which of these stands out to you as the most as the nearest term possibility. So here are the future markets.
- [15:08]
B
Point to point them.
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A
Point to point. Terrestrial travel, space tourism in orbit manufacturing, passenger and cargo transport to the moon and Mars. Energy production on the moon and Mars. Manufacturing capabilities on the moon and Mars.
- [15:25]
B
Asteroid mining, it's tourism and orbital manufacturing and transport to the moon would be the most realistic but I'm not sure those are even that good of businesses. Maybe space tourism can be okay, but you look at Blue Origin, it's not really taken off at all with that. It seems cool if you're very rich to do that but eh, how much is that going to move the nail for a company like this in orbit manufacturing? Potentially. But the key here when I kind of was picking up on, is that they need the starship, the next generation larger rocket to succeed and it hasn't really gotten through final testing it to be, you know, ramping commercially and if it doesn't they're going to be kind of supply constrained on their own to getting all this mass into orbit to try to build these AI data centers in space. Which again sounds a little bit far fetched maybe there's a lot of smart people out there saying that they've Kind of solved the technology here. So if a lot of companies are saying they can do it, maybe they can, but still going to be very expensive. They need kind of that payload capacity to get up there. It's going to be quite expensive. Yeah. I mean terrestrial travel sounds awesome. I'd love to get around the world in 30 minutes or less. Probably a quite expensive ticket, but I think that's far fetched. We're not going to have starship flying over New York City. It's just not happening. No sonic booms are going to be allowed, blah, blah, blah. But that's not important to the actual business. What I think is really important, Starlink Starship and these ambitions to connect the AI data centers in space, which really brings everything together. It's going to be expensive, it's quite risky, but you got to love the vision. The man has a vision. You can give him that much.
- [17:18]
A
Let's see if I can pull up the Starlink subscriber numbers because I thought these were pretty. This, this was probably the highlight of the S1 I think if you're, if you're looking to buy shares. SpaceX has gone from it looks like. Let me change the units here. So at the end of 2025, so a quarter ago they were at 8.9 million subscribers. Today they're at 10.3 million. They've doubled, more than doubled subscribers year over year. And I think what kind of caught me off guard is the bulk of their connectivity revenue actually comes from the consumer space, not the enterprise and government side. So it seems like the residential is growing really quickly. Any, I guess. Were you surprised by the profitability on Starlink because it was generating almost 40% operating margins on a segment level. Granted there might be some costs being redistributed.
- [18:29]
B
You research your investments, you analyze markets, you manage risk. But did you research your broker? For the past three years, IBKR individual clients averaged an annual return of 24.3% compared to 23.1% on the S&P 500. IBKR's lower trading cost, competitive rates, efficient execution and access to more than 170 global markets helped investors keep more of what they earn and put more capital to work over time. The broker you choose matters. Interactive Brokers member SIPC if you care about performance, find out why the best informed investors choose interactive brokers@ibkr.com performance. I was about to say that, Ryan. Yeah, it's not surprising when I. When you understand how they define this, they are technically getting a free ride into space from the space segment. So I would like to look at that in a combined business because it's kind of assuming that, all right, if we're going to run this operation without our space launch segment, well, we could just get up into orbit for free. And that's not true at all. So excluding those costs feels a bit disingenuous. But on the whole it seems like a solid business. I don't think 40% operating margins is saying what it actually is. Again, because of those launch costs that maybe are being included. But what are we adding revenue wise? I think it was at 11 billion in revenue.
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A
2025 was 11 billion.
- [19:57]
B
Yeah, yeah. There's probably a path to 20, $30 billion in revenue in the future here. They're doing direct to mobile stuff. They believe there is a $1.6 trillion TAM. I kind of doubt that maybe in 2090 there would be. But if you look at today, like how much revenue do you Verizon at&t and T Mobile generate? Like it's not near 1.6 trillion. And yeah, direct to mobile also interesting. Kind of trying to target what AST Space Mobile is going after. Maybe AST Space Mobile is going to get there first, but something I'd watch out for if you're an investor in that. But bring it back. You have a potential for Starlink to get to what, 20, $30 billion in revenue in a couple of years, three to five years from now, maybe the true margin on that can get to 20, 30%. So 5, 6 billion in earnings feels reasonable. Maybe say 5 to $10 billion, depending on how it plays out. What are you going to value that at a couple hundred billion? We're Nowhere near the $2 trillion here. So that's just where I just get hung up.
- [21:11]
A
Yeah. It's going to take some optimistic work to warrant a $2 trillion valuation from investors. Here was something that stood out to me, revenue for Twitter, which they break it out. Well, I can't remember if Twitter had any sort of subscription element prior to Musk taking over, but you could assume that it was primarily advertising revenue in 2025. Advertising revenue from SpaceX AI, which is basically Twitter. I can't think of other. Any other area where they're generating ad revenue. Was $1.8 billion in 2021, Twitter was generating $5 billion in in revenue. So it looks like Twitter's revenue has dropped by more than 50% since the takeover. I guess maybe is this a testament to just all the other advertising players? Because you look at Meta, you look at Amazon, you look at Google, they've just continued to grow revenue. I guess they were never really quite in the same ballpark, but it kind of surprises me.
- [22:31]
B
They took out all their employees and I guess they pivoted to this AI thing so I'm not too surprised. But yeah, they gave up on that. Not. It's not going to move the needle again for $2 trillion. So it all hinges on the X AI. They will say that they can use Twitter or all the posts on there as a database for training the model. Maybe that helps. They're moving pretty quickly in that regard. They have the Colossus data center. They brag about it being the fastest one being built, but again, there's not much usage, it seems on the AI side of things, which is why there's a huge hole in the budget. Yeah, I mean Twitter, I see ads for a Walter White memorial fund. It's not a serious ad platform. Have you ever seen that one?
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A
I haven't seen that, no.
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B
Ah, well, they're not targeting you, I guess with that what
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A
do. Do you think they fetch the valuation that they're going for? Do you think they're going to be able to pull it off at a $2 trillion?
- [23:40]
B
Yeah, maybe that can lead. I can answer a question with a question here. On a rating of 1 to we work, 10 being we work, what do you give for this S1 as being the potential for. For anyone that doesn't remember the story we were put out in S1, it's absolutely horrendous. The financial media turned on them, Twitter turned on them. Everyone seemed to turn on their business and say it was a joke. They were going to get valued at I believe $60 billion on $2 billion in revenue, which put that into a little reference. That's 30 times sales for a low margin business. We're talking 100 times sales. I think it's maybe a six on that. There's some exciting things about this business. You can see the unit economics take shape. They have a huge narrative that they can sell. Elon's made a ton of money for investors. I would say that through a lot of overvaluation of Tesla and frankly SpaceX now looking at things. But I think they get out 2 trillion. I do not think it's going to pop on the ipo. I could be wrong, but if it does, I mean that's going to be one of the largest companies in the world. Top five. But yeah, I'd say on a scale of one to WeWork, I give it a six. It's not a good financial statement.
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A
No, but it's run like. It's run like it's run by somebody who can raise money at will, which he can.
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B
True, true.
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A
So I kind of. I almost say the financials don't matter that much. The pictures might matter more than the financials for who they're selling it to.
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B
The rendering of Mars. Come on. These are investment bankers. It's going to be a little different than the VC community. But you're right to a point. The $9 billion quarterly cash burn, if they raise $80 billion, that's what? Pretty much just two years. So can they raise $80 billion every two years? I don't think so. I mean they gotta make some progress here and quickly if things are gonna happen.
- [25:43]
A
I mean they're booking revenue quickly. It's from the sounds of it with anthropic. So sure. On a scale from 1 to WeWork, I think this is. I'm probably in the same ballpark as you. Somewhere between a 5 and a 7. The financials don't look good.
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B
So you wouldn't be. You're saying if it got pulled you wouldn't be shocked. But it'd be unlikely because that's what we work. I don't think it's an automatic pull.
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A
I don't think it would get pulled. I do not think it will get pulled. This Musk has done this before. I mean Tesla's raised so much money that I think people just give him investments blindly. So I don't see what's stopping that from happening here. And as far as narratives go, I don't think there's a better narrative in the history of capital markets. There's. This is like the sci fi dream for Sold. Sold in an S1. I mean, let me. Let me read the mission statement. The mission for space Exploration Technologies, which is the full company name. First of all. I never really knew that was the full name. Thought that was kind of funny. Is to build the systems and technology necessary to make life multi planetary, to understand the true nature of the universe and to extend the light of consciousness to the stars. You cannot have a bigger addressable market.
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B
It's. I guess what is the. What is that addressable market for money making. I get it. It's cool. It's cool. I want the world to go to Mars. Obviously. Who wouldn't want that?
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A
But I'm trying to be optimistic here. Brett.
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B
We're speaking from an investment lens. I mean that's going to be a lot of money. And what is it going to be? Some sort of like Musk owns Mars type thing. I mean it's not going to work. Or the Moon, that's also not going to work. The United States is going to own it.
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A
See, here's the thing. I think the financials could look better if Musk wanted them to or if Musk wasn't involved.
- [27:52]
B
Sure. But look at the space business. It's not that great. The gross margins are kind of low. It's not growing that much.
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A
I know, but they're given free rides to their own. Like Starlink and the space business should be sort of lumped together, honestly.
- [28:06]
B
Sure, sure. That's fair, that's fair.
- [28:08]
A
It, the, the AI acquisition may be sort of a bailout here, but I think people are going to look at revenue numbers every quarter as this thing starts filing once it's public and they're just going to cheer it on. So I think there's, I think it's likely that they're able to raise the money they want.
- [28:31]
B
And
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A
the big question, it's like the same question with the rest of big tech it seems, is what is this return going to be on their AI capex? Because that's where all the money's being poured.
- [28:45]
B
And they seem to think they have an advantage with this AI data. This data centers in space. And again, it all hinges on Starship being successful because then they can get their own satellites up in a cost efficient manner. I will remind listeners it is not fully operational yet. So we're banking on the engineers getting something that really hasn't happened before happening. The starship is supposed to have over 100 tons of payload capacity versus 23 tons on the Falcon 9. Again, that's just mass. That or weight that you can get into orbit. They spent $15 billion in the project and this is what they say, which I find pretty interesting. I can get behind this about their AI compute quote. Because AI compute satellites represent an evolution of spacecraft engineering already demonstrated through Starlink, we believe development of AI compute satellites will be easier for us than for anyone else. Our existing Starlight constellation is another crucial, crucial enabler of orbital AI compute as its global network allows data from our AI compute satellites to reach ground stations anywhere on Earth. That makes sense. It's going to be expensive to put these racks into space, but they do have elite, I can give them that.
- [29:52]
A
So does this all just accrue to Nvidia again? I mean, are we still just going to be using GPUs up there? It's.
- [29:59]
B
Yeah, yeah, exactly. Well, I mean others, sure, yeah.
- [30:03]
A
It's. I mean there is an advantage for sure in being the one that owns sort of the rails to space. Assuming that space is like a necessary frontier for data centers. I was, I spent some time in sort of rural.
- [30:19]
B
In space. No, no, no, no.
- [30:20]
A
I spent some time in rural Texas recently and there were a lot of signs that said say no to data centers. Yeah, you're not going to find those signs in. In space.
- [30:29]
B
Yeah, that's true. That data center stuff is just. I mean it's just a testament on the intelligence of the world. But the.
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A
Do we want to take some questions here?
- [30:40]
B
Sure, sure. Well, yeah, yeah. I got some other stuff that we. The related party things we can talk about to close out maybe. Okay.
- [30:50]
A
Tyler asks, do you guys think the SpaceX IPO will be the final straw to break the camel's back of passive index investing? Let me ask a follow up here. Do you think there's any big knock on effects that we're not. That the market maybe isn't thinking about of handing SpaceX $80 billion or $70 billion potentially like any hidden beneficiaries from
- [31:15]
B
that real estate in Redmond, Washington. That's where all the satellites are produced. Although they're already one of the. That's very niche. But that's one thing I thought of. Wow. Redmond keeps doing well as a city. Says that Rocket Lab is going to be someone that's deemed very necessary. You can see their stock just going absolutely crazy. It's also trades at 100 times sales and I think is at an absolutely ridiculous valuation. But people are going to look at it and say this is one of the potential alternatives out of the Space X monopoly and that's how secondary players, competitors are going to compete. Right. Does that make sense?
- [31:57]
A
Yeah, I think it's. I agree with the line of thinking. Might already be priced in. Probably definitely priced in the.
- [32:07]
B
Yeah.
- [32:08]
A
My thinking here is like where does the money come from? Where does the 75 billion in investor dollars come from? I feel like it's got a flood out of other assets. There's the 75 billion in dry powder just waiting.
- [32:20]
B
Yeah, yeah. There's a lot out there. There's so much money out there.
- [32:26]
A
But of the people that would actually invest in SpaceX.
- [32:29]
B
Yes.
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A
I feel like I can't remember who brought it up, but someone saying that this could cannibalize some of the dollars that have flown into Tesla. I think that's probably accurate.
- [32:40]
B
Sure. But I think that's more narrative where the narrative's all in SpaceX hype there. This is the sexy company and that can just bleed money out of it because again, it's. If someone sells the stock, someone's buying it, so there's no net. Like, no, no free dollars are being created. Cash on the sideline gets built through people making more money, debt buybacks coming back out of those businesses and dividends. Like, it doesn't come from buys and sells. Like, mathematically it's not possible, but I think narrative wise, yeah, it could take attention away from Tesla. Similar to like Bitcoin, if it's not the shiny object anymore and we get OpenAI and Anthropic, sure. Another thing though, like Tyler mentions, do you think it crashes the markets in a liquidity vacuum? I don't really think that's going to happen. I would be mad if I was an index fund holder and it's going to be stuffed at like 3% of my holdings. There's a lot of people that seem upset about that. If Anthropic and OpenAI do the same thing at extreme valuations, I would be concerned. For me, it seems like in general, when the hot companies of the age of when they IPO generally sign the top is near. Is that going to happen this time? Not sure. But look, if they all both raise $100 billion each, that's a lot of money flowing to these companies. It's going to give them a long Runway to grow, but it's going to always be after that. All right, prove it to me. You can make money.
- [34:19]
A
This would be what, a 5, 6% weight in the S&P 500? If it's at a $2 trillion market cap?
- [34:27]
B
Maybe a little lower, but yeah, it might be ballpark.
- [34:33]
A
That is high. Yeah. Wow. All right, maybe we shift gears. Unless you want to talk. Anything else?
- [34:41]
B
Yeah, I got a couple other things.
- [34:42]
A
SpaceX.
- [34:43]
B
Let's see, what else did we not talk about? They have the right to acquire cursor for $60 billion. Let's just toss that into the mix. That's just a small acquisition. Coming into their AI business, they only grew revenue 15% last quarter. What do you think of that?
- [35:02]
A
Total revenue?
- [35:03]
B
Yeah, that's it. Well, same as wix. Same as wix,
- [35:11]
A
yeah. Slightly different scale, but yeah, the.
- [35:14]
B
I mean, not that much, ten times larger, but it is.
- [35:20]
A
But no, you're right, I was, I was surprised by the top line growth. That was probably one of the things that stood out to me the most. And I guess one of the quickest ways to do to, to boost the top line is to book some of these AI infrastructure deals.
- [35:38]
B
Sure.
- [35:38]
A
Honestly.
- [35:39]
B
Even if they're low margin? Yeah, sure.
- [35:41]
A
And heck, yeah. I mean, you could even lose money. You're going to see great revenue growth. I saw someone recently that's like, I'm. I'm building a startup that's. I can't remember what it's called, but it's like, you give us $100, we give you $100 back. Now we both have a hundred in AI.
- [35:57]
B
No, no, I. I saw someone that said I saw $20 on the ground. I picked it up in five seconds. They must have done the math. Now I have $10 billion in ARR.
- [36:06]
A
Yeah,
- [36:08]
B
we're getting a little nutsy where there's even one of the smartest guys in tech investing. Gavin Baker was on the Invest like the Best podcast. Says a lot of smart things. Keeps me thinking. He's been a big Elon Musk fan. Been right about a lot of things. He was even saying like, all right, things are getting a little bit nuts with these memory companies, but I'm going to read you a quote. I have no comment on this. It's just some Elon Musk things. I think it's kind of funny. Quote. Together with Tesla, we are also developing Macro Hard agentic AI platform designed to be capable of fully emulating digital workflows and augmenting human operations of computers using sophisticated autonomous agents. We believe Macro Hard will have the potential to fundamentally transform how companies are structured and operate, thereby allowing dramatic increases in human productivity. What's with that name?
- [36:59]
A
Oh, it's to make fun of Microsoft.
- [37:02]
B
Is it?
- [37:03]
A
I assume Macro part.
- [37:05]
B
Oh, yeah, yeah, yeah.
- [37:07]
A
I mean, horrendous name. Sounds like.
- [37:10]
B
Does he have beef with Microsoft?
- [37:12]
A
Sounds like an ed pill company. Yeah.
- [37:17]
B
Anyway, okay, last thing related part of transactions they. Here's my. Xai spent $500 million at Tesla in 2025. $506 million in megapack purchases were made from Tesla by. I assume that's. I assume that's maybe the same thing. $103 million or $131 million in Cybertruck purchases by SpaceX. So move money back a little fourth here. Maybe to help a guidance get hit. Look, if you're an Elon fan, I understand it. He's made a lot of people a lot of money. But just understand if this was any other CEO, any listener would agree with us that this is a red flag when these are both fully controlled companies by a single man.
- [38:01]
A
Yeah, especially when you're. I mean, the cybertruck purchases is like a prime example of just moving money where you need it because it helps hit whatever metrics you need to hit The. Yeah, he's gotten a pass now. It's almost like a certain politician where there's so much news about him that other news just stops mattering. That would matter for anyone else.
- [38:30]
B
That's fair. Yeah, fair analogy.
- [38:35]
A
Yeah, I kind of shrugged my shoulders all thanks, Musk. I used to get really worked up about it and now it's just like $131 million related party transaction. Nah, whatever.
- [38:44]
B
What? Come on, that's clearly self dealing. Clearly.
- [38:48]
A
Oh, I know, but is anyone.
- [38:51]
B
I guess no one.
- [38:51]
A
Is anything going to happen?
- [38:53]
B
Uh, no, no. I mean look, that's not illegal. It's just, it's something that I would frown upon as an outside investor analyzing a business. If, if it was a business that Musk wasn't running, I would think the same thing.
- [39:08]
A
I mean, yeah, but what price is there a price that you would buy shares in SpaceX?
- [39:18]
B
Oh God, this is going to make me look stupid for a long time. I think something like 100 billion makes sense. There's still a lot of downside. At 100 billion there's still a lot
- [39:29]
A
of downside that is I think around 20 times heavily, heavily adjusted EBITDA, it's 10 times gross profit. Those are pretty, those are decent growth multiples. Let's keep moving. We've got plenty of comments here but we do have some topics that I want to get to. There was some interesting stuff. Constellation Software, fairly popular stock. I attended the shareholder meeting last week in Toronto and there.
- [40:05]
B
Wasn't it fun? Was it a hoot?
- [40:08]
A
It was actually okay. It was, it's kind of like Berkshire for me is too big, you know. So I think with some of those serial acquirers you get a lot of like just investors that are interested and it's, it was a much more I guess, palatable size of a meeting. Probably 500 people instead of whatever 15,000 or however many people go to the Berkshire one. The thing that stood out was first of all, every question was pretty much about AI, which is kind of what you would expect. But there was a point when like Mark Miller, who's the CEO, was like visibly like he didn't say anything but he seemed visibly agitated every time someone came up and asked basically the same question about AI. And the other part, and this will always grind my gears, I hate it when someone comes up, tries to say something really, really smart and then asks a pointless question. They spit out some fact that they know and then ask the dumb question. It's like we've already been over this. You planned this whole question, we've already talked about it. Whereas then sometimes you'll get just. This happened at the Constellation meeting. You'll get just like an individual shareholder. It's like, hey, it's my first time here, you guys are doing a good job.
- [41:36]
B
How should I raise my kids?
- [41:38]
A
Maybe not the personal questions, but they'll leave it so open ended that it's kind of like, you know, it allows CEOs to speak a little more freely.
- [41:49]
B
But here we have a question from Tyler. Who was more annoying, Berkshire shareholders or CSU shareholders? You're employed by a Canadian company, Ryan, so I would tread lightly here. I think I know what answer you need to. Need to make.
- [42:02]
A
I thought, I think I'm not really like a fan of like worship type, worship to CEO type of situations which naturally there's a lot of at Berkshire, so there's probably less so that at Constellation. So I'd maybe say Constellation, but I actually like. I've enjoyed both meetings. Berkshire, the actual meeting itself is long, too long. But I enjoyed the CSU one. There was a quote that stood out to me. The CEO was asked about AI and he said I don't think we've lost one customer because of AI. Like literally one customer. And he looked like across at the other managers of the subsidiaries like, yeah, we haven't seen any. And it's, it kind of made me think like first of all you kind of expect someone to say that when the narrative is AI is going to hurt them. But if you think about the customers Constellation serves, a lot of them are like government bodies or utilities or like really slow moving organizations where it probably takes like 10 layers of approval to even open up Claude on your company computer. So do you really think those customers are vibe coding their own solutions? It seems very, very unlikely.
- [43:25]
B
There is, yeah. They're not, they're not in enterprise, they're not in startups, they're not in stuff like that. That seems to be the massive adoption of AI at the moment. Like it's companies with coders and young coders that seem to be going after the AI stuff. Again, we're talking without any technical expertise here. I agree. Similar, similar. I will say to my thesis on wix.
- [43:51]
A
Yeah, I would say small businesses, yes. I'd say that's probably accurate for the most part. Although potentially the partners or the agencies. We can talk about that in a second. The only other thing I'll say on Constellation is the reason I kind of dismiss the AI threat a little bit is they also said there's no positive impact from AI for them. Really basically like their customers are not asking for chatbots on top of their software. They don't really care. So they basically said the only improvement is it's allowing us to kind of ship features faster. And I came away from the meeting thinking this is a pretty boring business and it's shocking how much attention it gets. They're probably going to generate, continue, continue to generate good returns on capital because they can acquire these niche things at one time, sales or whatever. But anyway, I'll leave it there.
- [44:47]
B
Let's talk.
- [44:48]
A
We can shift to wix because they reported earnings while we were out.
- [44:53]
B
I know I was on vacation and I was like oh, what are WIX stock is doing? And dropping the light Internet speeds. I was like I really want to read what's going on here. Yeah, down to 55 people were not happy.
- [45:07]
A
Something that. So I guess I would say probably the biggest negative headline for them here was the partners revenue dropping.
- [45:14]
B
Which Detail, right, detail.
- [45:18]
A
Oh yeah, I guess it didn't technically drop but it was like flat quarter over quarter. Basically for the first time in forever I could see a world where partners are using more AI in their workflows or like the agencies with tons of customers. The part that caught me off guard, I didn't think about this. WIX had a ton of cash just sitting on the balance sheet and they were earning interest from it every quarter. That was a big chunk of their income. When you go out and do a tender offer and basically deplete your cash, that interest income goes away. So a lot of their, I remember them saying like a huge chunk of their revenue or their earnings which it's all obviously super high margin income. 100% margin disappeared because of the share repurchases. I totally kind of didn't factor that in. But anyway, any other real takeaways from the quarter?
- [46:11]
B
Yeah, I think market overreacted a bit. Seemed okay. I mean not really anything I didn't expect. The one thing that they just need to figure out is simplifying the story of the income statement because there's always something going on like oh well there was some cost here, some cost there and people might argue well it's because they're hiding costs and one time things maybe, but the cash flow always looks all right. They did repurchase that stock and the revenue keeps growing across the board. Margins look okay. Like if you look at the overall margin it's going down a bit because of the AI spend. Base 44 maybe didn't grow as fast as people expected, but it's up to104.50. Yeah, 150 million in ARR as of May. You'd hope for continued progress on that. I honestly didn't see any huge, like nothing unexpected here.
- [47:12]
A
I think the adverse impact on earnings of investing so much in base 44 is probably. I think the investments there were higher than maybe people were expecting.
- [47:25]
B
But if you telegraph this though, they said there's gonna be upfront margin hit and that's what happens when you have to spend money on the infrastructure cost.
- [47:35]
A
I mean, if you're just looking at this report for the first time, it does kind of look a little rough. There's some, you know, the core business seems a little at risk. The partner's revenue growth was flat quarter over quarter for the first time. And then they're investing a lot in this private business, which is not this, you know, as proven. And then all their cash disappeared. You haven't seen the impact yet. The guesses didn't disappear, but the shares outstanding didn't drop this quarter because it happened. Whatever, you know, basically I think on the break of the quarter. So it's going, it's going to look, it looks rough if you're looking at it for the first time. I think this will end up being a phenomenal investment from here, honestly.
- [48:21]
B
Yeah, the market cap I haven't gone through yet, but I've been going through a lot of stuff to catch up after the vacation. But yeah, you look at creative subscriptions, revenue up 13%, pretty steady.
- [48:34]
A
No, I think they're in a good spot. I think they serve a customer that should be fairly sticky. There's kind of natural churn with their customer base, but that's more so from customers going out of business, customers not
- [48:50]
B
having to do more. They train their own LLM to save costs. So they've always been much more nimble than some of the other players out there. And they're much more enabled than WordPress because WordPress I think is open source.
- [49:03]
A
Here's a company we, we have not discussed yet. The reported earnings. Airbnb. Fascinating. Stat reserve now pay later accounted for 20% of bookings in Q1, which is.
- [49:19]
B
Yeah, that's just, that's the standard model though of like a hotel, you know what I mean? Yeah, you pay, you pay a check or you pay after or you pay a check in.
- [49:30]
A
It is right, the pay in for approach, I don't think because it's.
- [49:37]
B
It's okay. Sure.
- [49:37]
A
Reserve not pay later is like a pay in for approach. I believe the it had an adverse effect on cash flow obviously because you're not seeing the cash up front. But they grew bookings much faster than both Booking holdings and Expedia. And my guess would be unlocking this Reserve now pay later probably makes some trips more palatable for certain customers. Do you think Reserve now pay later is net benefit to the business? Are you upset at all about the working capital advantage maybe disappearing?
- [50:14]
B
It's not going to disappear entirely but I think they can management and price it appropriately. Look, growing faster than booking. I mean it's a couple of quarters I think maybe in only two but the thesis seems to be playing out.
- [50:33]
A
Yeah, very stable. I would World cup will probably be really solid for them. I guess that might have led to the outperformance with bookings this quarter as well relative to like Booking holdings and Expedia since they have more north exposure.
- [50:47]
B
Sure, sure.
- [50:49]
A
Do we want. Oh, any interest in this intuit down 20% today as this recording.
- [50:56]
B
Yeah, we had a listener question about
- [50:59]
A
that 14 times EBIT. The I, I guess concern is on the conference call they came out and said basically we are losing share in sort of the low end customer for TurboTax. And they said don't worry everyone, they're not. We're not losing them to AI. We're losing them to lower priced competitors. They really wanted to stress that they are not losing customers to AI which I feel like most people are probably not risking their taxes right now with. With AI yet but so I kind of believe them there. But it does seem TurboTax maybe doesn't have the moat.
- [51:46]
B
The world thought yeah, this is always a risk. Look at this PE chart here from our friends at Fiscal AI. Use our link Fiscal AI chitchat. We've been using the charts throughout the show and you can get 15% off any paid plan. As Ryan mentioned, fiscal AI has the SpaceX KPIs already loaded so they're always working hard to keep providing value to their customers. Look at this PE 18.6. I mean significantly lower than anything they've ever traded at. They've historically been at the 4050 range. It's just been quite the compounder. You look at the business. I use TurboTax every year same. That's kind of my. That's kind of my barometer. And the more free stuff I can't, I don't qualify for.
- [52:34]
A
So yeah, the more you earn the less incentive you have to switch based on price.
- [52:40]
B
That's fair.
- [52:42]
A
So I think maybe it'd be okay to, to churn out some of those customers, but.
- [52:49]
B
And as a commenter here says, it's not the entire business.
- [52:53]
A
Correct.
- [52:53]
B
Right. Just gets a big narrative.
- [52:55]
A
QuickBooks is proving to be pretty sticky and a decent asset as well. Did you know Intuit, worst performing stock in the s and P500 this year.
- [53:08]
B
Not surprising, seeing that BE ratio, but could be. Are they buying back stock? That's the big question.
- [53:17]
A
Let's pull it up. Fiscal.
- [53:19]
B
Wow. Down 20% today. Geez.
- [53:22]
A
You know who is the second worst performing stock?
- [53:25]
B
The trade desk.
- [53:27]
A
No, but they're close. CoStar Group, you know them, they're kind of like real estate, commercial real estate software. They're trying to disrupt Zillow, Which.
- [53:40]
B
Yeah. Network homes.com, it wasn't going to work.
- [53:44]
A
If any company is ripe to be disrupted, I mean, Zillow has. They have not been able to monetize their business properly for 15 years.
- [53:54]
B
Yeah, I mean, you just look at CoStar. Their valuation was always insane and they weren't growing that quickly. It was one that I could never understand.
- [54:05]
A
I'm seeing, I think I'm at quarterly. Okay. Quarterly free cash flow for intuit was 5.2 billion.
- [54:13]
B
We got a comment here saying $8 billion share. Purchase.
- [54:16]
A
Purchase. Yeah, sorry, forgot about the seasonality here. Yeah. They spent 1.6 billion on. On buybacks. Intuit is one of those. Where the. What is it the first quarter? Maybe it's the second quarter. Always looks ridiculous.
- [54:30]
B
Seasonality at 1.6 billion on buybacks in the quarter.
- [54:35]
A
Yeah.
- [54:35]
B
$84 billion market cap. Wow. Pretty good.
- [54:39]
A
Yeah. And they've. That's three quarters in a row now of more than a billion dollars in buyback. So kind of like, like to see it. Any earnings you want to touch on? I mean, we are 53 minutes into this episode and we haven't sure.
- [54:54]
B
For anyone who doesn't know the numbers. 85% revenue growth, 145% operating income growth at 40, 53.5 billion. Data set of revenue, 92% growth. I think again, you're at the same dilemma with this company. The problem just remains valuation. $5.3 trillion market cap. It's really hard to know what to do with it. You know, there's a risk that earnings are currently a little elevated. There's also an opportunity that earnings could double over the next couple of years. Right now you're at 26 and a half times run rate operating revenue. I have no idea whether that is cheap or expensive and I think that's what people are kind of getting to the moment on here with Nvidia. There's potential competitive threats here. There's also just the huge opportunity. There's the TSMC holding them back with capacity. What do you do? I don't know. I really don't know. And it seems boring at this point. I hate to say it.
- [55:49]
A
Yeah, it's weird to say 85% revenue growth is boring but it's well telegraphed from analysts at this point, very well covered and it kind of feels like they're in this limbo stage. I'm with you. Like I don't know the technology well enough to have a grasp on where they stand versus TPUs. Like what what could be stolen from them demand wise from homegrown projects like Google's TPUs like Amazon Trainium, that kind of stuff. Like how much can that carve into their market. The. I mean the results look really really good on their face so it doesn't surprise me that they're still the largest company in the world. I'm in the same spot. I don't really know what to do here. Does it surprise you that they're buying back so much stock they announced a new $80 billion repurchase?
- [56:52]
B
No, they've been doing this but don't like it. It's just offsetting sbc. And Burry's been doing some good work on this. It's pretty. Unless you think this is going to be a business generating hundreds of billions in annual operating earnings soon or like 300 billion just possible. Unless you think that's happening. It's probably you're buying back stock well above intrinsic value so I'm not sure they know what to do with it. Dividend probably works better. Special dividend would probably work much better but the buyback at these prices it's not going to do much to that share count.
- [57:29]
A
Hey, they did raise their quarterly dividend from $0.01 to $0.25. 25x the great. Yeah it's amazing to have such a massive company report such insane numbers and feel like I'm already ready to be done talking about it. So let's shift gears to Nubank Co. You have covered I think a couple of times on the emerging Moats Research service.
- [57:57]
B
Yes. Well full stock research report was out two weeks ago. I guess it was the last one since I took last week off so go check that out. Pretty comprehensive coverage. They had their earnings sometime in the last two weeks again time has Been a bit of a mystery for me, but it feels like a long time since we've talked. Active customers up to 113 million in Q1 monthly revenue per active up to $16 while cost of service stayed at $1 per month. I have a chart here which is maybe a little small to share, but it shows basically this revenue per active customer going from $3 to $16 will cost to serve that customer has gone essentially flat and that gap is just giving them more opportunity to earn margin per each active customer. It's just fantastic. Again, we can use our friends here at fiscal AI to you build some of these KPI charts. Use our link fiscal AI chitchat get 15% off. They can keep doing this and they're just highly efficiently run bank the Mexico business is now inflecting the profitability. It seems like credit quality given their metrics. We don't have to go through them all on the podcast, but they're holding fine. There are rumors and notes out there that loans and consumers are deteriorating in Brazil. I don't see that showing up in their numbers yet, but people are. There's a lot of talk like look, these are still short term loans. They're high write off loans anyway, even if they're profitable. And given the fact that they're not locking in low income, just terrible credit quality consumers into long term loans that are going to expire worthless. I think they can adapt if they want to. Net income for the bottom line results up 41% year over year. It seems like something along those lines is probably doable over the next three years. Maybe maybe a slight slowdown because again you can add more active customers across Mexico, Colombia and potentially other countries. You can get better operating leverage because you're getting greater scale again over that fixed cost base and there's more room to grow revenue per active customer with a lot of the different things they're doing. And right now the pe is only 21. That feels entirely reasonable to me. And it's growing at income 41% PE is 41. What other stocks are trading like that?
- [60:16]
A
Yeah, it looks really good in terms of all the numbers we just shared. The Mercado Pago has taken share now both of them are adding tons of customers and taking from legacy banks. So I don't think it really matters. Do you see this as a.
- [60:39]
B
I have a larger position in Mercado Libre so I don't really care.
- [60:42]
A
But yeah, I was gonna say let me phrase it this way. If you are looking at Nubank, is there any point in examining Mercado Libre.
- [60:51]
B
If you're just looking at nubank.
- [60:54]
A
If you. If you want to be a shareholder of Nubank, you're interested, do you need to understand the Mercado Pago story or is it not even worthwhile?
- [61:01]
B
I'm not sure. Maybe. Maybe it's different. It's probably like credit cards in the United States where, sure, you have your bank of America card, but you also have your Amazon Prime Visa card. You got multiple.
- [61:13]
A
Yeah, all right. I've got a couple other funny notes, but we are bumping up on time here.
- [61:23]
B
This will take 30 seconds. This is something in bubble watch. I don't know if you saw this. Probably did. And I just want to say I really hope my tax dollars, specifically my tax payment, went to pay for this. IBM Global Foundries, D Wave Quantum, Rigetti Compute, as I call Rigatoni Compute, Inflection, Psi Quantum Quantum Quantinium, Atom Computing, and Dirac, which sounds like a rapper, all received around $100 million or more in funding from the United States government as part of a quantum computing initiative. I think they're just trying to make me mad at this point. Rigatoni Compute. It's a scam. It's a complete scam.
- [62:11]
A
Here's the. There was an interview with Jeff Bezos yesterday that went kind of viral and he basically said, like, it's got nothing to do with the top line for the government. It has to do with where the money's being spent. Like, man makes too much sense.
- [62:31]
B
He breaks people's brains because he simplifies things way too down. He got you to deliver a package in two hours across the United States, which is a geography of just terrible vastness. Like, trust the man.
- [62:42]
A
Yeah. And people are like, he's delivered no value. Yeah, yeah, it was. I actually love hearing interviews with him. But yeah, he basically addressed the same thing, which is, you know, money needs to be spent in other ways. I think that's going to do it. We. I've got a comment here that says, I like Inter as well for Brazilian Digital Bank. Yes, they are. There's been some good write ups from them on from Ian Bzic.
- [63:12]
B
That's correct. Oh, and also we had a comment that said your Premier League picks were perfect at the start of the year. Do you remember what you said? Arsenal would win and Leeds would stay up. Leeds was more of a personal one for the friends. Right. But yeah, they did. They got it.
- [63:29]
A
Hey, good. Should have put some money down, huh?
- [63:34]
B
Yeah. There you go.
- [63:35]
A
I think that's gonna do it. Any other thoughts Brett before we depart here?
- [63:40]
B
Nothing else. Stay safe everyone. IPOs usually go down after the pop, so just FOMO is gonna happen. Just relax.
- [63:49]
A
That is going to do it. Thank you everyone for tuning in today. We want to remind listeners that Brett and I are not financial advisors. Anything we say or discuss here on Chitchat Stocks is not formal advice or recommendation. We may buy, sell or hold any of the securities discussed on this podcast. Thank you again for tuning in. We'll see you next time.
- [64:14]
B
Foreign.
- [64:22]
A
I finally had a light bulb moment about a stock we've all heard about growing at 18% a year and a 15 pe. I shared this insight in a special deep dive report to subscribers of my research service Value Spotlight. The report is called a Generational Moment, reigniting human connections through a tangible network of intangible assets. Chitchat listeners can get a discount to my research at stockwriteup. Com. That's Stock write. Com.