Dan Egan (2:36)

Money markets matter. If money is evil, then that building is hell. The show goes on. The price of narratives Sell, sell.

Ed Elson (2:46)

Welcome to Profit G Markets. I'm Ed elson. It is April 28th. Let's check in on yesterday's market vitals. The major indices were mixed as Trump considered a proposal from Iran to end the blockade and open the Strait of Hormuz. The S and P and the Nasdaq edged up to new records while the Dow fell slightly. Meanwhile, oil prices rose and Microsoft stock fell early on the day on a renegotiated deal with OpenAI. The stock later recovered to end in the green. More on that later. Okay, what else is happening? SpaceX is gearing up for the biggest IPO in history, but investors are starting to wonder what exactly they are being asked to buy. The company is targeting a $2 trillion valuation which would instantly rank it among the largest companies in the S&P 500. But this is no longer just a space company. It's also a satellite Internet company, a launch company, and increasingly an AI company with new bets and new acquisitions adding to the story. And for all of the hype, there are real questions hanging over what would be the market's biggest event in years, such as can space based data centers actually work at scale? What happens to Elon Musk's control once the company goes public? And ultimately, can that $2 trillion valuation be sustained in the public markets? Well, here to help us answer many of these questions, we are speaking with Patrick Boyle, professor at King's College London, or former hedge fund manager and host of one of the most popular finance YouTube channels. Patrick, so good to see you and so glad to finally have you on the show. I wanted to speak with you because this SpaceX IPO is set to be one of the most important events in a really long time in the financial markets. And you recently released a video titled quote, the SpaceX IPO scandal. So I will start with the obvious question, which is why did you describe this IPO as a scandal? How is this company being sold to investors? What are you skeptical of with this ipo?

Dan Egan (4:54)

Well, the thing that's quite questionable about the way this IPO is being done is just the way that it is being forced into the NASDAQ 100 index almost instantly. I think there's going to be a 15 day delay and also the weighting that it'll be given is much higher than you would expect for a company with a very low float. So in a funny way, the company goes public at a very high valuation, people will probably buy in. Firstly, there's a lot of people are just very excited about Elon Musk and his companies, they'll put money in. But then the expectation is that the indexes will be buying 15 days later. the current valuation they're talking about, it would have a 4.5% weight in the NASDAQ 100. There's also been talk about possibly S and P pushing for early inclusion as well. And that would essentially mean that there's just a frenzy of it being bought up, stuffed into the portfolios of people who index who are not really valuation sensitive. And it's the valuation they're talking about. To be clear, they're talking about 125 times sales. So that's not earnings, that's sales. And we don't even really know what the earnings are of space. Reuters published that they had EBITDA of $8 billion. But EBITDA is not earnings. It's earnings before essentially the cost of building satellites and building rockets, which for SpaceX you have to imagine is a significant cost. There's a famous quote from I think around 2002 where Scott McNeely, who was the CEO of Sun Microsystems, spok

Betterment Announcer (6:55)

the

Dan Egan (6:55)

price that people had invested in Sun Microsystems at. And he said, well, what were they thinking? They invested at 10 times sales. And he said, if you put your money in at 10 times sales, in order for me to return it to you in 10 years time, I have to pay all of the earnings out, or, sorry, all of the sales out as dividends. And that assumes that I'm not paying any staff, that I have no R and D cost, that there's no manufacturing costs. He said there was no way people were going to get a return on investment at 10 times sales. Now we're talking about 125 times sales. And it's worth noting as well that SpaceX is an exciting company. It is growing, but it's not growing. Analysts expect it to grow 25% next year. That's not good enough. Google went public, I forget how long ago, but they were growing at 240% a year and they went public 10 times sales once again. And so the price, it's not really the question isn't whether it's a good or a bad company. A bad company can be a good investment if you get in at a low enough price. And an amazing company can be a terrible investment if you overpay for the

Ed Elson (8:17)

stock so much in there to unpack. I mean, I guess let's just focus on the price for a moment. Why is. I mean, when it goes public, you could imagine a World. If we lived in an efficient markets world, you could imagine a world where investors would say, $2 trillion. That's ridiculous. I'm not buying. And the stock immediately plummets, in which case maybe it's not a problem. It seems as though in the private markets there seems to be a little bit more BS available and you can command these kind of ridiculous valuations, I guess, because the negotiations are a little bit more entrenched and Elon just says 2 trillion and we say whatever and we sign the contract. But I feel like there's a bit of a. It's a harder bar to hurdle to get over in the public markets. So I'm with you on all of this, but I wonder if maybe there's an argument to be made here. Well, if it goes public, the markets will decide what the true valuation is and therefore maybe there isn't a scam.

Dan Egan (9:20)

Yeah, I mean, that is the purpose of markets is to essentially weigh these companies. And in the long run, it doesn't matter. In the long run, a good company that grows earnings will go up. But of course, in order to go up more than the market, it needs to surprise to the upside. A company needs to be better than people thought it was to perform better than the market. If people are right about how good the company is, well, then it would expect to get standard stock market return. So when you go public at such an extreme valuation, I mean, the likes of which has never been heard of before, it's funny because there's some analysts out there and they're saying, well, there's nothing to compare it to. And you can compare it to aerospace companies, you can compare it to technology companies, you can compare it even to, we'll say just companies like Nvidia that have a product that there's a lot of demand for. And then you'd say, well, how much is Nvidia growing? How much will SpaceX grow? Blah, blah, blah. But the problem is there's nothing to compare it to. If you go with a valuation like this, if you went with a more, I don't know, moderate or earthbound valuation, there's plenty to compare. A company that is an Internet service provider, a very small AI company, and delivers payloads into space.

Ed Elson (11:00)

Right. It almost seems as though, I mean, the markets will decide what the valuation is. But thus far they have taken a few kind of shortcuts to achieve this valuation. And it seems that some of those shortcuts would include talking about data centers in space and talking about the future and then merging Xai and putting that into the company and then buying cursor and putting another AI company into the thing so that you have to keep on growing and growing and growing. And then the other point that you make, which I up until now hadn't thought properly about, is the idea of just shortcutting your way into the Nasdaq, which I assume immediately puts more buying pressure on the stock because it's essentially inserted into people's portfolios many 401ks throughout the country, thus resulting in an elevated valuation in. Hence it seems like that's kind of where the scandal is, that it's employing all of these strategies to almost fake it.

Dan Egan (12:03)

Yeah, the idea that. So firstly Nasdaq had to change all of their rules to allow this inclusion because normally a company needs to be. There's a list of rules as to how they weigh a low float company going into an index, how long it's been public, because the idea is it needs to be seasoned in the market of find evaluation with real buyers and sellers. So normally you would expect it to take about a year at least to even consider adding it. 15 days is unheard of and then getting rid of the caps for the float on it. Reuters reported that this is because Elon Musk negotiated with Nasdaq and said, we can list this thing on the nyse, we can list it on the nasdaq, we can list it wherever we want. If you want it on the Nasdaq, you have to go with fast tracked index insertion. Obviously that's good for everyone who already owns SpaceX stock, but if you are a person who owns index funds, and it's worth noting it's not even just index funds because there's an awful lot of fund managers who claim to be active managers, but if you look at their portfolios, they look exactly like an index. And so apart from the indexes buying, there will be just a bunch of portfolio managers who say I can't afford to take the risk of not owning a stock that's 4.5% of the NASDAQ if I'm being judged against the Nasdaq. And so in all honesty, it's a very smart way of maximizing demand for the stock right on the point of it going public. It's questionably ethical from the perspective of the people at Nasdaq to change all of their rules right around what is by far the. I believe it's the biggest IPO in history because before that we had Saudi Aramco where they did, I think they did a $29 billion, IPO, they're talking about 75 billion for this, the public float.

Ed Elson (14:25)

So, yeah, a lot of the ethical questions do land on the NASDAQ here. And I'm reminded of when the NASDAQ decided to include MicroStrategy in the index. And as soon as I saw that, I was like, oh, now it's really a problem. It used to be that this was just a guy who had this bitcoin treasury company and it was kind of a bunch of bs. But if you bought it, you bought it and that's okay. But as soon as we systematized. Yeah.

Dan Egan (14:48)

And if you bought it, you got

Ed Elson (14:49)

what you wanted, but then suddenly you're putting it into people's hands who don't even know what it is or what they're actually buying. And I guess the question that I would ask is, why is the NASDAQ incentivized to do this? Exactly. Why are they changing their rules? Why are they so desperate to include this company in the index?

Dan Egan (15:11)

Well, it's going to be a huge company, especially if it goes public at what, $1.75 to $2 trillion? It will be. I think there's only five U.S. companies bigger than that right now. You're talking about like Google, Microsoft, Nvidia, like, you know, they will be listing a big company. There's all sorts of exchange fees, trading fees, whatever that they earn off of this. It would not be. They would be unhappy if it ended up on the nyse, for example.

Ed Elson (15:43)

Yeah. Just looking at the business itself, what do you make of SpaceX as a business? I mean, clearly you believe, and many believe, that the valuation is a little bit nuts. It would be more valuable than Tesla. What do you make of this business? What do you make of the valuation?

Dan Egan (16:01)

Well, the real question is there's an awful lot of stuff in there that you would consider sort of lottery tickets, where it's stuff that it seems a little bit unlikely. This whole data centers in space thing, it's been tried. There's a company, I can't think of their name now, but they launched one Nvidia chip into space in a little satellite to run an AI program where I think it was meant to learn the works of Shakespeare or something like that. It constantly had to be shut down because it overheats, because it's very difficult. Everyone says, well, space is cold, but it's also a vacuum and you need air blowing over something or water or whatever to cool it via convection. If it has to cool radiatively, you need these mass of massive cooling fins on it. And so the next version of this tiny Shakespeare satellite is going to have the second largest cooling array in space behind the International Space Station. So we're talking about a very question to cool an actual data center, the type of thing they build on Earth. I mean, you're talking about cooling fins that are miles and miles square. It would be the largest man made object in space by a long, long, long shot. So in terms of could this ever work? It could. It doesn't violate the laws of physics, but it might be very difficult to manufacture and to get up there in a timely manner. There's also this kind of insane expectations around the real profit center, like 66% profits, at least as far as we know of SpaceX, come from Starlink, the satellite Internet company. And they have at the moment around 10 million paying customers. I believe there's some analysts out there and they said that they would reach 1.2 billion customers. Now that's quite an amazing number when you look at the population of the planet. Like there's 1 billion people on the planet who earn $35 a day, which comes to a bit under $12,000 a year. They will not be paying for $150 a month Internet access. The question is, how big can Starlink get? And it's reasonable to think that maybe it's close to its capacity. And then when you Even look at SpaceX's launch, they are the biggest in the world. They take the most stuff into space, but I think around two thirds of what they bring into space, if not more, is Starlink satellites. It's their own stuff they're putting up there. So in terms of how big the market is for other companies that want to put stuff in space, it's not obvious that it's a whole lot bigger than what's being launched right now.

Ed Elson (19:16)

Patrick Boyle, professor at King's College London, former hedge fund manager, host of a popular finance YouTube channel Patrick. Patrick, we're going to have to continue this discussion another time because there's so much to get into here and it is going to be such an important event that people need to wrap their heads around and actually understand the details. And a lot of those details that you bring up are massively important. So thank you very much for joining us.

Dan Egan (19:41)

Thank you for having me on. It's been a pleasure.

Ed Elson (19:45)

After the break, why emerging markets are on a tear right now. And by the way, we are heading out on tour at the end of May, so if you want to come see us live, go to profgmarketstour.com to get your tickets. Can't wait to see you.

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Betterment Announcer (21:36)

Foreign

Ed Elson (21:39)

we're back with Prof. G Markets. Emerging market stocks are on a tear right now. The MSCI Emerging Markets Index hit a new all time high yesterday, surpassing its February peak. The index is up about 16% this year. That's roughly three times the gains of the S&P 500. South Korea and Taiwan are leading the move driven by AI chip demand. This latest rally came on a report that Iran offered to reopen the Strait in exchange for the US Lifting its blockade of Iranian ports. However, the oil markets remain on edge with Brent crude still trading at around $110 a barrel. So here to help us unpack what we're seeing in emerging markets right now, we are speaking with Sid Jain, Deputy Portfolio Manager at GQG Partners. Sid, thank you for joining us on the show. Before we get into what's happening here, could you just remind us what emerging markets actually are? What is this category? What does it entail?

Betterment Announcer (22:42)

Absolutely. So emerging markets is a broad term, generally includes countries that are less developed earlier on in their financialization but frankly from a markets perspective a lot of countries that fall under that, that aren't what you would consider emerging. So for example a Taiwan, South Korea, this is generally highly developed high income countries but because of their legacy they still get included under the emerging markets. From a markets perspective.

Ed Elson (23:12)

Yeah, I always think that we should create a new name for them. I just feel like emerging markets doesn't really do it justice either way. Those markets are up 16% year to date. They sold off when the Iran war started but they've now recovered all of it. And that's three times more than three times higher than the S&P's gain so far this year. So they are massively outperforming US markets at the moment. And I guess the question is why is that happening?

Betterment Announcer (23:41)

Sure. So what's interesting with the current composition of the emerging market index is that it's really not a reflection on the underlying emerging market economies. It's basically become a bet on the AI Capex buildout you're seeing. So the big drivers of the emerging markets for the last better part of last two, three years now have been the semiconductor plays specifically in Taiwan, TSMC being the big one and South Korea, the memory companies, sk, Hynix and Samsung. And in one stat that's pretty mind blowing is that if you look at on a year to date basis those three semiconductor companies, TSMC, Samsung, SK Hynix are driving almost 70% of the entire index's earnings growth. So this has basically become a one way bet on the capex build out that you're seeing.

Ed Elson (24:37)

We saw a similar thing last year where again emerging markets way outperformed the S and P S and p was up 16%, emerging markets was up up 30% for the year. Kind of incredible performance was that the same story was that a handful of chip companies in a few of these less developed economies.

Betterment Announcer (24:58)

So that was a big driver and just based on how large these companies are as a portion of benchmark it moves the needle. So for example TSMC alone has a higher weighting in this benchmark than the entire country of India. So it matters. But there are a lot of bright spots you're seeing across other non semiconductor markets. So for example 2025 was a fantastic year for pretty much every country in South America. Brazil being another large winner not just in 2025 but year to date where the countries are actually doing quite well, economies are improving, their stocks are incredibly cheap and an important catalyst has been a electoral cycle where the countries are moving from the left on the spectrum. To more of a right wing, business friendly environment. So you're seeing that dynamic. But by and large I would say a lot of these emerging markets have structurally improved versus what was the case ten years ago. Ten years ago these economies were in a funk. Morgan Stanley had a term called a fragile five for a lot of these countries. But, but as these cycles go they've turned around and growth is finally coming back after a long time.

Ed Elson (26:14)

Do you think that this is something that we're going to see continue? I mean it's been kind of a spectacular rally for emerging markets last year continuing into this year. And I feel like that was a big question at the start of the year, which is like it was an anomaly that the US was kind of outpaced by basically everyone else last year. The question for 2026 was I like is that going to continue to happen? So far the answer is yes. Do you think that it will continue to be yes going forward?

Betterment Announcer (26:45)

So I would say you do have to look at it from a country by country basis because again the index is so misleading given how lopsided it is on AI. If the AI capex story slows down or God forbid turns negative ever, then the index will be in a world of pain. However, outside of that there's a lot of attractive bottom up stories. I mean I talked about South America, India, we're finding opportunities, Eastern Europe. So there's actually quite a bit of exciting names. And I think what's again where we are on the cycle is so fascinating where for the first time you're seeing earnings growth in these countries actually look pretty strong, which was not the case pre Covid. So for example, if you take In India from 2010 to 2019 India earnings growth was basically zero on a dollar basis. Now you're getting low to mid teens earnings growth. And so it's a fundamental change versus what was the case before.

Ed Elson (27:47)

How much of this has to do with the Sell America trade which got a lot of made a lot of headlines last year. It turned out not really to be Sell America. It was probably more like Hedge America. You weren't really seeing that much selling pressure US stocks but ultimately you were seeing a lot of buying pressure on all the other stocks. How much of this is that versus say just the incredible performance of a handful of these AI companies?

Betterment Announcer (28:16)

So I wouldn't go, I wouldn't characterize it as Sell America but rather just people realizing how underexposed they are to the rest of the world. Yeah, because for the better part of 15 years there was the best earnings growth by far was in the us There really was not many other options. The Tina trade, so to speak. There's no alternative. That's kind of over. Where yes, US has some fantastic companies, but from a growth perspective you're seeing it percolate to other parts of the world. And so it doesn't make sense to have all your eggs in one basket where you can find better opportunities at generally lower valuations outside the US So it's more of a rebalancing than a wholesale let's get out of America.

Ed Elson (29:03)

Yes, but certainly to do with it, it sounds like a rebound. I mean so much exposure in the US and then it's like, okay, well we need to de risk somehow. Just going back to Iran for a moment. As I mentioned, there was this sell off and then emerging markets recovered. And it seems as though this is largely a result of of investor expectations about the supply chains of these chip companies. I think though it's kind of hard to understand how the markets really feel about Iran and the Strait of Hormuz. What can be said about what's happening in Iran and how it relates to the performance of emerging markets so far? What do we know about the relationship between the two?

Betterment Announcer (29:44)

No, it is an excellent question and I don't think it's just an emerging market question, but also developed market question in the US So, so the AI excitement has thus far overcome any potential down implications from this Iran conflict because the view is AI is a structural theme and the compute shortage, so to speak, is worse than the oil shortage. That's the market perception. Our view is that the Straits are still very much closed. Brent oil is, is close to $110 per barrel. And if you look at the refined products of gasoline, diesel, jet fuel, they're closer to $200 per barrel. And you're already seeing an economic slowdown across most Asian countries. And our view is that the next leg will be in Europe. So we actually think the markets are being very complacent about the risk of an oil shock or a higher prolonged oil environment.

Ed Elson (30:44)

What do you. It's so interesting because I could understand why American investors feel this way, this complacency that we are, that some people believe is present in the markets right now as it relates to Iran. In America there's an argument to be made that America is insulated, we're energy independent. This isn't going to be that much of a problem for the U.S. or for U.S. companies. But then I see the performance of, of emerging market stocks in areas where we are seeing a lot of direct economic consequences, where gas prices are rising far higher than we're seeing in the US which makes me think why aren't investors in, in, in those markets? Why are they feeling complacent? Why do they feel optimistic about the situation despite the fact that on the ground, as you say, it isn't really getting better.

Betterment Announcer (31:34)

Yeah, it's, it's, it's interesting because in a lot of the non AI countries, so to speak, you are seeing earnings get cut and there is like for example in India, Malaysia, Philippines, where there is quite a bit of nervousness when you talk to other market participants on the implication of energy shock. The nuance again going back to earlier point is it doesn't hasn't really mattered yet at all actually for the big chip companies. So for example, these companies took another big leg up on the back of intel earnings a couple of days ago. And so if your view is that AI is structural, these companies in theory can grow through any sort of energy shock, although we find it skeptical if a lot of their customers are struggling, the people using AI or the people spending on digital advertising, there will be a ripple on effect to the capex, you see. But that's the market view thus far that these are secular growth stories.

Ed Elson (32:33)

Yeah, it's so interesting. It seems as though, I mean we talk a lot on this podcast about how AI is is essentially the US stock market at this point. And you can't, if you're investing in any index fund, it doesn't even investing in, in corporate debt, you are exposing yourself to AI. I hadn't fully considered how much that is also true of emerging markets too. Out of markets around the world, AI is literally everywhere. You cannot escape it. I could talk about this for hours with you, but we are out of time. I'm going to let you go. Sid J. Deputy Portfolio Manager at GQG Partners. Sid, we really appreciate your time. Thank you.

Betterment Announcer (33:12)

Appreciate the time. Thanks again.

Ed Elson (33:19)

Some news in the world of AI OpenAI and Microsoft have officially renegotiated the terms of their relationship and have reached what some are calling a truce. Just as a Reminder, Microsoft and OpenAI have had a contractual relationship for many years. But recently that situation became contentious. Part of the agreement was that in exchange for its compute, Microsoft would be the only cloud provider that could sell OpenAI's products. In other words, the relationship between Microsoft and OpenAI has long been exclusive. But now they're changing that. OpenAI will be allowed to partner with other companies, which means they can now sell ChatGPT through other platforms such as, say, AWS, which is Amazon's cloud unit, which effectively means that the relationship with Microsoft is now an open relationship. And that is why a lot of people are calling this a win for OpenAI, because they're no longer tied up in their sugar daddy relationship with Microsoft, kind of. And this is the part that investors seem to ignore in the morning when Microsoft shares fell, but slowly started to realize as the day they went on. And that is that this is also a win for Microsoft for a few reasons. In the old agreement, for example, Microsoft had to pay a percentage of their cloud revenue to OpenAI because of this exclusive OpenAI offering that they got to sell to their customers. Well, now they don't have to pay a revenue share to OpenAI and while it's no longer exclusive, they still get to sell OpenAI's products, products to all of their customers. In other words, Microsoft's cloud revenue just went up. At the same time, Microsoft still has significant control over OpenAI. Microsoft will still receive a percentage of OpenAI's revenue over the next five years. They will still maintain 27% ownership of the entire company, and they will still get unfettered access to OpenAI's technology. Only the difference now, now is that this access will end in 2032 versus the previous contract where it would end as soon as OpenAI achieved, quote AGI, artificial general intelligence. How did they define AGI? They didn't. In other words, OpenAI could have ended that agreement basically whenever they wanted. Well, now they can't. So this is what we call a great deal. And that is is both sides are equally happy with the situation, but also equally unhappy with the situation. There are pros and cons to both. No one really comes out on top. And so the conclusion for Microsoft investors here is that the picture now is roughly the same. The company still needs to prove itself with Microsoft Copilot. It still benefits from its relationship with OpenAI, although it still shouldn't become dependent on that relationship. That was also true before. And its overall business compared to the other hyperscalers, for example, is still significantly undervalued. Microsoft is trading at 22 times forward earnings. Alphabet's trading at 30, Amazon's trading at 32. So we land where we landed last week and that is that Microsoft stock still looks pretty attractive. As I mentioned a couple weeks ago, I bought it when the stock hit $400 and I bought again when it hit $380. It's now up to $425. We will find out more when the company reports earnings later this week. But as of today, it still seems relatively cheap, and this news doesn't do much to change that. Okay, that's it for today. This episode was produced by Claire Miller and Alison Weiss, edited by Joel Patterson and engineered by Benjamin Speckle. Our video editor is Brad Williams. Our research team is Dan Shalon, Isabella Kinsel, Kristen o' Donoghue and Mia Silverio. And our social producer is Jake McPherson. Thank you for listening to Profg Markets from Prof. G Media. If you liked what you heard, give us a follow. I'm Ed Elson. I will see you tomorrow.

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Dan Egan (37:46)

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Hey, Mom. Happy Mother's Day.

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