OpenAI’s Financials Leaked — The Losses Are Staggering

Summary

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Prof G Markets – June 17, 2026

Episode: OpenAI’s Financials Leaked — The Losses Are Staggering

Main Theme:
This episode dives deep into the recently leaked financials of OpenAI, revealing vast losses and raising questions about the sustainability of AI business models. It also scrutinizes the meteoric rise in SpaceX’s stock price following its IPO, considering both financial fundamentals and market sentiment.

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1. OpenAI’s Financials Exposed: Enormous Losses and Burning Cash

[01:48–16:09]

Key Discussion Points:

• Revenue and Losses Breakdown

  • OpenAI booked $13 billion in revenue in 2025 (up 250%+ YoY), but lost $39 billion in that same period.
  • Net operational loss: $21 billion. GAAP/“voodoo” net loss: $38.5 billion.
  • Other calculations (including stock-based compensation and investor rights): up to $60 billion net loss.
    • Ed Zittran: “You spent $34 billion to make $13.07 billion. You didn't just lose $8 billion.” [07:19]
  • OpenAI spent $34 billion to earn $13 billion, with 6.6% of revenue ($867 million) coming from a single, unclear SoftBank “Crystal Intelligence” partnership.
  • Sales and Marketing: staggering $5.73 billion (44% of revenue), a 418% YoY increase.
    • For comparison: Facebook’s marketing peaked at 28% of revenue (2008); Google’s at 11% (2003).

• Accounting Confusion and S1 Speculation

  • Different interpretations of losses due to investor rights charges and accounting tricks—real net losses are debated but the operational losses remain massive.
  • Ed Zittran doubts adjusted narratives: “I think that's wank. … You spent $34 billion to make $13.07 billion. You didn't just lose $8 billion.” [07:19]
  • OpenAI’s core problem: “spiraling costs, dramatic costs way beyond what we thought.”
  • Huge R&D spending ($19.18 billion) is not projected to fall; costs are expected to grow.
    • "OpenAI has already said as part of the Musk trial that they're going to spend $50 billion on compute this year in 2026. Their losses are going to be astronomical." [08:32]

• Sustainability and Business Model Concerns

  • Ed Zittran: “They have one product with a few offshoots. … Their costs are so severe that I don't think profitability is actually possible for any AI lab.” [11:14]
  • OpenAI’s massive recent fundraising ($122 billion) signals continued cash burn, not imminent profitability.

Notable Quotes & Moments:

• Ed Zittran:
  • “Every cost is increasing. And I think it's just a kind of a frightening sign of what the innards of these companies look like.” [08:10]
  • “I don’t think profitability is actually possible for any AI lab. … These numbers are terrifying. These are scary numbers.” [11:14]
• Ed Elson:
  • “OpenAI is spending astronomical amounts of money not to build AI, but to sell AI.” [09:30]

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2. OpenAI’s Path to IPO: The Role of Narrative and Leadership

[14:08–15:34]

Key Discussion Points:

• Market Reliance on Storytelling

  • SpaceX’s soaring stock attributed to Elon Musk’s unparalleled storytelling and market influence—not fundamentals.
  • Ed Elson draws a parallel to Sam Altman, questioning his ability to “sell” OpenAI’s story amid such poor financials.
    • “Sam Altman, I’m not sure I back him to tell a compelling story or to capture the imaginations of investors in the markets because it’s clear that the numbers aren’t going to do it for him.” [14:53]

• Altman’s Investor Messaging Lapses

  • Ed Zittran notes Altman admitted on a panel, “yeah, AI costs are a huge issue now.” [14:53]
  • Zittran critiques: “You don’t say that, Sammy. You don’t. That’s not what investors want to hear.”

• Risks for Investors

  • With fundamentals so weak, the IPO’s success may hinge on market appetite for AI hype rather than any real business case.

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3. SpaceX Valuation: Disconnected From Fundamentals

[20:18–33:39]

Key Discussion Points:

• Stock Surge Post-IPO

  • SpaceX stock increased 48% since its Friday IPO, reaching parity with Amazon and briefly surpassing Microsoft.
  • Recent $60 billion acquisition of AI coding startup Cursor (in stock, not cash) furthered the buzz.

• Morningstar’s Sober Take

  • Nicholas Owens (Morningstar):
    • DCF model values SpaceX at $780B—less than a third of its $2.6T market cap.
    • SpaceX’s business (rockets and Starlink) could have a wide “moat,” but the AI/data center play is “indeterminate at best.”
      • “The company gets a narrow moat rating from us because of the AI piece, which is, I would say, indeterminate at best in terms of what its moat would be.” [25:01]
    • The Moonshot scenario (successful orbital data centers + reusable Starship) is given only a 7% probability.
  • The market, by contrast, prices perfection—total success in both reuse and orbital compute.

• Stock Structure and Meme Stock Dynamics

  • Only 4% float; huge pent-up supply = meme stock risk.
    • Ed Elson: “It seems to look like it already is a meme stock. Is that the explanation?” [28:09]
    • Nicholas Owens agrees: pent-up index fund demand, tiny float, & moonshot hype underpin current prices.

• Imminent Lockup Concerns

  • “Tens of billions of dollars—more than the IPO float—will come online [unlocked] after Q2 earnings,” Owens warns. [30:58]
  • Expect substantial pressure on price when insiders sell after lockups expire.

• Cursor Deal’s Real Value?

  • SpaceX pays for Cursor (AI coding shop) in stock—smart, says Owens, considering “highly inflated stock price … really effective currency in the M&A market.” [31:53]
  • Actual impact on valuation: “Mostly a wash. … We actually lowered our fair value.”

Notable Quotes:

• Nicholas Owens:
  • “The price is set by the marginal seller. That’s what I keep saying.” [31:53]
  • “If you’re investing more in these shares, you’re paying an option to see if that’s going to work. … Those types of other projects [e.g., Mars cities] are more likely than not to not work out.” [28:45]

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4. Market Mania & AI Bubble Reflections

[33:41–36:17]

Key Insights:

• Parallels to Past Bubbles

  • Shiller PE ratio at 42—second only to 1999 dot-com peak—signals a return to market-wide euphoria.
  • “We are now almost exactly in dot com level territory. … That’s not an opinion, that is just a fact.” [33:41]

• Selective Value Still Exists

  • Some blue-chips (Microsoft, Meta) remain relatively cheap, but sectors like space (notably SpaceX) look frothy and primed for correction.
  • "FOMO is very strong. Investors have gone crazy plenty of times before and it does appear they are going crazy again. AI euphoria has officially arrived."

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5. Quotes, Soundbites & Memorable Analyses

On OpenAI’s business:

• Ed Zittran: “OpenAI has chat, GPT and API. … They are just consuming capital at an alarming rate with no sign of stopping.” [12:00]
• Ed Elson: “OpenAI is spending astronomical amounts of money not to build AI, but to sell AI to make it profitable. And that does seem to be a real problem.” [09:30]

On SpaceX’s market narrative:

• Ed Elson: “SpaceX is now as valuable as Amazon, despite generating less revenue than Macy’s and all over Wall Street, I’m hearing things about how the fundamentals don’t matter anymore … Exactly the kind of rhetoric that has fueled previous stock market bubbles.” [33:41]

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6. Timestamps for Key Segments

| Segment | Start – End | Content | |---------|-------------|---------| | Market update & setup | 01:48 – 03:45 | S&P, NASDAQ, Dow, and lead into OpenAI | | OpenAI’s leaked financials | 03:45 – 14:08 | Ed Zittran interview & deep dive | | AI business model and IPO narrative | 14:08 – 15:34 | Storytelling, leadership, and sentiment | | SpaceX valuation vs. stock | 20:18 – 33:39 | Nicholas Owens on fundamentals, meme risk, and acquisitions | | Bubble commentary & market euphoria | 33:41 – 36:17 | Shiller PE, historical parallels, concluding thoughts |

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7. Summary Takeaways

• OpenAI is burning unprecedented amounts of cash, with actual operational losses far higher than bullish corrections claim. The company’s business model looks unsustainable amid runaway costs, and much of its revenue is highly concentrated and possibly unreliable.

• SpaceX’s IPO surge is almost entirely driven by scarcity (small float), meme dynamics, and investor FOMO—not fundamental business value. Morningstar’s sober analysis places its value at less than a third of what the stock market currently assigns.

• Both companies rely not just on operational execution but on compelling narratives to sustain sky-high valuations—with Elon Musk more skilled at this than Sam Altman.

• The current market environment has officially reached historic levels of euphoria, comparable to the dot-com bubble, especially in “story stocks” like SpaceX and OpenAI. Caution is advised as fundamentals recede and speculation dominates.

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Original tone preserved: Direct, skeptical, data-driven, and no-nonsense analysis.

For further questions, contact the hosts at [e-mail].

Transcript

[Ed Elson]

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[Nicholas Owens]

Money markets matter.

[Ed Zittran]

If money is evil, then that building is hell.

[Ed Elson]

Welcome to Profit you Markets. I'm Ed Elson. It is June 17th. Let's check in on yesterday's market vitals. The S&P 500 and the NASDAQ declined as chip stock sold off. Meanwhile the Dow hit another all time high. Brent crude fell lower. The yield on 10 year treasury slid ahead of the Federal Reserve's interest rate decision due this afternoon. On costly the odds that the Fed holds rates steady are at 99%. And finally SpaceX stock popped another 15% early in the day before paring back most of those gains. It is now roughly as valuable as Amazon. More on that later. Okay, what else is happening? OpenAI's financials were just leaked and the numbers are wild. The company hit $13 billion in revenue last year, up more than 250% from 2024. But the number that has everyone talking is how much OpenAI lost last year. The answer, $39 billion. Meanwhile, the company has just filed to IPO and plans to go public later this year. Which begs the obvious question, is this kind of spending sustainable? So to dig into these numbers, we are speaking with the man who actually broke this news, the guy who found the financials, and that is Ed Zittran, author of the where's your Ed at? Newsletter and host of the Better Offline podcast. Ed, it's great to see you. Thank you for joining us. Once again. I know you've had a busy day because you literally just reported these financials. I'm not going to ask how you got your hands on them, but what I'll what I do know is it's been independently verified, audited by the Financial Times. These are real numbers. You found these numbers. Take us through them. What should we know about these financials?

[Ed Zittran]

So last year OpenAI spent about $34 billion to make about 13.01. Sorry. $07 billion and had about $22 billion in cash. the end of the year, lost about $21 billion. That 38, $39 billion number is what I would describe as Gap voodoo. There is some very strange stuff and I'll be going into this in future episodes going on in the balance sheet and everything with this company. They turned from a non profit to a for profit though they've remained profitless last year, which means that they have their net losses. Quite strange. It's like $38.5 billion. But the number I like to come back to is they lost $21 billion from operations and they spent astronomical amounts on sales and marketing. They spent $7.5 billion on cost of revenue, $19.18 billion in R& D. But that sales and marketing cost, that $5.73 billion is one I really like to hammer on because what it's like. Excuse me, well, how much did you spend? Because the thing is here, there could be, I think that there's a potential that that could be partly passed through to Microsoft with revenue share. I truly don't know. This is just me guessing, but nevertheless that's an extreme cost. But another thing to note is $867 million. So about 6.6% of OpenAI's revenue last year came from SoftBank. Now I truly don't know what that's for. They have a thing called Crystal Intelligence. I'm not kidding. It's actually called that spelled the same way too. And but that's a very alarming number because that's a huge amount of revenue from one partner that I don't think was probably causing their cogs to spike. At all. That's a large amount of their revenue coming from a single partner. That is more than likely. Just, I mean, I can assume not like Crystal Intelligence is not launched anywhere. It's only. It took a few months to even get out the door. It was announced in February 2025. Took until the end of the year to hear anything about it, but they still paid nearly $1 billion. It's very concerning. And it also suggests that OpenAI's growth is not quite as fast as we believe too.

[Ed Elson]

Just going back to the losses here, because this seems to be the most important thing for investors to understand is how much money are they burning, really. The number that I saw, the net loss that was reported by you and by the Financial Times independently, I know you guys looked at the same document, but there are a lot of numbers on there and it gets a little confusing. The number I saw was 30, $38.5 billion in net losses, up Eightfold year over year. Now, there were, there was some nuance in here because as you pointed out, when you take into account these other factors like interest income and interest expense, the number goes up to $60 billion. And you pointed out that they lowered that number by taking that stuff out. But then the Financial Times also spoke with someone, quote, familiar with the matter. And this person who was familiar with the matter said that the reason that that number was so high was because as OpenAI's valuation went up, they had to create this $30 billion charge in investor rights, which I kind of understood to be stock based compensation. And so their argument was when you adjust for that, the real net loss is closer to $8 billion in losses. All of this is obviously very confusing and I don't fully understand it. So I just want to get your view on how do we make sense of this, because there's a lot of numbers, a lot of nuance, and I'm not fully sure what it all means.

[Ed Zittran]

So I did not speak to the person familiar with the matter. I do not know who they are. I think that's wank. I'm just gonna be completely honest. You spent, you spent $34 billion to make $13.07 billion. You didn't just lose $8 billion.

[Nicholas Owens]

Stop.

[Ed Zittran]

Like, when I read that comment, I did a big chuckle and I knew all the boosters would all get hot and heavily be like, aha. The proof we need the numbers to look at are the actual costs and the actual revenues. These companies, OpenAI in particular, have lived high on the hog, spreading weirdness around numbers. The Numbers to focus on, on how much they're burning. $1.57 billion just on general administrative, just on people. And I don't even think that that includes all the people. It doesn't. I don't have any other knowledges to this because I don't have the definitions of these terms from within the sheets. But the, the thing is here is this is a company with spiraling costs, dramatic costs way beyond what we thought, that is spending. And they put research and development in there and they market that. I believe personal belief here, because they want people to think that this is a temporary situation, this is something that will go away, that when there's enough R and D, they can stop. No, no, no R and D number going up very high. Everything is increasing, Every cost is increasing. And I think it's just a kind of a frightening sign of what the innards of these companies look like. And think about it like this. OpenAI has already said as part of the Musk trial that they're going to spend $50 billion on compute this year alone in 2026. Their losses are going to be astronomical. I don't have any privy knowledge to the 2026 numbers, but based on these, they could be burning 80, $90 billion. It's genuinely horrifying. I'm glad that I got to tell this story before the S1 is filed, because I think people need to see what the innards of this company look like before they get a chance to massage them.

[Ed Elson]

Yeah, I agree that actually one of the craziest numbers was the sales and marketing number, up to $5.7 billion. It jumped 418% in one year. That's 44% of total revenue. And we just look for context. When you look at Facebook's marketing, It peaked at 28% of revenue in 2008. Google's hit 11% in 2003. OpenAI's at 44%. So they're spending astronomical amounts of money not to build AI, but to sell AI to make it profitable. And that does seem to be a real problem. I mean, just looking at the SpaceX IPO as a comparison point, when the S1 came out, I wrote about it and a lot of people talked about it. I'm sure you talked about it as well. The numbers did not look great from a profitability perspective. We called it a money furnace, cash incinerator, et cetera, because that's what was happening and continues to happen. The company is losing astronomical amounts of money building mostly AI, also rockets. But AI is the Real money loser. And yet the stock is floppy flying right now. It's as valuable as Amazon currently. So I guess I'd be interested to hear what you think will happen when the S1 finally does come out for OpenAI. Maybe these numbers aren't concerning to people, or maybe they will be. I'd be interested to hear your views.

[Ed Zittran]

If OpenAI had SpaceX's losses, they'd be so happy. But then again, SpaceX doesn't have OpenAI's revenues, so who knows? I think the, the reason SpaceX has flown in the way it has is because of the musk reality distortion field and his ability to play Goldman and JP Morgan against each other. Both of them, everyone, everyone there should be ashamed of themselves for pumping this. For what? They're just like, oh, AI revenue will increase 300x in four years. Putting all that aside, these are fundamentally different companies. Even though SpaceX has its horrible burning AI element, it still has Starlink, it still has the rocket ships and it also has the social network. But I don't know if I'd say that was a plus. It still has a functioning business. OpenAI has chat, GPT and API. That's it. Like they have. They can dance around being like, oh, we got Joanie Ives nonsense. Oh, we got like a consumer device, or we got, we're going to do an everything app. But they're just dancing around the fact that they have one product. They have one product with a few offshoots. They don't have ways of investing more money to make money. You mentioned profitability earlier. I don't think that's possible. I don't, like, their costs are so severe that I don't think profitability is actually possible for any AI lab. I think that Anthropic is going to look similarly horrible. I think that the markets believe for some reason that things won't look this bad. I've been speaking to people all day about this and everyone's saying, wow, I didn't know it would be that bad. And I genuinely, I, I got a laugh a bit. It's like, did people think I was kidding? The people think I was chuckling to like, oh, I just, I guess they were bad. No, of course they were this bad. So I don't think that OpenAI and Anthropic have the nuance and also the aggressive bully mentality of Musk, though I really deeply dislike, to be clear, to do an IPO with the amount of bullshit that will be necessary to sell this dog. I don't know how because remember, in the S1 they're also going to have to do growth trajectory. They're going to have to say what they could grow into. I think it's, I think it's going to be difficult to float. I. They could theoretically, but I don't. Considering how SpaceX is done, I think they have a higher chance than none. But at the same time, their SpaceX's numbers were bad. These numbers are terrifying. These are scary numbers. And watching the Copa Olympics on Twitter as people like, well, actually, it's okay. You saw that quote, you saw the quote that said 8 billion. It's okay. They didn't actually spend 34 billion. He spent $8 billion. It's okay. Nothing bad happened at all, nothing weird. It's all very silly because this is a company that spent $34 billion to make $13.07 billion. And also 867 million of that was what looks like given to them by SoftBank. And that is not a stable or thriving business. This is a business that is just consuming capital at an alarming rate with no sign of stopping. They just raised $122 billion at the beginning of this year. I don't think they're doing that because they're going to get profitable.

[Ed Elson]

It does seem as though when this company goes out, when it goes public, and it appears that it is going to go public, they have filed plan is to go public in the fall. The valuation will be similar to SpaceX, almost entirely dependent on the CEO's ability to tell a compelling story that enough people buy into and believe. Elon is someone that you could arguably bet good money on doing that because he has a proven track record of being an incredible storyteller specifically to the markets on what his companies will achieve. Sam Altman, I'm not sure I back him to tell a compelling story or to capture the imaginations of investors in the markets because it's clear that the numbers aren't going to do it for him.

[Ed Zittran]

Also the other day I just, I had to go and check on this while we're talking. Here's the reason I don't think I agree with you fully. I don't think Sam Altman's got the head for this because when his customers started complaining about the cost, he said in a panel, yeah, AI costs are a huge issue now. You don't say that, Sammy. You don't. That's not, that's not what investors want to hear. They you say you make some crap up about how like we're doing cost adjustments. But people are really excited to see what they can do with AI. You don't go, yeah, that's a huge problem. What's he going to do on the roadshow? They're going to be like, yeah, you keep losing money. Yeah, you know, you got to lose money to lose money.

[Ed Elson]

Yeah, it's certainly very concerning. Well, we're going to wrap this up, but. And Zitrom, we always appreciate it. It's amazing that you got your hands on this. It really is so important. I mean, these companies, the size, the valuation and the sense in which they are becoming in a lot of ways systemic to this market and to expectations of this market is so important. And now we've finally gotten some transparency into what's really going on here. So we appreciate it. Ed Zitrin is the author of the where's your Ed at? Newsletter, also the host of the Better Offline podcast. Ed, appreciate your time.

[Nicholas Owens]

Thanks for having me.

[Ed Elson]

After the break, SpaceX stock keeps going up and for even more markets insights, you can subscribe to my weekly newsletter. Simply put, at simplyput.profgmedia.com. Support for the show comes from Odoo. Running a business is hard enough, so why make it harder? With a dozen different apps that don't talk to each other, One for sales, another for inventory, a separate one for accounting. Before you know it, you are drowning in software. Instead of growing your business, this is where Odoo comes in. Odoo is the only business software you'll ever need. It's an all in one fully integrated platform that handles everything. CRM, accounting, inventory, E commerce, HR and more. No more app overload, no more juggling logins. Just one seamless system that makes work easier. And the best part, Odoo replaces multiple expensive platforms for a fraction of the cost. It's built to grow with your business whether you are just starting out or already scaling up. Plus, it is easy to use, customizable and designed to streamline every process so you can focus on what really matters running your business. Thousands of businesses have made the switch, so why not you try Odoo for [e-mail] that's o d o o.com.

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[Ed Elson]

We're back with Prof. G markets. In its third day of trading, SpaceX became the fifth most valuable company in the world, tied with Amazon. The stock popped more than 15% early in the day to reach that milestone and briefly eclipsed Microsoft 2. That rally followed an announcement from SpaceX that it is acquiring AI coding startup Cursor for $60 billion. The stock gave up most of those gains through the day, closing up just 5%. Still, shares have rallied 48% from their IPO price on Friday. So clearly there is still a lot of excitement around this company. So we wanted to talk to someone who has actually run the numbers and attempted to value this stock. So, joining US to discuss SpaceX, we are speaking with Nicholas Owens, equity analyst for Morningstar. Nicholas, thank you for joining us. You are someone who has actually done a discounted cash flow analysis of this company. You valued the company, you wrote about it, and your number that you reached was $780 billion, which is, I mean, we compare it to the current valuation, $2.6 trillion. It is notably a lot lower. Take us through how you got to that number.

[Nicholas Owens]

The headline number that you just mentioned is the weighted average of three scenarios. And the way we valued SpaceX was in three parts, essentially the rocket piece, Starlink, and the AI piece, which is itself kind of a set of moving parts. I would argue that the rocket and Starlink is more straightforward. It's a more mature part of the business. And in most of our scenarios, they're worth say, $611 billion in terms of enterprise value, some $40 a share, let's say the AI. We think there's a lot of riding on some unproven outcomes. And I'm not really talking about the science or engineering behind data centers in space, though there's some debate about that. It's really the financial benefit of having a data center in space. Is there some kind of operating cost advantage versus a terrestrial data center? We modeled this business primarily as an infrastructure play. So renting out computing capacity the way they've started to do with Anthropic and Google, you know, if Groq takes off, then we would say that we're sort of indifferent between them renting out the capacity and using it for lots of grok jobs and then monetizing that some other way. We would assume there's some market rate for that, and that's how we modeled it. And so the difference between our valuation and the market price really has to do with how probable do you believe it is going to be that both the starship rocket is highly reusable, like in hours or days, and that data centers in space are. Will be a, call it a compelling bargain in terms of their operating costs versus terrestrial. Both of those might be true, but we think there's only about a 7% probability that they will both be true at the same time, and that results in a much higher valuation. That's closer to the market price here. And so I think that the market, you know, investors are essentially saying they believe these will both be true for sure, but we don't.

[Ed Elson]

This is the thing that I think is really important, which is that your valuation is weighing multiple probabilities at the same time. And it isn't ruling out what you describe as the moonshot scenario, which I think is an accurate portrayal of some of these businesses, orbital data centers down the line, civilizations and cities on Mars. I mean, how do you even value that? But the point being, you've actually taken all of that into account, weighed up the probability, and you've landed at a number that is less than half what the company is currently trading at. And I think that that is striking. I want to get to your reactions to how the stock is trading in a moment, but I want to stay on your valuation for, for a moment longer. You also said, you said, quote, we value SpaceX at $780 billion with a Morningstar economic moat rating of. So I've seen a lot of people pushing back, criticizing the moat rating. A lot of people would say this is an extremely wide moat. They're building rockets. Not many people can do that. Take us through why you landed on that.

[Nicholas Owens]

I'm really glad to have the moat methodology behind me, so to speak, at Morningstar. We had quite a good discussion about this a couple weeks ago. And I will say this, the, the, the SpaceX business that I, as the aerospace and defense analyst was planning to cover until February has almost all of the characteristics of a wide business. A very, very prodigious cost advantage, both through the R and D and how they do it and the economies of scale. They've just done it more than anyone else. And so the satellite business and the rocket launch business kind of reinforce each other in terms of them just marching down this cost curve. They're a decade ahead of anybody else and will continue to do so, assuming Starship continues to add, you know, the, the bigger loading bay of Starship means that you can put more stuff in it. So your cost to launch a kilogram of stuff goes down. You're sort of just dividing by a bigger denominator. And that's amazing. The company gets a narrow mode rating from us because of the AI piece, which is, I would say, indeterminate at best in terms of what its moat would be. And they're investing very aggressively in that business. So you're taking these returns on capital that are evident, you know, from the star, starlink and rockets business. And you're saying, I'm going to write a $60 billion check to go get cursor. I'm, you know, do similar size of investments to build data centers in space. And while I think there could be moats in AI, we don't see evidence of them here. So, you know, GROK is not one of the leading models. I do think there's a pathway in this, let's say, moonshot scenario, and even in what we call the minimum viable product scenario, where they can extend some of that cost advantage into data centers in space, if they can, then that would be, say, modi. But it's too soon to say, frankly.

[Ed Elson]

Yeah, this is part of the problem with this stock, which is it was a space company, and then a couple months ago they turned it into something else by buying XAI and then saying that actually it's an AI company or that that is the $28 trillion or $26 trillion opportunity according to the S1. That was the total addressable market with AI. So, I mean, I appreciate you clarifying that. It's like there are different businesses that we're evaluating here. The space business might have a wide moat, but this is no longer a space business, apparently, because that's not what they're pitching and that's supposedly not what the valuation is predicated on. Let's go to the stock price. Do you agree with that?

[Nicholas Owens]

Yeah, and I think segueing to the stock price is appropriate because I think the, let's call it packaging of this company as an AI business is very rational way to tap into investor appetite for AI.

[Ed Elson]

Right. So the IPO price was 1:35. We're looking at $200 a share at the moment. That does not make much sense to me. I assume it doesn't make much sense to you. But when I think about reasons why that might be the case, the first thing that jumps out to me is that only 4% of the shares are available to the public. The float is incredibly small, which to me means this has high potential to become a meme stock and seems to look like it already is a meme stock. Is that the explanation?

[Nicholas Owens]

I think so. I thought about it in terms of supply and demand, as you point out, small float. And then you have this additional, let's say the market is looking forward to sort of, let's call it structural demand from passive funds, ETFs, and others that track a handful of indexes. So our moonshot scenario, if you dial the probabilities to 100% right now, would be $169 a share. So which, you know, and there's, there's hundreds of billions of dollars of potential revenue in there. We are modeling a scenario in which they become a major player in gigawatts of compute in space, et cetera, sort of giving them the benefit of all that doubt. We get to 169, the rating would probably be close to the same at these market prices. And that's just because I think investors are either pricing in further options like, you know, a city on Mars, which we don't ascribe a, a, a positive value to. It's sort of a wash. You know, you, you, if you're investing more in these shares, you're paying an option to see if that's going to work. And we would say that those types of other projects are more likely than not to not work out. Which, you know, maybe puts me in the minority there. But in the longer term, starting at the earnings announcement that I anticipate at the end of July or early August, big chunks of shares will come online from the lockups from insiders. And so I think that will be, you know, you'll have a NASDAQ rebalance before then, but then you have a decent chunk of stock coming online from insiders. And I think that will be the next real test of supply and demand.

[Ed Elson]

How concerned would you be, do you think we should be about those lockups? To me, it seems like that's going to put enormous pressure on the stock. And if you're holding this, this stock at $200, I mean, it seems like that, that should be top of mind. I mean, what kind of impact do you think those lockup expirations will, will actually have on this?

[Nicholas Owens]

I wouldn't be able to predict, you know, a stock chart, so to speak, but it's tens of billions of dollars. It's more than the IPO flow will come online there in that first big chunk after Q2 earnings. And, and the indexes that are buying as the float increases, you know, most of them do this float adjustment to their weighting so their, their demand will, will kind of slowly scale up. But I don't think it will, will offset that that chunk. You know, that's likely to come online and the perspective here is who's selling. These are investors who've, who've owned this stock as a private company for more than a decade. In some cases they don't care if it's 160, 170 or $200. Their cost basis is nothing. The price is set by the marginal seller. That's what I keep saying.

[Ed Elson]

Yeah, 100% final thing here. SpaceX just announced a $60 billion deal for cursor, which is this AI coding startup. They had announced that there was an option to buy previously. So we're getting a little bit of deja vu, but it's now happened and they will be paying in stock, which I'll Give credit to SpaceX. Great move. Highly inflated stock price at this point. That's really effective currency in the M and A market. Does that acquisition change any of the math on your valuation? Does it change your perspective at all or not?

[Nicholas Owens]

It's mostly a wash. We actually lowered our fair value. That probability weighted to 62 from 63 today. The the cost of the. But it actually raises the moonshot value. So I think the whole idea of Cursor, my understanding was it was to bring on these people who will be able to make Grok, you know, learn better and be more useful for coding type applications. So I give them benefit of the doubt and say, let's make that true. I mean, and it was originally structured as an option to buy if that. That's, let's say, likely or proves out. I think they kind of just jumped to the finish and said, let's do it. So kind of the purchase price, the outlay and the dilution of 60 billion of equity is offset by an adjustment I made in the forecast of, let's say, greater enterprise type revenue from that audience.

[Ed Elson]

Nicholas Owens, equity analyst for Morningstar. This will be very interesting to see how this stock trades over the next few weeks and months. And I'm sure we'll be having plenty more conversations. Thank you for joining us.

[Nicholas Owens]

Thank you.

[Ed Elson]

It's official, the stock market has entered crazy town. SpaceX is now as valuable as Amazon, despite generating less revenue than Macy's and all over Wall Street. I'm hearing things about how the fundamentals don't matter anymore with SpaceX because this is a once in a generation company that will save humanity. Exactly the kind of rhetoric that has fueled previous stock market bubbles. But it isn't just SpaceX. The entire stock market is now reaching dot com levels of euphoria. The Shiller PE ratio, which is the cyclically adjusted price to earnings ratio of the S&P 500, is now up to 42 times earnings. That is the second highest reading ever. The only time it was higher was in, you guessed it, 1999, when it hit 44 times earnings, which is of course not that much higher. Now you might remember last fall there was a lot of talk about a stock market bubble and you might remember what we said about it. We acknowledged that yes, the market was frothy, but it wasn't anywhere close to.com levels of frothiness. And for that reason we were hesitant to call it a bubble. Well, that argument can no longer really be made. We are now almost exactly in dot com level territory. That's not an opinion, that is just a fact. Now does that mean every stock is about to crash? No. In fact, I'd argue there are plenty of stocks that look relatively cheap right now. Microsoft would be one of them. In my view, so would Meta. But it does mean that in certain areas of the market we are certainly due for a correction. Ground zero would be space or more specifically, SpaceX. But for now, spirits are high and FOMO is very strong. Investors have gone crazy plenty of times before and it does appear they are going crazy again. AI euphoria has officially arrived. Okay, that's it for today. This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. 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 Profit you markets from Profg Media. If you liked what you heard, give us a follow. I'm Ed Elson. I will see you tomorrow.

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