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Chapter 1: What is Elon Musk's plan for merging SpaceX and xAI?
Is Elon Musk gonna make SpaceX, Tesla, and XAI a super company? Motley Fool Money starts now.
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From Fool Global Headquarters, this is Motley Fool Money. Welcome to Motley Fool Money. I'm Travis Hoyum, joined by Lou Whiteman and Emily Flippen. Guys, there's a lot going on in the market. We're going to get to earnings, especially tech earnings, which really kicked off this week.
But I want to start with the discussion around SpaceX and XAI potentially merging ahead of SpaceX's likely IPO in 2026. Lou, this is something that we've seen before. Elon Musk merged SolarCity with Tesla.
You could argue that that was probably not a great merger, although it did work out ultimately for shareholders in the long run, but the solar business didn't become what we thought it would be. This looks a little bit similar, but where does your head go when you see another one of these huge Elon Musk companies potentially merging with each other?
First of all, to be fair, if I squint, I can see the current energy business in Tesla, which is the only part that's really growing, coming out of the solar city. I guess maybe we give them credit for that in hindsight, but yeah, I know what you mean. When I look at this I look at it in the context of these reports that OpenAI and Anthropic are rushing to an IPO.
There's a beauty pageant going on right now, Travis. Everybody, all of these huge capital-intensive companies want to tap equity markets at the same time, trillions of dollars, that's a lot of capacity. They're all trying to look as pretty as possible, as attractive as possible relative to the competition.
If you combine SpaceX with XAI and all the potential of AI, I think arguably that is something that will capture the imaginations and make it easier to sell. Backdrop here is that these more established tech giants, maybe we'll talk about them later, Alphabet, Amazon, they have revenue. Meta, they are fueling their AI spend with their revenue.
We joked about this last fall, but for these guys that don't have that, the best time to have gone public was yesterday, and it always has been. They need to do this as soon as possible.
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Chapter 2: How could the merger affect Tesla shareholders?
That is a lot easier to do if you're somebody like Elon Musk, who has a financial interest in all these companies. It's a lot easier to just move money and resources around as they're doing right now, using Tesla almost as a cash cow to some extent to help fund these other companies in the interim. And that really kind of delays the need for an IPO.
So while I agree with Lou's take that the IPO for whether it be OpenAI or SpaceX or others, maybe the best time to do it was yesterday because the market valuations right now obviously are still relatively strong. At the same time, they have a lot of access to capital. There's a lot of people, including Tesla shareholders to some extent, that are willing to help fund operations in the interim.
The cash crunch hasn't hit for these companies yet.
A couple of points here. For one, I think if you're Elon and you would like them to be together, talk with SolarCity, the best time to do that is pre-IPO. You can control it right now. I think if there is hopes that they're all together, you might as well do it ahead of things. Also, as far as what investors invest in, they have never invested in Tesla based on just the current car lineup.
It has always been basically an investment in Elon's ability to do great things. To some extent, it almost doesn't matter what the product is or what the collection of assets is. It is the idea that you give Elon the resources, he will create value.
At the end of the day, I'm talking against this, but maybe you don't need this shiny collection, but maybe putting them all together and just saying, Elon, here's a pile of money and a lot of resources. What can you do with it? I think that is what the market wants to buy, so give it to them.
Emily, one of the things that we're seeing in the backlog or the remaining performance obligations for a lot of these companies is that there's a ton of demand for AI resources. But at the same time, most of these private companies are not yet profitable. XAI falls into that. They own X, which is the old Twitter. Are they at a point where they need to get to public markets?
I guess the argument would be the same with SpaceX. They both need to get to public markets to be able to access that capital. My question for you is, if you're an investor, are you interested in those IPOs where the story is, hey, we're going to make something huge in the future, but we are burning a ton of money.
And right now, there's not really a sustainable business model that just seems like there's so many of these companies that are going to go public. And can they all survive? That's a huge question that we probably have to ask ourselves in 2026.
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Chapter 3: What insights do the hosts share about recent big tech earnings?
These are all ways that help keep private companies private. So it's cachet that you get when you go public. And at some extent, I expect that the private market funding does run out. But that's why these companies are not running to the IPO market. That's why when we talk about a SpaceX IPO, we heard about this in 2025. We're not talking about 2026 for a potential IPO.
We're probably looking at 2027 at the earliest. It is not a desperate attempt. The private market funding year has not run out. If it does, I promise you these companies are going public tomorrow.
Lou, what does all of this mean for Tesla? Because that is the publicly traded company today.
Here is at least just a warning or something I think Tesla shareholders should consider. As I said before, a lot of the investment in Tesla is an investment in Elon. It's not so much an investment in, I want to be an automaker. If there are two publicly traded stocks that are both, you can invest in Elon. One of them is a car and energy company, and one is a space and AI company. You can see
the imagination pulling away from Tesla, or at the very least, all the stock price is, is the number of buyers and the number of sellers. if there's more options, less demand for one stock, I think it could cause some issue to Tesla's valuation. I'm not going to short it based on this, as Emily said, we're still a long way away.
But I am curious of a world where people have options if they want to bet on Elon, how much of that, like 100% of that going to Tesla versus just some percentage of that, what that would do to Tesla shares?
If nothing else, I would love to see what the financials look like for the SpaceX XAI business, because there's a lot going on under the hood there. Obviously, a lot of mindshare, but are they burning a ton of cash? Where's the revenue coming from? Those are disclosures that I think would be at least very interesting for us to cover. When we come back, we are going to talk about tech earnings.
You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Earnings season has begun, especially in big tech. Meta and Microsoft are two of the big companies that reported this week. They're heading in opposite directions, Emily. I think this was fascinating. What did you take from Meta and Microsoft? Because investors liked what they saw from Meta, not so much from Microsoft.
In the case of the different reactions, I think that has to do with different levels of expectations for both of these companies heading into earnings. But to be honest, I really can't rationalize the market's reaction, especially to things like capex spend. I want to shake the market. If the market was a living entity and say,
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Chapter 4: How is Google positioning itself in the AI landscape?
What did you want? Did you want CapEx or did you want no CapEx? Because I promise you, if Microsoft or any other tech giant had come out and said, hey, we're cutting expenditures, that would have sent the market into a panic.
I said on the show before that I think big tech earnings are much more of a leading indicator as to whether or not we're in a, quote, AI bubble than NVIDIA earnings, for instance, because they're the ones actually building out and buying the chips that are driving a lot of this demand. So the fact that Microsoft is still...
Planning on spending so heavily here is a conceptually good sign that the people at the top still see value in return on investment and their AI-related initiatives. That's what's been propping up the market. Conceptually, if you are Mr. Market, I'm shaking you metaphorically right now, what did you want? You wanted this.
But I understand the market's reaction to Microsoft in terms of the share price because longer term, the analysts that I talk to here at our company, they always have the question about when you spend this much money on CapEx and you're a software company, you stop looking like a software company. You start looking more like an industrial company. Yeah, they're becoming utilities.
It's fascinating. Exactly.
If you spend this much money, then we're going to start valuing you respectively. You don't generate as much cash flow. The free cash flow there is going to be muted. The question then becomes how long, how protracted is this capex cycle? It has to stop at some point, but I do feel like it's a catch-22 because the moment the spending stops, the market rally does too.
Emily, do you think that the market is looking at meta a little bit differently because there is a little bit more of a direct line to, okay, you're spending this money on AI, but we're seeing growth in engagement. You have growth in the amount that people are using these apps. But there's not only that.
They're more engaged in ads, clicking on ads more, and you're getting more money out of each one of those ads. So there's kind of a direct tie to where the financial payoff is. We could fudge whether that is a good return on investment in a traditional sense or not, but you can kind of see that's either. Whereas Microsoft, it's a little bit fuzzier.
You've hit the nail on the head there, which is to say virtually 100% of Meta's revenue comes from ads. When you talk about Meta investing in AI or CapEx or whatever it may be, the only thing they care about is driving engagement to keep ad dollars on their platform. They care about advertisers. They care about spending.
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Chapter 5: What challenges are SaaS companies currently facing?
That's the thing. Meta has built the perfect cash printing machine. Until that goes wrong, people are just going to go with it. With Zuck, you know what you're getting. The nice thing about the Metaverse is, Zuck told you who he was there. I make a lot of money and I'm going to make big bets with it. I think, to some extent, Zuck's shareholder base isn't scared of CapEx.
They've proven that through the years. As far as what's going on here, Emily's Mr. Market, I think it's moved from this used to be just adrenaline to almost a Fear Factor contestant, where there is a mix of adrenaline and fear. And they don't know what to think about AI.
So at one point, I think the reason Microsoft is down is that 45% of their remaining performance obligations on the commercial side is tied to open AI. And we're getting nervous about open AI.
I was a little bit surprised that it wasn't higher, though.
I mean, that's kind of what you want.
No, that was mind-blowing to me. 40%?
Again, we're scared of open AI, but yet Amazon jumping in with open AI causes Amazon to go up. I think in general, we're at this point where we are still excited about the potential of AI, but we're getting nervous about all the spending. Collectively as a market, we are of many different minds. There's just this anxious fear, but I don't want to miss out.
FOMO hasn't gone away, but the realities of the challenges are creeping in. I think it's just chaos. Quarter to quarter, I just think it's getting harder and harder to read anything definitive out of this. It's just we don't know what we want from these companies right now, like Emily was saying.
Emily, I think you'll love this stat I heard this morning that Meta is going to spend more on CapEx in 2026 than they have lost in Reality Labs in the entire history of Reality Labs.
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Chapter 6: Which SaaS stocks do the hosts recommend for potential investment?
I think meta shareholders should not be overly worried, but I don't think it's because leadership is so incredible or smart or knows how to spend money.
It's possible that he will go down as the greatest one-hit wonder in the world. Zuckerberg came up with something amazing.
Maybe the greatest acquirer, too, because you do have the acquired Instagram and the acquired WhatsApp. Those were really controversial deals at the time, and they've both been phenomenal successes.
Right. Yeah. But look, the other side, as far as the comparison, remember that free cash flow year-over-year is up 570% over the last decade. So, there's arguably more money to spend, the comparisons to Meta. But look, if nothing else, again, this is what you get with Meta.
We didn't have time to talk about it, but Apple, great quarter, but it was just blah, they're doing the same thing, we don't know from here. The stock is basically flat afterwards. Compare that to Meta. If nothing else, I think shareholders know what they're getting into here with Meta. Look, we make a lot of money, we're going to make big bets. If you want to take this joyride, come along.
I think Zuck has the shareholder base that he needs. you know, it's an adventure.
We will see where this story leads us. I'm excited to see what sort of artificial intelligence products they introduce in 2026, because they're spending a lot of money. They've acquired a lot of talent, a lot of people who have built a lot of really interesting things. So there's hopefully something there, but we're not seeing under the hood quite yet.
When we come back, we're going to go dumpster diving in SaaS stocks. You're listening to Motley Fool Money.
I wanted to get some new girlfriends. So I went and bought a Mercedes Benz. A waste of money. 8,000 bucks.
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Chapter 7: What are the implications of the upcoming SpaceX IPO for the market?
I don't like a lot of them in the list you gave me, but in the list you gave me, Netflix is on there, not a SaaS, but subscription. Netflix, I get why it's down. I think the company is telling you that this isn't the Netflix of old. I think this is a deal they have to do. I think it could be turbulent for the next few years, but I'm not going to bet against the best management team
in the industry to get it right over time. As a long-term focused investor, I'll take Netflix at these valuations for the long haul and I think it works out.
Do you think this is one of these opportunities we're going to look back on? Looking at the drawdowns over the last 25 years or so, in 2004, 2005, down about 75%. In 2012, was that the Quickster days? The stock was actually down over 80%. Are we going to look back at this time as, you know what, the market was overreacting and this is when you want to be aggressive on a company like Netflix?
Kind of. I think the difference is, they are a more mature company now, so maybe we shouldn't expect it to do the insane, fabulous appreciation that it did from there. But it's a new world for Netflix. I still think that they are a best-of-breed in their category, and that's what I'm looking for. So, yeah, I think this is an opportunity. It might not be the same opportunity it was a decade ago.
Emily, what are you picking?
I think Netflix is a good draft. If I can't draft Netflix, there is one that I think is maybe overblown in terms of pessimism, and that's actually the Trade Desk. That's probably raising a bit of eyebrows because the Trade Desk has had its fair share of headwinds. Their Kochai launch was a bit of a failure, you could argue.
They undid that. Am I remembering that correctly?
It was unclear to me exactly. I think they're going back to the drawing board is maybe how I would describe it. That's fair because they lost a lot of ground to competitors in the ad tech world, both in terms of walled garden as well as other independent competitors that have been encroaching upon their territory. Then at the same time, it seems that CEO Jeff Green maybe is...
Maybe not handling it the same way I would handle it, is how I would phrase that. Obviously, I'm not there behind the scenes, but the Trade Desk got a relatively recent CFO who, over the course of the past week, was actually terminated from the company. It's not exactly clear why. There wasn't a lot of language provided.
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Chapter 8: How does the latest Chrome update reflect Google's strategy?
Typically is pretty good for ad spending. The Trade Desk is one of many companies that is well-positioned to manage the ad tech markets.
With the rising industry, even if they don't have their ad tech completely figured out this year, which I don't fully expect that they will, especially given their leadership turnover, I actually think the trade desk, with these lowered expectations, is maybe poised for outperformance.
The trade desk's compound annual growth rate over the past decade is 39%, and the stock is down 78%. That just seems crazy. It seems like the market is pricing this as if there's major disruption. Is that the way that it seems like the market is thinking right now, Emily?
Certainly is. And that's because the trade deck was effectively the only game in town for a long time.
And then they realized that while they were talking down the presence of walled gardens and how great it was to be the independent partner for demand side platforms, and they realized, hey, actually, maybe there is competition out there and they need to be better about their partnerships and showing how they have, I guess, in terms of the market share here,
in comparison to companies like Amazon, who is launching their own ad tech solution. So competition is substantially different today than it was, I would say, a decade ago, but even just a year ago or two years ago.
All right, Lou, what is the next stock on this list of dumpster diving SaaS stocks that you're interested in?
Again, I'm looking long-term here because actually, this company has earnings coming up and I'm worried about this quarterly report, but Axon Enterprise is on this list. I still believe in the long-term story here. It is really, really highly valued and this is a market where I don't know if their core customer, the local governments, really have the spending power to expand.
I do think that's weighing on near-term. but it's an incredibly well-run company with a great opportunity up ahead. I may be able to get it cheaper in a few weeks and I'm willing to accept the volatility, but thinking for the long-term, I still think they're early in their growth path. I'll lean into this one.
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