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Chapter 1: What caused the recent crash in SpaceX stock?
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Chapter 2: How is the global tech selloff affecting investors?
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Chapter 3: What insights does Gil Luria provide about the tech market?
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Chapter 4: How does SpaceX's bond offering influence market perceptions?
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Welcome to Profiteer Markets.
I'm Ed Elson. It is June 24th. Let's check in on yesterday's market vitals. The major indices declined as tech stocks dropped around the world.
Chapter 5: What does Arin Dube reveal about minimum wage increases?
More on that in a moment. Meanwhile, oil continued its decline, and finally the dollar hit its highest level since November on growing expectations for rate hikes this year. Okay, what's happening? Tech stocks are selling off and the pain is hard to ignore. So far this week, the NASDAQ 100 is down roughly 4%, meaning that the index has shed over a trillion dollars in the last two days alone.
Chipmakers are among the hardest hit, with an index of semiconductor companies dropping 8% yesterday. The route has gone global, too, with Asian stocks taking a steeper dive. South Korea's Kospi is down 10% from near-record highs. But the biggest drop we've seen... was SpaceX. The company issued a $25 billion bond offering to finance its AI operations.
And over the past three days, the stock has fallen around 20%. So for more on this latest drawdown in the tech market, we're speaking with Gil Luria, head of technology research at DA Davidson.
Chapter 6: What are the implications of raising the federal minimum wage?
Gil, good to see you. A lot of pain in the tech sector, the chip stocks especially. AMD's down 5% this week. NVIDIA is down 5.5%, TSMC and Broadcom down 8%. What is going on here? Why are investors so concerned right now?
I'd characterize it as a lot of volatility. The dispersion in outcomes for next year is bigger than it's been in a while. If you think about it, if AI goes well, GDP in the US may grow 5% next year. If AI rolls over and the cycle is over, GDP may only increase by 1% or 2% next year.
Chapter 7: How does the minimum wage affect employment rates?
Usually, we're trying to figure out if GDP is going to go 2.8% or 3.2%. Right now, the range of outcomes is really big. So anytime something happens in AI that makes people more optimistic, these semi-stocks continue to run. And anytime there's a sense in the market of maybe we're close to the top, then we get these big corrections.
So most of what we're seeing right now is just tremendous volatility.
What do you make of what's happened with SpaceX here? I mean, we talked about it last time. I think we talked before it went public, or at least maybe in the first few days. And it's been kind of a stunning drawdown. I'm not personally that surprised by it because... I mean, I kind of thought this had to happen eventually, but what do you mean?
Chapter 8: What predictions does Ed Elson make about SpaceX's future?
You were very vocal about that. You were very vocal, and I think that was very helpful to investors going in that you spent a few days preparing investors that there's going to be a first day pop, which happened, and then the stock may come down from there. And that's happened...
Without all those things that we talked about last week, which is there's going to be shares unlocked and there's going to be a lot of activity around index inclusion and non-index inclusion. So another place where we're going to see even more volatility. But thankfully, you did prepare at least your viewers and listeners for this outcome.
On that point, we haven't seen those lock-up expirations yet. I mean, this is, as you say, it seems to be just pure volatility, and it seems to be triggered by this $20 billion bond offering to, I guess, finance the AI build-out. I mean...
If we were to sort of draw that to its logical conclusion, I assume that means something like investors are worried about the fact that they need to raise more money to spend more money on AI. Where is the return gonna come from? Which goes back to AI bubble concerns. Where is the ROI on this technology? Do you think that that is sort of fueling the anxiety here?
Is that what is ultimately triggering people's decision to sell?
Yeah, all these things are contributors to this. I mean, they just went out and raised $85 billion in equity capital. And now they're raising another 25 of debt. Now some of it is to pay other loans. Some of it may not be. Either way, they need to invest very substantially in this AI compute.
Now, to be fair to them, this is a business that's in tremendous transformation right in front of our eyes, right? From a business that had most of its revenue from Starlink and then about a quarter of the revenue from space exploration. Now, with the Anthropic Google and Reflection contracts, most of their revenue is coming from a neocloud business, from any data center capacity to AI labs.
So their business is completely different than it was a year ago. This business, the business that is now their biggest business, this Neo Cloud business, is incredibly capital intensive. So they do need a tremendous amount of capital.
Now, part of this is they're monetizing existing data centers, but they also want to build a lot more data centers, not to mention they want to build some of them in space.
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