Transcript generated automatically by AI and may contain errors.
Chapter 1: What is the significance of SpaceX's Nasdaq debut?
Täällä Pekka Palvikenkku ja tänään tutkitaan ruoka-alan kotimaisuutta. Lastauslaiturille on juuri saapunut Valjo Aimon tukkutoimitus. Hei kuljettaja, minne teidän tuotot menevät? Valjo on suomalaisten maidontuottajien omistama ja siksi Valjo Aimon tuotot jäävät Suomeen. Olen Aimo, ruoka-alan ammattilaisten kumppani. Kun valitset minut, tuet kotimaisia maitotilallisia.
SpaceX is a business built on rapidly reusable rockets. They go up, they come down, they're meant to go back up again pretty quickly. A bit like the SpaceX share price. It took off and now it's feeling the pull of market gravity. Today we unpack the biggest public float in history and have for us a historic hookup.
From here in Auckland to Sydney, where Jackie Newman's standing by, and to Wellington Mission Control, where Susanna Batley has the goods. I'm Garth Bray.
This is Shared Lunch. Investing involves risk. You might lose the money you start with. We recommend talking to a licensed financial advisor. We also recommend reading product disclosure documents before deciding to invest. Everything you're about to see and hear is current at the time of recording.
As we record this, US markets have had a handful of days to price SpaceX. Jackie, what are the markets telling us?
Yeah, so it's been a really strong start for SpaceX and its debut on the stock exchange. Clearly, a couple of really strong days of trading, which was really what we expected with all the hype and interest and excitement and also the reported scale back in terms of investors getting a bit less than what they bid for.
I think what we are starting to see come through is I guess a lot of that or a bit of that froth coming out of it and just some considerations around what might be coming next in terms of escrow rolling off, what happens once these index rebalances become effective and where to from the stock going forward.
Susanna, you must be watching this one avidly. It's been a talking point for so long. What are you picking up?
In addition, we're seeing OpenAI, Anthropic also potentially come to market later this year as well. So there is a lot of new share issues are forecasted for this year.
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Chapter 2: How does the $2 trillion market cap affect IPO valuations?
And I think if we step back a bit, it's been really, really interesting. It's almost like we are in a new era when it comes to some of the dynamics that we're seeing. If we look at the last, let's call it two decades, there's really been almost a contraction in the listed markets relative to the economy. And I think there's really three dynamics that have been at play.
So the first one is there's just been a lack of IPOs and companies have stayed private for much longer. In fact, a couple of stats I saw recently were quite interesting. In 1999, the average age of a company that listed was six years old. Now that's 14 years old. And if we take as an example, Google, when that listed back in 2004, six years old at the time.
Palantir listing in 2020, I think they were 17 years old. So we're really seeing companies stay private for longer and able to raise money before going public.
Second dynamic is that companies have been really quite flush with cash, and so yes, there may be growth opportunities that they'll reinvest that cash into, but a lot of these companies, and these are Meta, Alphabet, et cetera, they've been buying back stock. And so you've actually seen sort of less shares on the market.
And then also that their dynamic is just that huge explosion in private markets and private equity. And some of those transactions have meant that private equity have actually taken out listed markets and taken them private. So you've seen sort of those dynamics all at play. And I think that A common theme of that is that they've been relatively capital-like businesses.
And now these technology companies have really come to the conclusion that actually to win the AI arms race requires massive capital intensity. And that's in compute, data centers, buying Nvidia chips, and then also the power to generate all of this. And so private markets, while they've been pretty successful at being able to help companies raise capital, there are limits.
And SpaceX, I think, is a great example where $75 billion at IPO, largest in history, But I think we can point to others, not just IPOs, but other companies that are just raising more money. So right before the SpaceX transaction, Alphabet, the parent company of Google, raised about $80 billion. So that was actually the largest equity raise on record. So it does feel like we're in a new era.
If I just sort of break it down a little bit and try and understand what happened, I mean, I'm a bit of a tragic. I sat there at like half past one New Zealand time on a Saturday morning when probably I should have been in bed or thinking about the World Cup or something and watched CNBC and watched this whole thing unfold. It was a pretty amazing spectacle.
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Chapter 3: What impact will upcoming IPOs of OpenAI and Anthropic have?
And I guess anything that Elon Musk does kind of brings that level of drama and stagecraft to it, as well as an awful lot of innovation. Perhaps a little hype, some people would say. But in terms of how it went as an IPO, you guys have seen them before. Was it like nothing we've seen before or was there stuff in there that any investor would recognise any time a company is going public?
So in terms of unprecedented, it's really the scale. And I think that those are the things that are blowing us away is those just the sheer numbers, you know, 75 billion, the very large escrows that are going to be coming onto market in the next few months. But in terms of some of those other dynamics, they are what we would probably expect for a successful IPO.
There's been more demand than supply, which is ideally what you want. And there's been a lot of net buying and the trading's been very, very healthy. And that's been reflected in a higher price now than what the shares listed at.
So, I mean, when I was watching, they were saying, OK, 135 US, it's going to list, it was the opening price. It actually started trading at 150, but there'd been earlier indications it was going to come in at 175, came back to 165, started at 150, got up to 175 on the day.
So it felt like the people in the room who were across this deal, the big banks that had led this, had some sense of what people were prepared to pay on the day. Let's try and unpack how that happens and maybe sort of start even back in April. Like a company is thinking about listing on the NASDAQ in this case.
It puts in like a confidential listing, pretty much like the one we've just seen from Anthropic and OpenAI. That's like a first chance for them to talk to the regulators, right? That's not necessarily a commitment that they're going to list. But what comes next, right, is an S1 document, this enormous piece of information that's
Fair to say, Jackie, that's the most you'll ever hear about what is at the heart of the company. It's probably the most detailed document or most detailed read you'll ever get about the business.
Yeah, so that document is a real deep dive, as you say, into all of the details of the company. And really its purpose is to provide investors with all of the information in a sort of one complete package that they would need. to be able to make an informed investment decision about that company.
And so the document here as it tends to be in the US is hundreds of pages long around what the business does, what its total addressable market is and a real deep dive into that. the financials, the risks, I think there was 40 pages of risks, and then all of the details around the structure of the deal, the escrow.
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Chapter 4: Why are index funds required to purchase SpaceX shares?
process. And that means that SpaceX will be added to the Russell 1000 as at the close of trade on the 26th of June and then into the NASDAQ 100 in early July. Those index inclusions are really significant because what they do is they generate a substantial amount of index and passive demand.
That demand is estimated to run into the billions of dollars, potentially into the tens of billions of dollars, because passive funds, index funds, they're effectively forced buyers of the stock. And given that we heard it was in the media that the deal was oversubscribed quite substantially, you can assume that many fund managers and passive funds were scaled back.
And so they didn't get their required fill to meet those index thresholds. And so they're naturally buyers in the aftermarket. And because of that fast-tracking process, they actually need to buy that stock in a very concentrated window, which is quite unique in this circumstance because of the changes that the index providers have made.
It sounds like it's been set up to give it sort of extra momentum or extra fuel. It's almost like a second stage booster or something, I suppose, if you're continuing the rocket theme, right? That feels a little bit like financial engineering to me. Is this, and this is open to either of you, is this typical for something like this?
The fast-tracking element is, I guess, unusual and a new thing, and it's perhaps why we have seen that sort of very strong buying in the near term. But once those index inclusions occur, the next thing to watch out for, I would say, is around the escrows rolling off. And so the Elon Musk, his 42% economic interest will be escrowed for 366 days.
But for many other insiders, their shares will roll out of escrow in a sort of staggered way over the next six months. And that could mean that we potentially see a large volume of stock coming to market periodically over the next six months.
And that could weigh on the share price, as well as all of the other dynamics, of course, around the index buying that will continue as others foresee the index inclusions for other indices, and then just also the interest and the hype. And so all of these factors are playing into how the stock is performing now and into the near term.
What will be interesting is also beyond that 366-day period as well, when all escrows have come off, is around SpaceX and what additional capital they'll need to raise. $75 billion is obviously a massive number, but actually I saw one analyst report that had looked at that S1 document and looked at all of the contracted commitments that SpaceX has.
out till 2030 and estimates that they will require around $235 billion in order to fulfil those commitments over the next four years. So $75 billion is obviously a good start but that is only around the third and so it will be interesting beyond that first year as well SpaceX may well come back to the market and that obviously has implications for supply and demand as well.
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Chapter 5: How are private companies responding to the AI arms race?
Some staggering kind of lockouts there around when, you know, the founder gets paid effectively. What, when there are a million people on Mars? Are we forgetting kind of how grandiose a statement that sounded? Is that the typical kind of thing that we would get in a document like this, Jackie?
Not in an Australian document. Look, I think, you know, SpaceX is a unique case, right? So this has really been pitched as a generational asset. So investors have been asked to somewhat look through the valuation, which, you know, is by any conventional measure, you know, outrageous, very lofty, almost not meaningful. But that's not the way that this business has been pitched, right?
It's being pitched as a generational asset with investors being asked to take a long-term view on a structural bet around a number of themes relating to space, relating to AI, relating to connectivity. It hasn't been pitched on valuation grounds. It's really along these themes.
Yeah. We've been talking a bit about those escrows, about people who have been able to sort of retire, you know, to get some liquidity for the stock. There was a story that really grabbed me. A guy, I think his name is Juan Hernandez. He's a welder who worked for SpaceX for 10 years. And he took stock when he joined the company.
This was kind of unusual for someone who normally just earns a paycheck, earns an hourly wage in the US. And on the day, he was, I think, 1.4 or 1.6 to just over a million dollars was his US, was his paper worth. I mean, is there a story in there about how some of these private companies are actually able to take a huge number of employees with them on the journey?
Oh, I love hearing stories like that. And, you know, it's something that, you know, we're definitely deeply passionate about at Sharesies. And I think that any ways that you can get broad ownership like that, where many people can win from those really great outcomes is... truly fantastic.
A few stats that I found quite interesting is since 1989 the S&P 500 has gone up 22 times, wages have gone up 37% and capital markets have created enormous wealth but it is very easy for it to be shared by too few people and I love hearing stories about people that can get shares early on.
because they're investing early or because they're an early employee and what a life-changing outcome for those people.
You know, I think one of the drivers why we're seeing some of these companies come to market now, just to the point around, you know, employees and early investors have been very patient forms of capital for these businesses.
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Chapter 6: What are the implications of SpaceX's massive capital needs?
You know, SpaceX had been private for more than 20 years. OpenAI has been private for 10 years. And Anthropic is coming up to five years. So these are, you know, by any sort of traditional measure, a very long time for these companies to remain in private hands.
And early investors, employees, the founders, you would say maybe becoming a little bit impatient because they are sitting, to Susanna's point, on tremendous amounts of paper wealth at the moment and And you would expect that there may be pressure on these companies to help these people, these investors, realise some of that wealth to be able to provide some liquidity for it.
And I think it goes to the point on capital intensity. If you take on the flip side, a company like Stripe, Stripe was always expected to go public, but actually they've been able to generate cash flows and now they've got quarterly periods where they provide liquidity for early investors, early employees.
But these companies like SpaceX, Anthropic, OpenAI, they are capital hungry and they are really investing for growth. And so in order to provide that liquidity, liquidity for, say, early employees, that's really probably got to come outside of the company.
That's right. And I think also just on that capital intensity point as well, Suze, I think that's a really important driver of, again, why these companies are coming to market. We've spoken about the depth of private capital markets, and there is no question that these markets are incredibly deep at this point in in time. But I think even they are beginning to feel the strain.
And that is because the scale and the cadence of capital raising required for the AI infrastructure build-out is accelerating. You know, OpenAI have said that they expect to spend $600 billion on AI infrastructure
between now and 2030 and so that's an incredible ask of private markets and so you know public markets by their nature are better placed to fund this growth because they provide much deeper pools of capital They're also able to price that capital much more efficiently than private markets. And critically, they're able to provide that ongoing access to capital at scale.
And so this is why I believe that public markets are starting to screen more favourably compared to private markets when you think about the ask for the AI infrastructure spend.
If we look at the 12-month period to September last year, S&P 500 companies issued around US$1.7 trillion of stock, which is just, you know, eye-watering. And so while SpaceX's IPO of $75 billion is massive, that actually reflects about two weeks' worth of normal issuance. And it just really reflects the scale of listed markets.
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Chapter 7: Is there a potential merger between SpaceX and Tesla?
I mean, there's been a bit of sort of repricing going on in the last couple of days in those mega cap stocks.
Yes, I think with all of this, you know, with SpaceX coming to market and Anthropic and OpenAI speculated to be following in the near term, there is certainly a question around where the capital comes from and whether we see a rotation from portfolios.
I have heard soundbites from institutional investors that we are beginning to see some of this rotation of capital, that some investors are moving out of some of the more crowded trades, some of the more high performing tech companies, you know, where they have realised those gains earlier.
to be able to put some cash on the sidelines to make way for this expected wave of issuance that may come through. So it certainly raises questions. And there is the possibility that we start to see a rotation of capital, both from institutional investors, but then also from retail investors as well, as they think how do I fund these transactions?
But then also, how do I think about it from a portfolio construction angle as well? I think there are some really interesting considerations there around how weighted portfolios are to tech and AI.
Tesla, it's sort of been lurking there in the background, just quietly beavering away, making robots. There's a bit of talk going into this as well that it could merge with SpaceX to sort of further add that. Is there anything that suggests that's more or less likely in what we're seeing here?
Yeah, I mean, I've heard that rumor as well. And no question that convergence model is part of Elon Musk's playbook. We've seen that even at Tesla in terms of vertical integration, build the robot that builds the part that makes the car. And we've seen that within SpaceX where we're bringing rockets that can provide satellites that links with the Starlink business.
and then this idea and the prospectus around building data centres in space. There's reports that actually the launch business could be, you know, much more, much higher revenue, but SpaceX has been prioritising its own launches and, you know, them fitting together with the other parts of the business.
It is interesting looking at the governance of SpaceX and Elon Musk is in total control of the company, you know, elects any director on the board, majority voting rights. The company's moved from being incorporated from Delaware into Texas, which again is, you know,
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Chapter 8: What does the future hold for IPOs in the tech sector?
Alphabet, the parent company of Google that I mentioned, they raised $85 billion this year. And that's the first capital raise they've done, I think, in two decades. But it feels different to where we've been over the last, I'd say, 10 to 20 years.
Yeah, I would add to that. I think the SpaceX IPO is a really important litmus test for IPOs of scale and of this category. If we think forward to the speculated IPOs of Anthropic and OpenAI, I think this creates a really interesting menu of opportunities for investors to Because currently, investors are able to play the AI thematic through really two main routes in public markets.
And that's firstly through your mega cap incumbents, so the likes of Microsoft, Meta. Amazon and Alphabet, where AI is really embedded into much larger businesses. And the other way that investors in public markets can currently play the AI thematic is through what we like to think of as the picks and shovels or the second derivative.
So your data centres, the memory chips, and even the enterprise software. But if anthropic and open AI come to market, What that will mean for public market investors is that for the first time, they're able to invest in more pure play native AI companies. And this will be a really important test for the durability and investability of AI as a thematic and a more direct way to play that theme.
I think the success of SpaceX, and it's still early days, but if that is considered to be a successful listing and that paves the way for the likes of OpenAI and Anthropic, that could create some really interesting opportunities and, in fact, a new category of investment for people.
It's a whole new world, a new era, as you say there. Susanna Batley joining us from Wellington from Sharesies Mission Control and Jackie Newman there from the Sydney office. Kumatu, that's Shared Lunch for us this week.
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