Welcome to the week from ProfG Media, where we break down what mattered and what it all means. I'm George Hahn, and it's Friday, June 19th. Today, the biggest IPO in history finally landed, minting the world's first trillionaire. Then, is the Iran war over? And finally, historian Heather Cox Richardson on expertise, power, and America's future at 250. Let's get into it.
SpaceX went public this week. After years of waiting, the largest IPO in American history finally landed, opening at $150 a share, an 11% jump from its offering price, and climbing from there. By day three, SpaceX was briefly worth more than Amazon. Elon Musk is now the world's first trillionaire. But Scott wasn't celebrating. His argument: what happened this week wasn't a market event. It was financial engineering.
And what I don't think people are focused enough on here, and there's been news on it, but it's really, I think, the whole shooting match is that Musk threatened not to go public on the NASDAQ unless they waived the 12-month requirements for him to be included in the NASDAQ 100. So, they backed down. They blinked. The S&P said no. The Dow Jones said no, but the NASDAQ blinked. And the result is they're immediately included in these indices. If it's at $2 trillion and there's 50 trillion of market cap in the NASDAQ 100, that means all the indices that track the NASDAQ 100 now have to put 4% of their assets under management into SpaceX stock, creating anywhere between 20 and call it $50 billion in additional demand that no IPO benefits from. In addition, traditional IPO rules are that you have to issue at least 10% of your shares. They didn't. They issued 5%. So, massive artificial demand, or demand that no one else has benefited from, from constrained supply that no one else has been able to manufacture. And what you have is a pop, a 20% or 25% pop on what I think is manufactured scarcity. Now the question is where do you go from here? And I would argue someone called me and said I have access to shares. Should I do it? I said I think you should, but I would look at this as a trade, not as an investment, because eventually that manufactured scarcity begins to leak.
When the dust settled, SpaceX was trading at 112 times last year's sales. For context, Meta went public at 28 times trailing revenue. Google at 10. And just as investors were digesting the biggest IPO in history, another piece of the AI story emerged. OpenAI's financials leaked, and the numbers were staggering. Here's self-proclaimed AI skeptic Ed Zitron, who first reported on the leak.
Last year, OpenAI spent about $34 billion to make about 13.01 — sorry, 07 billion — and had about $22 billion in cash at the end of the year. Lost about $21 billion. That $38, $39 billion number is what I would describe as GAAP 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 nonprofit to a for-profit, though they've remained profitless last year, which means that their net loss is quite strange, just 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 — like, just like, it's like, excuse me. Well, how much did you spend?
How much of today's AI boom is being driven by fundamentals? And how much is being driven by the belief that someone else will pay even more tomorrow? Morningstar recently estimated SpaceX's fair value at roughly $780 billion, less than a third of where it's currently trading. And on markets this week, Howard Marks, co-founder and co-chairman of Oaktree Capital Management, put the moment in historical perspective.
So, I wrote in a memo recently this year, and I think it's true that if this technological innovation with its exuberance doesn't produce a money-losing bubble, it'll be the first. And now it could happen. You know, you can't rule these things out. And you know, maybe this is a good time for me to introduce the rejoinder of the optimist. What do they say? This time it's different. Okay, that was true about the railroads. It was true about radio. It was true about computers and the internet. But this time it's different. And this time we have a development of incalculable, unlimited value. So this time it's really true that there's no price too high. That's what they say, right? But the problem with that adage is they always say that this time it's different. It's never different. And they've said it in each of those bubbles that I mentioned. I think so. All — nobody, including me, should say definitively that this is a bubble, that the people who invest in these early stages of AI will lose their money, that the people who invest in the companies you named will pay prices that they'll never see again. But you must be alert to the possibility.
The Shiller PE ratio, a measure of how expensive stocks are relative to long-term earnings, now sits above 40. The last time it got this high was 1999. Back then, investors believed the internet had changed the rules. Now, maybe AI has. We are officially in dot-com territory. We'll be right back after the break.
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Welcome back. After 107 days of war, the United States and Iran announced what the White House called a breakthrough. The problem: it's not exactly a deal. It's a framework, or as Scott says, a memorandum of understanding, a 60-day negotiating period meant to produce an actual agreement later. The hardest questions — nuclear enrichment, sanctions relief, frozen assets — remain unresolved. On Raging Moderates this week, Scott and Jessica Tarlov discuss.
