Today's number: 3.5 million. That's how many Epstein files were released by the Department of Justice last week. Mentioned in the files was Elon Musk, who apparently did not go to the island, but he did try before being politely rejected. [music] We're not sure what's worse.
Welcome to Profy Markets. I'm Edson. It is February 4th. Let's check in on yesterday's market vitals. The major indices declined amid a broad tech sell-off. Software companies weighed down the market after Anthropic released an automation tool for legal work. The tech drawdown hit Bitcoin as well, dragging it to its lowest level since November 2024. Meanwhile, Disney shares slid again after the company named Josh D'Amaro, chairman of the experiences division, as its next CEO. By the way, Rich Greenfield predicted that on our episode yesterday. And Netflix shares fell as the Senate antitrust hearing on the Warner Brothers deal kicked off. A couple of stocks bucked the downward trend. Walmart rose as much as 3% and joined the $1 trillion market cap club. And Palantir gained more than 6% after reporting record revenues and profits for the past quarter. Outside of the stock market, gold and silver pared some of their losses. And finally, oil rose after the US shot down an Iranian drone headed towards an aircraft carrier in the Arabian Sea. Okay, what else is happening?
Elon Musk's empire is consolidating. SpaceX has acquired xAI, creating a combined entity worth $1.25 trillion. That makes it the most valuable private company in history. Musk is calling it, quote, 'the most ambitious vertically integrated innovation engine on and off Earth.' And the logic behind the deal is bold. It is a bet on space-based data centers, which Musk believes are, quote, 'obviously the only way to scale AI.' The all-stock deal comes just a week after Musk announced that SpaceX will go public later this year. Okay, here to discuss the deal, we are speaking with one of the reporters who actually broke this story, Ed Ludlow, co-host of Bloomberg Technology on Bloomberg Television. Ed, thank you very much for joining us again on Profy Markets.
Yeah, thank you for having me. Big story.
Big story. So I guess just tell us the basics. You're the one who broke this SpaceX and xAI merging together. What do we know so far?
Yeah, it's an all-stock transaction that values the entire entity at $1.25 trillion — the SpaceX bit $1 trillion, the xAI bit $250 billion. But there are some structural things that are important, which is that xAI basically operates as a subsidiary of SpaceX, which is important because SpaceX is subject to ITAR rules, right? Rules that govern the use of technology in defense applications. And so my understanding, and our understanding, and our reporting is that even though they're now combined, xAI kind of continues to operate independently as its own company.
How does this change things for the IPO? Because obviously SpaceX is going to be the biggest IPO of the year, one of the biggest of all time. Does this change things there?
Isn't that the $1.5 trillion or more question? You know, our reporting and our understanding is that the work continues for SpaceX and now the combined entity to do an IPO. In the summer, we had reported it would be at the midpoint of this year. And while out there from the sell side, from lots of people that follow these companies closely, there are still questions about whether it happens. The ultimate rationale behind this, right, is data centers in space. And at the time that we broke the story on why SpaceX would go public and its motivations for needing to raise tens of billions of dollars, it was quite simple: that there is an ambition in place for space-based data center infrastructure, but somebody's got to buy the GPUs, right? That's the kind of fixed cost. And based on our reporting and the days around this, all of that is still holding true. So this data centers in space thing — which, yes, that is what they've said. He wrote the idea is space-based AI, that's the only way to scale.
So could you just break down what that is? That is literally — let's take these data centers that exist on the ground, and instead of having them on the ground, we're going to have them in orbit, in space, because there's not enough space on the ground. I mean, why do we need to put data centers in space?
To Elon Musk's mind, literally, you know, pardon the pun, there's more space in space. You know, the simple way that Musk explains it is that right now the limiting factor for scaling AI on Earth is energy, right? You know, there's a great burden on grids across North America and other countries and other jurisdictions. Water consumption is an issue, impact on communities, and literal space to build the data centers. If you put a data center in the form of a satellite and put it into orbit, the energy question is solved by solar. To the mind of those advocating for this, you have to handle cooling, and space is a vacuum, and to the mind of the engineers working on it, that's easily solved. And you have plenty of real estate, let's call it, in space to build on. And that is the vision that Elon Musk is pitching here. It's a horrible term when you're a financial news journalist, but what we're talking about basically is vertical integration, deeper vertical integration, right? Starship provides the rocket that carries these satellites into orbit and deploys them. They are data centers to all intents and purposes. xAI has trained the models, but also those models need to run inference, which you guys know that is all outlined in the public comms that SpaceX and xAI put out there, but also the internal comms that we've reported on around this too.
As I am somewhat of an Elon Musk skeptic, and as the Musk skeptic, my view when I see this is he's saying that the idea is that we got to put these data centers in space. How do we do it? Don't ask too many questions. The idea is we'll get there, we'll figure it out. At the same time, xAI is a company that is competing with the likes of OpenAI and Anthropic, these companies that are burning through billions of dollars in cash and are having to raise billions of dollars in cash. And xAI is itself burning, I believe, a billion dollars a month. And so when I see this, my initial reaction is this is the saving grace of xAI. If things aren't looking difficult over at the AI company, well then why not just roll it up into the bigger company which perhaps has more cash to play with to invest in the AI models and training. Is that too cynical? What do you think of that perspective?
There are lots of investors and people in the markets that are skeptical about the financial rationale for this arrangement, combining private xAI with private SpaceX. And what we had also reported last week is that Elon Musk had looked at two distinct scenarios. One scenario involved SpaceX combining with Tesla, which is of course a public company. Bloomberg has reported that xAI is burning a billion dollars of cash per month, and on a quarter basis, you know, you can put that in aggregate. It also has a large debt burden which is now on the balance sheet of SpaceX technically. Those that would push back against those concerns would say, well, we also learned quite a bit about SpaceX's financials. Revenue is growing with Starlink now a majority contributor as opposed to Launch being a majority contributor. And on an EBIT basis at least, it is profitable, and so they're not concerned about SpaceX needing to service the xAI debt or account for the losses at the xAI unit. But again, you know, the public commentary from SpaceX and from Musk is that this is about deep vertical integration. It makes the use of the talents and resources of both companies to the maximum effect, which is AI development, whether that's here on Earth or up in space.
So Ed, I know you've been looking at this for a long time, reporting on it, observing what's happening, and you know, your job is to be objective on both sides. I would love to know what you think the real motivation is, because it seems like there are two things at odds here. There's the financial picture. You bring up the amount of cash they're burning. You bring up the debt picture at xAI, which is, you know, a question. And then there's the deep vertical integration pitch which is coming from SpaceX, and they're probably saying no, it's not about the financials. It's because there are synergies here on the business side. What do you think? What is the true strongest primary motivator for Elon Musk to merge these two things together?
Yeah. And none of this is that big a surprise. You know, it's kind of consistent with what we've called Elon Inc., right? You know, Elon Musk has many ventures. They've always had historically close engineering and financial ties, right? There have been engineers that have worked on materials at Tesla and worked at SpaceX. You know, some of the results of SpaceX's more recent success, like the heat shielding on Starship — you know, a lot of Tesla engineers touched those hands. A lot of Tesla engineers were the reason that xAI could build its data centers in Tennessee so quickly. You know, this kind of intercompany cooperation is not new. The financial part is also not that new, right? xAI has been a buyer of Tesla's energy products from Tesla's earnings recently. The company disclosed a $2 billion equity investment in xAI. It's all kind of linked. Last August, we did this as the cover of Business Week magazine. You know, six months into the Trump administration's term in office. What was it that Elon Musk was trying to get out of being in and around the White House working with DOGE? And it was that a lot of the priorities that he had for his different companies were kind of aligned all around AI, you know, and having proximity to that administration allowed him to try and influence things that would help those priorities. But yeah, it is AI at the end of the day. Tesla has hard pivoted away from cars. It now needs, you know, to develop the software part of AI for autonomous driving and the Optimus humanoid robot program. xAI, per the regulatory filing in the week — it's not just a financial investment that Tesla's made. They have a framework to now share and work on the technology. So, fast forward, the future is that all of these companies kind of work in parallel.
What will the space data centers actually be doing?
Inference in space, right? Running inference on Optimus, or running inference on models that are underpinning something else, be it the robo-taxi network. It's kind of been hiding in plain sight a little bit.
Do you think ultimately they all merge with Tesla? I mean, the way you describe it, Elon Inc., it's a good point. They're all kind of collaborating. It seems as though maybe the ultimate goal is, yeah, just roll it all up into one company. How likely do you think that is?
Yeah, our reporting is still that this SpaceX-xAI combined entity is going to do an IPO later this year. But actually, loads and loads of people's immediate reaction to the news was, okay, Tesla must be next. You know, fold Tesla in in some way. People just think that that is the logical step to make. When we did the August edition of Business Week, you know, it was well reported and in conversation with all of these sources in close proximity to the companies and Elon Musk, there is a perception, you know, a realization that if you took these massive companies and tried to fold them into one conglomerate in any environment, that would be tricky. You know, regulators would look at it for one reason or another. The mechanics of it would be difficult. And again, I go back just to the reporting about the two options that we believe were looked at: SpaceX plus Tesla, or SpaceX plus xAI. And in the first instance, they went with SpaceX plus xAI. But there were a body of SpaceX investors, you know, with a meaningful footprint on the cap table, that looked at it, and to them, the Tesla combination made a lot more sense than the xAI one did. Not just because of the sort of financial health of such a transaction, but because what they were working on — you know, at scale manufacturing, vertical integration of those more analogous industries — to those investors, it was completely obvious.
