Gavin Baker, welcome to the show. How are you doing?
Doing great, man. How are you guys?
Fantastically, right? SpaceX IPO. It seems like everything went just flawlessly to a tee, to the point where it wasn't even dramatic.
A round of applause for the banker.
The banker. It's like 20% pop almost to a tee.
Yeah. What I mean by that is it would have been more dramatic if it had popped up 70% and then went down 30 and then went up 50 and it was drama, but it was just perfect execution from start to finish. Was that how you interpreted it?
I thought Goldman Sachs and Morgan Stanley did a very good job.
Yeah. What do you think the market is looking for SpaceX next? Is it all eyes on the first earnings report? Where do we go from here? Because there's so much of the SpaceX story pre-IPO that was a decade out, five years out, two years out. But is the market going to be processing quarter by quarter plays like many other companies?
Well, I think the market is always, you know, quarters matter. The runners on X, they're these reply people on X for any topic or experts. But somebody once told me a marathon is 26 one-mile runs. And all the runners were like, 'No, that's not true at all.' Running a mile is different than running a marathon. But every quarter matters. At the same time, I do think if you look at how the market has looked at Tesla over the last five, six years, Amazon during the days when they were building out AWS and their retail distribution infrastructure when they'd go through these investment cycles, I do think the public market has a much greater tolerance for investment and a much longer time horizon than a lot of people in the venture ecosystem give it credit for.
This is Foxy in the back. He's one of the analysts here at Trades. I was just listening to him on the Brad Gerstner podcast. I think he chimed in on that, right? You brought him in. There we go.
Yes, he did. He did the work on SpaceX. So I thought you guys might want to talk about that. But I do think the story is not as far out as you made it seem. There are two variables that are going to matter a lot over the next year. The first is how quickly can they bring on terrestrial compute? It does seem like they monetize gigawatts at a higher rate than anyone else. We know from Jensen that they bring on data centers faster than anyone else per Jensen's words. Everyone in the ecosystem is really incentivized to get land and power in the hands of people who can energize it, because everybody starts making more money when the GPUs are energized. If they can energize two, three, four gigawatts in the next year, that's a lot of revenue. Prices may go up or down, but that's really going to matter.
So all eyes on Colossus 3, 4, 5, 6, 7, 8, 9, 10, etc. At least in the short term.
Yeah, or Macro Hard, Macro Harder, Macro Hardest to that name. Yeah, Macro Hardest.
And then I think Cursor is another big variable.
Yeah. We talked about it with Brad about how Composer 2.5 after three weeks of RL and supervised fine-tuning on Colossus 2 is kind of Pareto dominant. So what's going to happen when it's applied to a bigger, better base model? I do think Cursor being in half the Fortune 500 is interesting. So those two things—while I'm super excited for going to Mars, asteroid mining, a city and mass drivers on the moon—all that stuff is awesome and there's a decent chance it happens in my lifetime. But there are much more tangible near-term drivers here.
Yeah. How do you think about the tension of the cloud business versus their own application and model business? A lot of people were surprised when the initial Anthropic deal happened purely because knowing Michael Truell, he would have been very excited.
Yeah, get access. Only child around here. And it feels like you can imagine SpaceX bringing on a lot more compute very quickly. But at the same time, every lab has had to go through this tension of how much compute do we allocate to training versus inference.
A way to interpret that is that maybe the team at SpaceX is pretty confident in their ability to bring gigawatts online. The Altimeter figure is that they've ordered 20% of the Rubin chips, and Rubin is an epic chip. Like Blackwell, it was really hard to get it online. Rubin is kind of a more drop-in replacement. It's a really good chip. You'll have the Grock LPUs integrated at some point in the next six to nine months. So one way to interpret that is they're pretty confident that they can bring data centers online pretty quickly. But I also don't remember all the details. I do think there was an out in the Anthropic agreement.
Yeah, the Google deal could be short-term. There is a tension where you might want the compute but don't necessarily have all the revenue yet. But I'm very confident they can figure it out.
On the topic of Elon Web Services, is there a world where SpaceX winds up building out more of what looks like AWS? We've seen between OpenAI and Anthropic, there's this tension of being on AWS because enterprises want to be on AWS. Is it enough to just be a token factory, or do you need to have a database, in-memory storage, cloud storage, and all the things AWS provides?
My thought is that being a token factory is more than enough for the next 5 to 10 years, man. We need more token factories. But we'll see, and if they need that stuff, they will build it.
Yeah. How are you thinking about the other hyperscalers, the other big tech companies? We were puzzling over Meta's strategy at this point. Tons of resources, cash flow, data centers. They have experience there. Maybe they're not as fast as SpaceX, but there's a lot there. But it's a completely different motion to go into token factory. And yet there's still a lot of demand. How do you think all of that plays out?
Well, I think there are many ways to go into the token factory business. If you're Meta, you could just say to someone like Fireworks, 'Here are 100,000 GPUs. We'll take a revenue split and see what happens.' I am increasingly looking at EV to net PP&E as a valuation metric, with the idea being installed atoms on Earth are going to appreciate in value. Meta's EV to net PP&E multiple is in an interesting place; it suggests the market has immense skepticism about their ability to monetize their own asset base. And I think that's warranted given that all we've got out of management is this concept of personal superintelligence. It would be different if Meta AI was at the top of the app store and everyone was using it. No one doubts that once Zuck has an AI product with a billion dollars of revenue, he can take it to tens of billions, but it's unclear what this API business will look like. We know they can use GPUs just on making the ad product better. But there are a lot of questions.
Look, I think a few things. If I look at the way different players are behaving, it feels like everyone thinks we're entering the end game. Everybody loves to use chess analogies, and it looks like the endgame may be here sooner than we think. That's why OpenAI is cutting codex pricing, simply because coding tokens are so valuable. If you don't have enough of them, you may not be able to get into this RL loop that everyone is pushing for. If you're Zuckerberg, you feel that acutely. Muse Spark was an upside surprise for me. It made me feel like there's a chance.
Oh yeah. So you're telling me there's a chance. The other quote from Talladega Nights is if you're not first, you're last. There are so many good quotes from that movie.
Yeah, 100%. But I'm pretty confident Mark Zuckerberg has proven to be a good entrepreneur over time and has been willing to pivot. It's so funny — right now, Meta tells investors there's no chance they will monetize GPUs externally. Well, 10 days before they announced all those layoffs, which was shortly after Brad Gerstner wrote that letter to Mark where he said, 'You're the king, you can do whatever you want, but this is what I might respectfully encourage you to do.' They went from saying we're not going to do that to super focused on OPEX in a couple of days. So when people meet with Meta and hear they're not going to monetize their GPUs externally, I don't know, check back in a few hours.
Yeah. Everyone has a price. You look at Elon and Anthropic's relationship four months ago, and then as the opportunity unfolded, it made sense for them to partner. On the Meta thing, there is one point that's important: what ultimately drives behavior for all these big cap companies is getting to AI. That feels existential for all of them, but the stock price also really matters. If the stock goes down, engineers are unhappy, and it's tougher to get where you want to go. People are talking about the 10,000x engineer. You're not going to get there if you don't keep those 10,000x engineers. So we'll see with Meta.
How did this IPO update your general framework for the role retail is playing in capital markets? It was very funny last week to see people say the IPO was only 2x oversubscribed by retail, while other $3 billion IPOs were 10x oversubscribed. But it still feels like retail is going to play a very important role over the next 12 months, maybe more than ever, given that the hyperscalers are now running cash flow negative. You have the conflict in the Middle East and rebuilding efforts. So I feel like retail's moment is now.
Yeah. A few things. People say 'retail' in a pejorative way, and I would just say stupid is as stupid does. We track indices of retail favorites, and man, they're up a lot in '24. So stupid is as stupid does. I think retail is probably outperforming the overwhelming majority of professional money managers, whether private equity, venture, or public equity managers. So I don't think it's pejorative. In the case of SpaceX, I'm not sure where this comes from, but I actually think after the IPO, some of that retail stock may have been allocated to people who were flipping it because there was more institutional buying. Retail is very sensitive to momentum, so maybe what's happening today changes that. Another underappreciated thing about the SpaceX IPO is that over 10,000 SpaceX employees bought in the IPO. There are all these lockup analyses, but employees own a lot of this. If you wanted to sell, you could have sold in the offering in the second half of last year. So supply-demand dynamics will be interesting. In general, retail has been a more powerful force in the market over the last three and a half years than at any other time in my career, including the year 2000 bubble, which this is nothing like. But yeah, they matter, and stupid is as stupid does.
