Inside SpaceX’s Blockbuster IPO Filing

[00:00:00] [SPEAKER_01] Many companies are struggling to scale their AI deployments or even move them past the pilot stage. Often the problem isn't technology, but organizational misalignment around goals, processes, and incentives. At the break, join Caroline Roach, Senior Partner IBM Consulting, to learn why.

[00:00:18] [SPEAKER_02] Welcome to Tech News Briefing. It's Friday, May 22nd. I'm Imani Moise for The Wall Street Journal. NVIDIA is currently the most valuable company in the world, and its latest earnings report this week showed no signs of slowing down anytime soon. Despite that, it's been one of the weakest chip stocks this year. We'll take a closer look at NVIDIA's earnings and why some analysts say the company might actually be underappreciated.

[00:00:45] [SPEAKER_02] Then, SpaceX has filed its eagerly anticipated investor prospectus with the Securities and Exchange Commission, giving the public its first look under the hood of the world's largest private company. We're breaking down its financials ahead of what could be the biggest IPO in history. But first, on Wednesday, NVIDIA shattered expectations again,

[00:01:11] [SPEAKER_02] reporting record sales of $81.6 billion and net income of $58.3 billion for the April quarter. But despite hitting 14 consecutive quarters of blowout growth, Wall Street didn't seem too impressed. The stock actually dipped in after-hours trading following the report and continued to fall yesterday. WSJ columnist Dan Gallagher joins us to explain the disconnect. So Dan, can you start by walking us through NVIDIA's latest earnings?

[00:01:40] [SPEAKER_00] Sure. What NVIDIA showed is that they're by far the largest game in AI chips by quite a long shot. Their revenue has now surpassed $80 billion a quarter, which is more than just about any other chip company in the world makes in an entire year. And they also, they gave this interesting detail in the call where they see that the current fiscal year, they're going to have about $20 billion in revenue from what are called CPU chips. Now, these are actually not the chips that NVIDIA is known for.

[00:02:08] [SPEAKER_00] It's known for GPU chips that are big in AI computing. But as more people adopt AI agents, you need CPU chips to really run that. That was seen as a weak point for NVIDIA. But now they're selling their own CPU chips and they're very conservative financially. So the fact that they said we essentially have line of sight to $20 billion in revenue from CPU chips this fiscal year, which was basically a business that didn't exist for them before, tells you what kind of demand they still see.

[00:02:37] [SPEAKER_02] In your latest column, you make the case that NVIDIA is, quote, underappreciated. How can a $5 trillion company still be undervalued?

[00:02:47] [SPEAKER_00] If you look at what the stock gets, like it's multiple relative to earnings that Wall Street expects for the next four quarters, NVIDIA is actually pretty cheap. It's around 24 times projected earnings. That's actually pretty low relative to most of the other trillion-dollar tech companies. It's actually well below what you see with a lot of other chip stocks. Intel's market cap is a lot lower, but that stock has gone through the roof this year, and now it gets around 90 times projected earnings.

[00:03:17] [SPEAKER_00] So what investors are paying for exposure to future earnings is way, way, way less with NVIDIA, even though it has this kind of gigantic market cap to it.

[00:03:25] [SPEAKER_02] And some of your sources say that NVIDIA's recent price performance is being driven by apathy. What do you think is behind this apathy from Wall Street regarding NVIDIA, despite its consistently strong earnings?

[00:03:38] [SPEAKER_00] There's a mix of reasons. One, because you do have such a huge market cap, it does become mechanically hard to get big movements, even if the stock is like relatively cheap on a valuation basis. Another big part of it is that it was actually like three years ago now that NVIDIA first started showing these blowout sales numbers that were coming from AI. So in that sense, it's like an older story relative to some other chip stocks and memory chips and others that have become a new story in AI.

[00:04:09] [SPEAKER_00] And so those are the ones that have really caught fire in the past, like, I don't know, six months or so. I think the attitude of investors is, yes, we know NVIDIA is huge, and they're super profitable and kind of dominating the space. But what's new? What's a stock that's likely going to triple? You know, they're not such the new thing at the moment. And investors, especially AI investors, are really going after like really strong potential upside.

[00:04:34] [SPEAKER_02] And what do your sources say is the smart play on NVIDIA right now?

[00:04:38] [SPEAKER_00] Most analysts on the street are rating them as a buy. But also there's the sense of like, well, you know, they'll keep putting up good numbers, but what's going to happen? This is now the fourth quarter, which they put out a really strong report, and the stock has fallen. So it does cause a bit of a head scratching in terms of like, okay, what's going to get NVIDIA moving if really strong numbers don't?

[00:05:00] [SPEAKER_02] Is there a bear case for NVIDIA right now? Or is there a dose of skepticism that we should add to this picture?

[00:05:06] [SPEAKER_00] There's a couple of things. I mean, one is that at some point, AI spending could really turn down. The Microsofts, the Googles, the Amazons of the world, if they don't see demand on their side for the AI services they're trying to build out, they might tailor back their spending, and that would be bad for NVIDIA. And obviously, if some of these competitive threats really materialize, nothing in tech is ever permanent. I mean, I've seen a long history of covering this area for a long time.

[00:05:32] [SPEAKER_00] Companies that seem invincible and dominant rarely are completely invincible. So theoretically, yeah, a company could put out a more compelling chip or more compelling system that would get a lot of traction. That's always a threat. And NVIDIA knows that.

[00:05:47] [SPEAKER_02] That was WSJ Heard on the Street columnist, Dan Gallagher. Do you think NVIDIA is underappreciated? If you're a listener on Spotify, leave us a comment with your thoughts. Coming up, it's the world's largest private company. But it's losing money hand over fist. We'll break down SpaceX's freshly disclosed financials. That's after the break.

[00:06:14] [SPEAKER_01] Delivering real business results with AI starts with organizational alignment, says Caroline Roach, senior partner, IBM Consulting.

[00:06:20] [SPEAKER_04] You need to understand what problem you're solving, really commit yourself to it, and then be clear on how you're going to change the way you work to deliver those outcomes with AI as a tool, but not the only tool.

[00:06:31] [SPEAKER_01] If deployments aren't optimized to how work gets executed, ROI can suffer as programs stall and adoption lags.

[00:06:37] [SPEAKER_04] Alignment is difficult to achieve because people are rushing to a solution without first defining the problem.

[00:06:47] [SPEAKER_02] SpaceX's public debut is getting closer to liftoff. On Wednesday, the rocket maker filed paperwork for an IPO, aiming for a public debut on NASDAQ in June under the ticker symbol SPCX. The company is expected to target an initial valuation of $1.5 trillion or more, a price that would set the record for the biggest stock debut in history and could make Musk the world's first trillionaire. Here to tell us all the details from the filing,

[00:07:15] [SPEAKER_02] including a clearer picture of SpaceX's finances and operations, is WSJ reporter Becky Peterson. So Becky, SpaceX is the world's largest private company, and this filing gives us a first look into its financials, and it wasn't necessarily a pretty picture. What jumped out at you in the filing?

[00:07:32] [SPEAKER_03] One of the biggest things we learned is that SpaceX is losing quite a bit of money. So last year, it had $19 billion in revenue, but it still lost almost $5 billion. And that was even worse when we saw the first quarter of this year. It made $4.7 billion in revenue, but lost $4.3 billion. People who have been following SpaceX for a long time knew that its Starlink internet business was really successful.

[00:08:00] [SPEAKER_03] That was about $11 billion in revenue last year. And its rocket launches are reliable, although they actually are losing money on the launch part of their business right now. Then in February, they merged with XAI, and they acquired this whole other thing. And XAI is really under development. It doesn't have a very stable business. So while XAI had $3 billion in revenue, it also had these extraordinary losses because it's spending tons of money building data centers.

[00:08:30] [SPEAKER_03] And it's also not winning in the space that it's competing in.

[00:08:34] [SPEAKER_02] We also got insight into the ownership of the company.

[00:08:38] [SPEAKER_03] What did we learn there? Well, we already knew that Elon Musk owned a lot of SpaceX. We had some state filings earlier that showed he had as much as 40% of the company. But what the S-1 shows us is how much voting power he has. Now, they've structured SpaceX so that there are super voting shares held by Musk that give him 85% of the vote on SpaceX decisions. So that means that basically nothing could get done without his approval.

[00:09:08] [SPEAKER_03] There's been a drift toward these super voting shares at some founder-led tech companies. We've seen it at Google and at Facebook. Look, SpaceX is a unique example where Musk will just have an extraordinary amount of control. So if you're a retail investor who buys stock in the IPO or buys it later on on the market, you will have a fraction of the power for each share that you buy that he has for the shares that he holds.

[00:09:36] [SPEAKER_02] Elon Musk's pay packages have gotten a lot of attention over the years. How is his compensation structured at SpaceX?

[00:09:42] [SPEAKER_03] We just learned for the first time about these two pay packages that were issued earlier this year. One, which was issued in January, grants him 1 billion shares. Now, to get those shares, he has to grow the market cap to $7.5 trillion. But the big thing is that he has to establish a permanent human colony on Mars with at least 1 million inhabitants.

[00:10:07] [SPEAKER_03] That's never been done before, so it's to be seen whether those are shares that he will get. There's a second package, which the board granted him after the merger with XAI, and that gives him a smaller tranche of 300 million shares if he builds the data center and space business that he's been talking about and also grows the company's valuation. And with both of those goals, he has to be working at the company to actually get the benefit.

[00:10:35] [SPEAKER_02] Just before we got to SpaceX filing, we exclusively reported that OpenAI is set to file for its own IPO very soon. Anthropic is also expected to go public. How important is it for SpaceX to go first here? And how would it impact the other IPOs?

[00:10:49] [SPEAKER_03] All of these companies that are pursuing AI just need massive amounts of cash to reach their goals. That's what this is about. It's raising money. SpaceX has said for years that they don't need to go public because they were doing really well with their Starlink internet service. They had revenue coming in. But in order to build their giant rocket and actually do these very expensive projects, they need money from the market. In terms of OpenAI, SpaceX, some of this is competition between the founders.

[00:11:18] [SPEAKER_03] But there's also a sense in the finance world that whoever goes out first gets to set the tone with investors about how AI works and whether these are good investments.

[00:11:27] [SPEAKER_02] And what will you be watching for as the company goes public?

[00:11:31] [SPEAKER_03] You know, I will be curious to see if the market eats this up the way that they have at Tesla when Musk shares big dreams about the future. This isn't a very investor-friendly investment. Now, if you believe that he is going to build a colony on Mars and they have this total addressable market that's in the $20 trillion range, if you believe that those things are real, sure, your investment will grow over time.

[00:11:58] [SPEAKER_03] But it doesn't have a lot of the guarantees that other investments have. I'm also curious to see what happens to Tesla's stock over time after SpaceX is public. You know, he has a lot of super fans that are invested as retail investors in these companies. And there's some speculation that having a SpaceX stock trading on the stock market could pull some of those people out of Tesla.

[00:12:21] [SPEAKER_02] That was WSJ reporter Becky Peterson. And that's it for Tech News Briefing. If you're a listener on Spotify, be sure to leave us a comment. Today's show was produced by Julie Chang. I'm your host, Imani Moise. Additional support this week from Danny Lewis. Jessica Fenton and Michael LaValle wrote our theme music. Our supervising producer is Katie Ferguson. Our development producer is Aisha Al-Muslim. And Chris Zinsley is the deputy editor of audio for The Wall Street Journal. We'll be back later this morning with TNB Tech Minute.

[00:12:51] [SPEAKER_02] Thanks for listening.

[00:12:57] [SPEAKER_01] Scaling AI successfully requires more than the right technology. Here again is Caroline Roach, senior partner, IBM Consulting.

[00:13:04] [SPEAKER_04] The biggest thing that we were talking about a year ago is what model to use. And the biggest thing that I'm talking about with my clients now is how do I drive change within my organization?

[00:13:16] [SPEAKER_01] Companies able to identify, correct, and then avoid misalignment will be best positioned to deliver meaningful business value from AI.

[00:13:22] [SPEAKER_04] The organizations that are the most successful set very clear targets and have several priorities that are very clear across the enterprise. The technology is really good. But if you're not changing your organizational alignment, not incentivizing your people correctly, not looking at workflows, you're not going to see real value with it.

[00:13:43] [SPEAKER_01] Visit IBM.com slash think slash leadership to learn how building organizational alignment can help deliver AI deployments that scale and drive growth.

[00:13:51] [SPEAKER_03] This content was created by custom content from WSJ, a unit of the Wall Street Journal Advertising Department.