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SpaceX’s historic IPO (0:20) Oracle earnings similar to other hyperscalers (6:30) Inflation is still hot (8:35)
Transcript
Rena Sherbill: It’s Brian Stewart. It’s Wall Street Roundup. It’s the middle of June. We are happy to be here. Welcome back to the show.
Brian Stewart: Great to be here.
Rena Sherbill: Talk to us, Brian Stewart. We’ve got SpaceX (SPCX). Nobody’s talking about it though, just kidding. Everybody’s talking about it. What’s top of mind this week?
Brian Stewart: Yeah, I feel we gotta talk about SpaceX though I agree with you that it’s been maybe a little overdone at this point, but it’s certainly the the biggest story going today.
So as we started recording, I’m not sure if it’s opened yet, but it was priced at 135 a share raised about seventy five billion dollars, so valued just below one point eight trillion as it comes to market. So in one shot, we added a another trillion dollar company to the list.
So maybe we’re looking at the Mag 8 at some point. But very very high demand. The last report that I saw was 3.5 times oversubscribed in terms of selling the stock.
It’s kind of a typical Musk stock, in the sense that it’s very similar to Tesla (TSLA). There’s some argument that maybe it’s overvalued based on the revenue that it has, but you’re really buying the future promise. So like Tesla, if you take it as a car company, it’s kind of a tech car company, seems to have kind of plateaued.
But if you take it as a technology company, you’re buying the robots and you’re buying autonomous driving and you’re buying the energy systems and and things like that. Same with SpaceX, you’re looking for Starlink to build out. So you’re looking for becoming a key player in space launches for the government and various other things.
So one thing that’s come up, I saw a few headlines, people predicting a merger with Tesla at some point. Maybe the IPO is a vehicle to build a super a super Musk company.
So we’ll see on that front, and the only other thing that I think that we can look at the start of the SpaceX IPO is just the overall increase in IPO interest. So in 2022, there were 90 IPOs that what got to 176 by 2024. Last year it was just over 200. We’re already at 162 this year, including SpaceX is huge.
We’ve got OpenAI (OPENAI) and Anthropic (ANTHRO) eyeing IPOs. Those are going to be huge. So you have some of the biggest IPOs ever just waiting in the wings.
So this could probably be a record breaking year for IPOs if those actually happen. If you’re a bull, that’s a sign there’s plenty of demands for stock. If you’re a bear, there’s kind of a a bubble aspect to it. So I think we’re just gonna have to see how things work.
Rena Sherbill: Is the IPO hitting the market as you expected? It officially opened at one fifty, a gain of eleven percent.
Brian Stewart: That’s a little less than I would have expected. But if they price the IPO well, you want an increase on the first day for the headline, but if you see too much of an increase, it kind of suggests that you might have underpriced it a little bit. So it sounds like they did a pretty good job pricing it if that’s the the initial pop.
Again, we’ll see how it goes. Cerebras (CBRS) jumped really early in its IPO and then kind of drifted back later, though it stayed well below or well above its IPO price. So that’s the most recent headline IPO that came out. So we’ll see how SpaceX fares the next few days.
Rena Sherbill: Do you have a guess for the next trillionaire coming up? The fact that Elon Musk became a trillionaire from this. Do you feel like somebody’s next on the list?
Brian Stewart: Honestly I’m having a hard time processing that. I mean all I’ll say is that’s kind of like a paper trillionaire, you know what I mean? If you wanted to liquidate, who would buy it kind of thing.
It’s interesting. Musk is very singular in the way he handles entrepreneurship and founding and things like that. Somebody like Mark Zuckerberg or Jeff Bezos or whatever. I mean, they found a company and then all the growth that they do are within that company, if they have other ventures. Musk is more, I think, along sort of the Steve Jobs kind of mindset. Steve Jobs also founded Pixar and had other entrepreneurial interests outside of Apple. I mean, some of that was just the politics of him getting kicked out for a while and then coming back.
But Elon Musk, he doesn’t found a space division within Tesla. He just founds a separate company and he’s got the Boring company and all the other stuff that he’s running.
Rena Sherbill: I was gonna say that’s an interesting point because you think of somebody like Jeff Bezos. He may have been able to do something more similar to what Musk did, but he put it all in Amazon (AMZN) and now Amazon is Amazon.
Brian Stewart: Yeah, I’m wondering, if you have Amazon, the retailer that he owned, and then you had AWS as a separate company that was valued separately, would he be richer now by owning stock in the multiple companies rather than in the singular company? So I don’t know.
The obvious candidates for the next trillionaire would be the super rich people now. But what’s the vehicle for them to triple, quadruple their wealth to get to a trillion? And there’s no real vehicle for that because it’s all tied up in the stock of this one company, which is only gonna, even if it rises twenty percent a year, it’s gonna take forever to get to to a trillion. So you kind of have to do what Musk did is it and I just think, whatever you want to say about Musk, he is he has that like PT Barnum quality where he’s just able to convince investors of the absolute most optimistic view.
He really in every one of these companies, he can convince people that it’s going to change the world. That’s I think his central talent as a businessman is just being able to sell that vision.
Rena Sherbill: Absolument. 100%. All right, what do we got next?
Brian Stewart: Oracle (ORCL) reported earnings this week dropped sharply on its earnings. The headline numbers were unassailable, beat expectations, cloud revenue up 47%, but said it sees higher CapEx spending and is planning to fund that by selling debt and equity.
So kind of a similar story that we saw from some of the other hyperscalers recently. And so obviously still kind of worry in the market about that, whether these companies are overspending on AI, whether they’re gonna get an ROI that matters from that.
I thought it was kind of interesting to compare that with the semiconductor equipment stocks, which were up sharply this week. So you had (KLAC), you had (AMAT), you had Lam Research (LRCX) all jump double digits on Thursday. That was after being up pretty sharply on Monday. So they fell last Friday with the overall market.
And then there was a quick bounce back from them on Monday and then a continuation through the week. So you have KLAC up twenty percent, you have AMAT up 70%, these are over five day windows. so really if you compare that with Oracle, you basically have high degrees of AI spending, and investors have realized that spending is going from company X to company Y.
So I think the current ideas company wise, like the pick and shovel model of investing rather than buying the people who are making the big bets on AI. So there’s a lot of suspicion about whether spending that money is going to pay off in the future.
But in the meantime, somebody’s cashing those checks. And so those are the people that investors are most confident in.
Rena Sherbill: It’s so interesting watching an industry develop because this is exactly what happened, I have the Cannabis Investing Podcast and this is exactly what happened in the cannabis industry. It was like picks and shovel companies look good as opposed to the ones that are actually doing the cannabis, it’s so interesting to watch. History doesn’t repeat, but it does rhyme.
Broadly speaking, we had a really nice CPI report this week.
Brian Stewart: Inflation’s still hot. This is up to four point two percent. The market took it in stride. I think we just we know inflation’s high, unless the number is absolutely eye popping. I also think that there’s a pretty big bet that most of this inflation is tied to the Iran conflict, right? So when that resolves, it might take a a little time for that to work its way through system, but overall, things will go back to normal as soon as that resolves.
So every time there’s sa headline close to a deal, that kind of thing. I just think the market’s just like, this’ll work out. This isn’t a systematic problem. This is just caused by a clear geopolitical event. And when that resolves, which the market expects will happen in relatively near term, the risk of that is whether these things come a little bit too metastasized in the market and it becomes difficult to work it out later.
That’s what happened last week is when the Jobs data came out and the Jobs data was better than expected, it convinced people that there was a green light for rate hikes. We have a new Fed chair coming in. The next meeting next week is his first meeting. So I think there’s gonna be lot of attention paid to what he says. Is he gonna signal dovish, hawkish, neutral, there’s just a lot of uncertainty around the Fed, just in the fact that we don’t understand the personality of the person who’s gonna be leading the discussion.
Rena Sherbill: Anything else macrowise that you’re looking at?
Brian Stewart: Like I said, the Fed meeting is the big thing on the calendar for next week. There’s not many earnings just because we’re getting into the doldrums. This is summertime, a lot of traders are gonna be out of the office, volume’s gonna shift downward. So not a lot of catalysts, but maybe sets you up for a situation where you can get over aggressive moves either up or down, just because there are fewer adults in the room.
Rena Sherbill: Anything else about next week?
Brian Stewart: Trading indicates we’re gonna have rates hold steady. There is a sixty percent chance of higher rates by the end of the year. Had been around fifty fifty a few weeks ago, but sixty forty isn’t that far off of fifty fifty. So I think the market’s really in wait and see territory of what’s going to happen and that’s both, like I said, inflation, where’s that headed? Are we getting a deal in Iran? And then feeling out the personality of Kevin Warsh coming in as the new Fed chair.
