SpaceX xAI Merger: Elon’s $1.25 Trillion Vision or Financial Smoke & Mirrors?

Hello and welcome back to the Market Maker podcast and putting together some of the show notes for last week. It was kind of a situation of where do we begin? There's just so much stuff going on doing this podcast and trying to be disciplined to keep it to 30 minutes is almost impossible. The back end of 2025 into 2026, but the start of the week, typically what we do is a bit of an M&A deep dive. So we are going to stay true to form. And we're going to focus on the biggest news of last week, which of course was that of Elon Musk announcing SpaceX has officially acquired xAI. So we're going to have a look at the, the sort of terms of the deal. Also xAI and how it needs money and why it benefits from this relationship. We'll talk about the strategy of the Muskonomy. And then the vision that Elon has in terms of the bigger play, because some of these valuations are just incredible that we are talking about. But also talk about some of the potential risks and some of the technical issues that he might encounter because it's certainly in true Musk style. There's a lot of promise and a lot of hype. We'll sort of unpack that and see how much of that is grounded in reality. But also tie this to the investment banks. There's lots of advisors, of course, on a deal of this magnitude and make sense of that. And there's also some other interesting strategic stuff around actually, is all this smoke and mirrors? And there's a very much more obvious legal tax implications of why this deal makes a hell of a lot of sense rather than, you know, a million satellites spinning around the moon, harvesting the rays of the sun to power space data centers. But we'll get to that point shortly. So yeah, perhaps we could start with the deal, Piers. I did read that it was the largest M&A deal now in history was the headline that I saw.

Yeah, let's start there. I mean, and actually this is quite— well, do you know what was the biggest deal? Prior to this?

Well, I do, but I'm going to let the listeners sit on that for at least 3 seconds. So have a think. What do you reckon? Well, actually, why don't you tell people listening, what year was it?

Well, this is it. The year 2000. Ooh.

So what was going on in the year 2000?

And actually prior to this deal, the top 2 biggest ever deals were both done in the year 2000. And those records have not been broken until now. So you've got Vodafone acquired the German Mannesmann, the German business Mannesmann, that was clocked at about $204 billion, the valuation of the combined entity post-merger in the year 2000. And then also in that year, AOL Time Warner, a very famous merger. So that—

I remember that one.

It was about $175 billion combined valuation post that deal. So yeah, I mean, and so SpaceX merging with xAI merging, we'll talk about this kind of structure of this later on, but yeah, this is, it's got a $250 billion sort of valuation to the kind of So that's the valuation of the xAI portion. We'll talk about SpaceX valuation because right now Musk is just chalking that up at a cool $1 trillion. So if you combine the two, you've got $1 trillion plus the $250 billion from xAI and you've got a $1.25 trillion business apparently.

It feels a little bit back of napkin.

What happened there?

Because when I was writing about this, when it dropped, I thought, okay, this is big. I've got to put a post out about this analyzing the initial headlines. And it was actually hard to nail down those figures. It felt like a lot of it was implied by the kind of direction of travel of the valuation of SpaceX and also a recent funding round of xAI, and they just kind of stuck another couple billion on top.

Oh, this is it. Yeah. Well, actually that was a really good article. If you read the FT, one of the Lex columns is one of the most popular sort of opinion columns in the FT and well, in finance, full stop. And they were just talking about the new rules of finance, you know, from a kind of valuation point of view. And they were listing, you can go and find it and read it, but you know, one of their points, they listed about 5 or 6 different points about this, one being, well, AI, so stick those two letters into the mix and all of a sudden, you know, yeah, add a couple of extra zeros. But actually it was just about investing is a spectator sport. And what they were kind of saying was basically just stand back and watch and Musk will say X, Y, and Z and tell you whatever number is on his mind. And then that becomes the valuation. And it very much is a kind of back of the envelope, whatever Musk says. Okay, fine. So yeah, valuations here. And look, you know, let me give you some numbers. 12 months ago, because obviously these are private companies, right? So they're not publicly traded. There is no share price, you know, on a listed exchange. So valuing these businesses, I mean, you know, becomes incredibly difficult. And so often you look for the capital raises that a company has, a private company has done in the past, and that kind of marks a valuation. Valuation at that point. So you can go back and have a look at these raises. SpaceX doesn't raise much money that way, so it's difficult. But we do know about a year ago, 12 months ago, SpaceX was valued at $350 billion. Last month, right? So that's 12 months ago. Fast forward to 1 month ago, it was valued at $800 billion. Fast forward to today, we've obviously done $200 billion in the last 30 days. Oh yeah. In the last 4 weeks according to Musk. Well, it's just a trillion now and everyone's like, oh, okay, sure. So that's kind of on that side. Like if you dive into, so SpaceX, a trillion dollars, right? Well, okay, what does it do and what's its revenues and And actually, I mean, obviously it's the space thing and obviously it's Musk's sort of endeavor to take the human race and make it a multi-planetary species. That's the kind of strapline for this business. His aim is to go and colonize Mars, right? But in the meantime, they've built these amazing rockets and they are amazing and they do a lot of work for the government, for example. Taking satellites up, going and rescuing astronauts from the space stations, all the rest of it, right? And that's great. But actually Starlink, that's the cash cow within SpaceX and that's the internet business. And obviously when they're taking some cargo up to the International Space Station and being paid a nice handsome amount of money by the government to do so, they obviously shove a few Starlink satellites on board essentially for free, and they get their satellites up into the skies. And so they've built up this huge network of satellites, which does make them, you know, truly the global broadband network like no other on the planet. Their, their actual subscriber numbers are really starting to accelerate. And so they're up to just over 9 million active customers now. That's gone up a million in the last 2 months. So you're actually really getting a real sort of acceleration in user numbers. And I mean, I'm a Starlink customer actually, and I pay 75 quid a month, right?

And what is it? And tell me more, like, how's it been?

Yeah. I mean, well, look, it's particularly right now. Is particularly good for rural areas, you know, where there is no infrastructure set up. But of course you don't need it. All you need, you buy, you buy your little dish, which comes in the post, which costs, I can't remember now because I can't remember because it was free, but they were saying it's like 300 quid, but you know, there's always deals on, you know, get subscribed, subscribe to 12 months worth of, um, you know, broadband subscription and get your dish for free kind of thing. Anyway, 75 quid a month, shove the dish up on the roof, job done. You get really good broadband. So for rural communities and countries where infrastructure, you know, isn't there, and there's a lot of those countries.

So hang about, you live in central London.

Yeah, well, it's not in my, it's not, it's, this isn't for my London.

Oh, okay. Okay. Okay, big guy.

Look, 9 million subscribers. So they generate, right, if you're talking about a run rate, okay, so this is often with a business like this where it's ARR. So this is the most valuable type of revenue. It's annual recurring subscription revenue. Okay. Their ARR. And if you take today's, like, what did that, what was the revenue in the month of January? And you say, right, what's the run rate? You take January's and you kind of multiply it by 12 to look forwards. Okay. And then you're starting to project. Out your future 12-month kind of revenue, and we're looking at about $12 to $15 billion for Starlink, you know, as a revenue run rate. Now if you look backwards, they probably did about $8 billion of revenue in 2025. Okay. Now how does that shape up against the whole of SpaceX? Well, actually SpaceX probably did about $15 billion. As a whole business. So actually Starlink, you know, this is your, you know, you're like 60, whatever the maths is there, 60, 70%, or 60% of SpaceX's entire revenue is actually coming from Starlink. So that's the real cash cow and it's that annual recurring revenue which gets the highest multiples. But normally, you know, even if you're being generous, you might put a 10 to maybe an absolute outside 15 times multiple revenue multiple on a business like that where it's pure ARR, where you've got really strong accelerated kind of user growth, where you've got a huge moat. It's so defensible because it's very hard to compete because how many companies can get satellite dishes up into the, into space, right? And so for the, yeah, so, but even that kind of maths, it doesn't get you anywhere near a trillion dollars. So this is where the Musk throwaway lines, you know, are, you know, the AI of the future, the data center of the future needs to be in space. And you know what? We're the only people who can get it there.

So if your definition then of Starlink is cash cow, what is the definition of xAI talking about it from a financial perspective?

That's your cash drain. So it kind of spouts out of your Starlink satellites and goes straight down the drain of xAI. That, yeah, so look, xAI, that's a different ball game, obviously. I mean, from their point of view, they need a lot of money. So, I mean, they're in the race, right? They're in the AI race along with OpenAI, for example, and Anthropic and all the rest of them where they need to build, they need compute power, they need to build data centers to be able to run their products, right? To be able to run Groq. If you want many hundreds of millions of users using your, you know, your kind of your product, you know, on a daily basis. Well, that requires a huge amount of power. And so that's why there's this data center buildout kind of race. And some of the numbers we've heard last week from Google and Amazon, for example, Google are gonna be spending $160 billion in 2026 just on data center buildout, basically. Amazon, $200 billion. They're going to spend just this year. Right. And if you add up all the hyperscalers, I think the figure came to like $600 billion, $600 billion from a handful of companies. That's more money than most governments' kind of annual budget.

It's— I feel like it's like what's happening in the, in that race now is kind of like what happens in the oil market where traditionally two decades ago, they're just trying to flood the market now in order to crush these other less well-funded enterprises. So you have these massive Amazons and Googles and they're like, what we are going to do is even though we're going to set a high bar for us ourselves to deliver, that's fine because we're just going to decimate all the rest of the competition. So there is nothing left. It's just a tactical advantage of size. It feels like.

Yeah, absolutely. But look, xAI burns about a billion dollars of cash per month, right? Per month. So when you look at its revenues and it's, again, it's hard to get details because it's not a public company, right? But they reckon on a revenue basis, it's like $400 to $500 million. And then of that, it's kind of a gross profit of $90 million. Okay. It may be, yeah. So look, it's hard to get the numbers, but basically they need a billion dollars in cash every month if they want to stay in the game. And it's very expensive to kind of raise that kind of money, right? So 2 years ago they raised $5 billion worth of debt. Okay. Which sounds like a huge amount of money, but that's 5 months worth, right? That was 2 years ago. That's long gone. So right. Where's, So that's why you've seen Tesla, right? They've bought, I don't know, they've done something, but now xAI has $250, what was it? No, sorry, $2.5 billion has come from Tesla. $2.5 billion has come from SpaceX already, you know, into that business in some kind of deal, right? So they're just, OpenAI are the same. They're just using, I mean, you need some very clever people to come up with some incredibly insane kind of complex financial arrangements to just keep this kind of race going.

It's funny you said 2.5 billion here, 2.5 billion from Paul, from Peter, and then actually that will only last you for 4 or 5 months.

Yeah. This is right. And so look, this is, I think this is why this deal's happened and we'll get into maybe in a bit more detail, but basically is so expensive. If you are not a Google where you are self-generating this money, and fine, fine, if you want to pump it into there, that's great, right? But if you are OpenAI, if you are Anthropic, for example, then you've got to be raising money from elsewhere, right? xAI are in the same boat. And so this is, I think ultimately really I guess connecting that Starlink cash tap, you know, to the xAI, you know, cash drain. And so it's a way of, and actually being able to raise capital under the umbrella of SpaceX for xAI and therefore raising capital at a much cheaper kind of interest rate than you would as a standalone business. And I think ultimately that's the play here. Let's get, let's keep xAI in the game and let's be able to raise capital up at a cheaper rate to kind of sustain this crazy cash burn.

Yeah. And I do think that the AI, like the participants in this race has changed a great deal as of Q4 of last year when Gemini made that distinct shift. And you said OpenAI, Anthropic, they've not tapped the traditional capital markets and we know that they've got very close ties to the big tech. OpenAI with Microsoft, Anthropic. Microsoft have also just had an injection of cash in as well. So they're tied to, they're almost like on the tailwinds of these big massive mega cap tech stocks. But Elon loves to go it alone. He's a bit of a lone wolf.

Yeah.

And so it's a slightly different situation there as well. And it doesn't, it feels like when you think of Groq, in particular, you think of much more of this kind of fun place, unfiltered for the retail user. And then the idea is that it, as we'll go on to discuss, it fits as the real AI engine for his longer-term plans and vision that he has. Whereas the others are much more about monetization now through enterprise packages, essentially.

Yep. And look, it's built, it is genius in the one sense, 'cause it's not just about trying to, can xAI become profitable just as a standalone business? It's not like OpenAI where they've got one, one egg in the basket, right? They have to make ChatGPT, has to become profitable. For xAI, it's like, well, yeah, sure, it'd be great if that as a standalone thing could become profitable, but of course it's like the vertical integration that that kind of Musk is this Muskonomy. Because if, you know, if XAI, if Grok can be the most intelligent thing, you know, on the planet, well, fine, stick that into your Optimus robots and all of a sudden, or your, you know, automated vehicles and so on. And then that intelligence can feed through into that, what Musk describes as his physical AI game with his robo taxis and his robots, right? But then if you can kind of also own the infrastructure of the data centers, if he's right, and we'll talk about it in a bit, but if data centers do belong in space, well then fine. He's got the monopoly currently on that. And I tell you what, if you want to compete in the space-located data center game, that's a pretty large moat. And I would suggest that no one's going to get anywhere near it for a decade plus, right? In theory, what he's saying makes sense in so much as, look, if we can monopolize the data centers, if then that kind of feeds the power that xAI requires using the data from X to then train and get the cutting-edge robots and robotaxis of this world. Yeah, I mean, obviously it's great. I mean, it's literally tying up all these businesses under the AI umbrella, which may be a point that the Lex Column were making was actually maybe every business now doesn't matter what sector, what you do, where you are in the vertical scale. It's like just AI ultimately wraps things up together and you're suddenly getting mergers that 10 years ago would not have made any sense at all, but now makes perfect sense.

So, yeah, you say that they will have a monopoly and there's definitely first mover advantage, much like Tesla had an EV race, but there is Project Suncatcher that you're forgetting and Project Cooper, which is actually Google and Amazon's orbital ambitions. So Again, when you have like these deep pockets, it will be interesting because they obviously face the same challenges with compute power as well for themselves. But we'll get to that in a second. To tie off the financials part, there's a new article that I saw on Reuters this morning, which is probably also worth a shout. And it talks about something called a triangular merger because it's been so piecemeal, this in terms of the public information out there. There hasn't— the press release that SpaceX put out when this deal got announced was basically him just talking about his mission. There was absolutely nothing to do with what would be a typical press statement of a merger agreement. But what is this? So the definition here is a triangular merger is when a buyer creates a subsidiary company to merge with the target company instead of buying it directly. The reason this structure protects the buyer from the target's legal liabilities and makes the transition of contracts and assets much smoother. So yeah, it was pretty interesting here because as a subsidiary, XAI's debt, so debt you mentioned, but legal liabilities and contracts remain separate from the parent, allowing XAI to run its operations independently while helping to insulate SpaceX from any investigations or litigation because as we know, the company's already facing European scrutiny over the dissemination of those deepfake sexualized images that were circulating just a few weeks ago. Yeah. It seems as well that there's a legal, there's a tax, there's a debt element of this. Certainly the lawyers are, you know, filling, refilling their coffers at the moment.

Yeah. And it takes it like if you're a SpaceX shareholder, you know, do you want xAI now to be lumped into, you know, what it is that you own? And, you know, of course those risks, those legal risks. Yeah. You don't want to be anywhere near that kind of thing. Right. So hence the kind of carve out here, but Musk is Musk and he's a persuasive guy. Right. And So he's obviously done a deal here where he gets to fund xAI at a cheaper kind of interest rate, but you know, the SpaceX shareholders don't get kind of tainted by this kind of legal risk that comes with the package. Yeah.

Well, the detail here was that it's been conducted apparently through two intermediary companies set up in Nevada, and that's allowed SpaceX to acquire xAI without triggering the smaller company's debt covenants. Avoiding any requirements then to repay debt or bondholders at the time of the merger. So it's clever stuff, but you know, this is why these guys make, these bankers make the fees that they do.

Exactly.

But let's move on then and talk a little bit about, I guess the strategy. So Muskonomy and the vision of space. I know we've kind of briefly touched it there, And we've talked a little bit about Starlink, but I guess is the summary here then, I saw a good way of putting it as like the three legs, if you like, is Starlink is the engine, xAI is the intelligence, and SpaceX is the infrastructure.

Yeah.

Is that the easiest way to think of it?

Absolutely.

Yeah.

And it's that kind of vertical integration. But yeah, this is it. Or it's like, it's like Musk has been playing though. Yeah. People talk about what, 4D chess. It's like Musk has been playing 4D chess for like 20 years, just slowly building, creating the pieces, you know, out of nothing and then kind of maneuvering them. And all of a sudden now AI has just somehow created this situation that brings these very different businesses suddenly altogether in what's a vertical stack that just kind of looks incredible on paper. And it's on paper, right? 'Cause if we talk about the vision here and like if you talk about SpaceX, so SpaceX, if we just kind of leave xAI for a sec, I mean, xAI needs compute power, right? It needs data centers. And one of SpaceX's kind of whole themes, and we're gonna hear a lot more about this 'cause SpaceX wants to IPO, right? In June, end of June, right? I think it's Musk's, it's Musk's birthday and something to do with some kind of, uh, Planetary alignment that doesn't happen.

55th birthday on June 28th, and it's a rare planetary alignment. Go on, have a guess. What are the 3 planets, Piers?

Venus, Mercury, and Uranus.

You were 2 for 2, but you got slightly distracted by Uranus.

I couldn't resist.

It was Jupiter.

Okay.

Yeah. Close, but no cigar there.

But look, right, they're going to IPO. What's the Musk kind of sort of kind of sensational kind of lines here? Well, you know, so there is a problem. There's this thing called the terrestrial wall, right? AI models are getting bigger for sure at an exponential rate. That's the power that's required. Is getting exponentially more large. And then power grids are basically at breaking point. So an AI data center consumes as much electricity as 100,000 homes, right? That's the kind of stat, one data center. And so kind of, is it sustainable, this idea that the AI revolution can just carry on going with this kind of terrestrial wall problem. And this is kind of a, yeah, Musk is talking about his solar shortcut, which basically is let's shove these solar panels into space, you know, where they'll be 10 times more efficient is his kind of back of the envelope maths. Like there's no atmosphere, there's no, you know, it's like midday, 24 hours of the day, you are getting maximum sunshine all of the time. And so why don't we just move it all into space? Kind of makes sense when you listen to it like that, right? And he'll talk about the sentient sun. And there's this thing called the Kardashev scale, which is basically talking about, well, I feel there's, Musk talks about this kind of level 1. We're on level 1 at the moment, which is basically human beings, you know, tapping the planet for energy. And super roughly we're probably 70% of that capacity. We've, we're kind of tapping, right? So there's only 30% less and look, we need way more power than another 30%. So hang on, this isn't going to work. So Musk talks about then, well, we need to move to level 2 and I own level 2. Level 2 is using all the energy of the sun not the energy from your planet. And so this is shifting it all into space and operating from there. And yes, fine, getting 10x more efficient solar panels. And you know, he's the only one who can get them up there at this point. So, you know, this is his kind of, this'll be the play when he's out on the roadshow come SpaceX IPO process.

So, so presumably then this feels quite US-orientated at the moment. So thinking about the context of the players here, because everyone we've mentioned from Google to Amazon, and as I said earlier, Google have their own kind of orbital project called Suncatcher. Amazon have one of their own as well. Again, it's all very US-orientated. So although the geopolitics of the moment feel to be very real and tangible with, you know, a lot of the battle is over oil in Venezuela or Iran and the flow of trade. We're talking space here. And what about the Chinese? And you never really hear, I guess it's probably worth just parking the Russians. I think the Russians are very much playing a different extract out of the ground game rather than the Chinese who probably have a vested interest. So is there this kind of the sovereignty of space, like who owns the space? Continuum and how does that work and wash out and where is the US in this as well?

Well, there's no sovereignty in space, right? It's kind of first come, first serve, I guess. Now what I think what's really interesting, space used to be a government game, right? And that's because it's so expensive. And so really it's only governments that could afford, that had a checkbook big enough. What's really interesting about these tech, you know, superscalers, they are now, they now have checkbooks that are actually not far off the size of a government. The difference is government's just got saddled with ridiculous amounts of debt, you know, dealing with things like COVID. Whereas if you take a Google, It's just a cash-generating animal with no debt, right? And so suddenly you're getting these big, big, big monster tech companies now that can actually throw money around here in a way not even governments can. So it just makes it a more interesting game where you've got businesses now that probably will come through and dominate it. Now, obviously SpaceX is a different thing. SpaceX has been, that's a couple of decades worth of science. you know, from the ground up and, and find the science behind getting stuff into space. Really, Elon Musk has just come through and is now absolute market leader, right? And now you're getting this kind of perfect moment where companies have got an incentive to kind of get up there. They've got the checkbook to do it. The science of being able to do it is being handled, and so it's all coming together. But this doesn't mean to say governments aren't in the game. I mean, China are definitely in the game. They're building their own 3-body computer cluster. So this is, you know, just about controlling satellites and, you know, the world's data. Therefore, it's definitely going to be the new kind of battleground. And who's going to be fighting it out? Governments, yes, but also then these big monster tech firms at the same time.

So at the moment then, maybe we can circle back to the advisors and the bankers who are involved in this. But at the moment the discussion seems to make an assumption that it's a foregone conclusion. We need to move to space. The resources on Earth are limited. And of course, harvesting and harnessing the energy of the sun makes complete sense. So this is like, okay, yeah, we let's, it's valued at a trillion dollars. Like, absolutely. That's probably just a fraction of its potential future value. So let's talk a little bit about reality because if it was such a foregone conclusion, then I feel like there'd be other participants kind of queuing up for this sort of action, but that's not quite the case. And also everyone's very cautious with Elon, with what he says, the humanoids, the robotaxi timelines. What are some of the realities here? A lot of our community were highly and deeply impressed by your knowledge of chemistry. I now need to tap into your physics.

Yes. Well, let's talk about convection and conduction and radiation then.

Oh, here we go. Come on, Friday after all. Let's have some fun.

The problem with kind of generating energy like data centers, right? The problem is they throw off a ridiculous amount of heat. And here on, you know, old-fashioned planet Earth, you gotta, how'd you get rid of that heat, right? And there's the whole issues around cooling and how'd you cool these data centers. And that's why, um, uh, how was it? Or, uh, I can't remember the company now. Anyway, Iceland is a very popular place to sit your data center 'cause it's cold, right? And so from a kind of cooling these things, that's obviously a key part of this. Now, the big misconception about Musk's idea is, oh, well, space is really cold. Awesome. Let's just stick 'em up there and then that will solve our kind of problem of trying to deal with the heat generation of these things. Mm-mm. Big cross in that theory, and that's because convection and conduction, that's the great way of getting rid of heat that we can, you know, use here, like a cooling system with using water, for example. That's how we can kind of get heat out of these systems. The problem with space, it's a vacuum. There ain't no conduction or convection zero. So actually you've gotta use what's called radiation to kind of dissipate heat here. Now the problem with that is the amount of heat being generated. So rough, roughly, if you take one AI rack, then you're looking at about 1 million watts. Okay? So 1 megawatt would be required to kind of the, the heat generation. That's what you need to get rid of. Now to get rid of that via radiators in a vacuum, And this is gonna kind of blow your mind. You need about 1,000 square meters of radiators to get rid of the heat from a single AI rack just through radiation. There's your problem. So you're gonna need, I mean, what, millions and billions of square meters of radiators. And then, well, I don't know. A, is that even possible? B, well, that sounds incredibly expensive. And then C, you know, you're just always vulnerable to a bit of space debris coming along and just knocking it all out, right?

Yeah.

So you might spend a trillion bucks to get it up there and then, oops, there's a little bit of debris flying about. Ah, that's taken care of that, right?

Yeah, on that point as well is that to survive in space, I was reading about the chips need what they call hardening or shielding. And you're talking there about what you need to bolt on to make the process work. So when you think about that then, well, how do we get them up there? That's going to make them much heavier, so more expensive to launch. It's going to be slower. So it's bad for your overall goal of more compute power because these models are getting faster and faster and demanding more. And so one of the things I was reading is about by the time actually you're there, you're getting kind of Groq 4 performance in space, which is way older than what you had before, or what the current demands would be at that point in time. And yeah, and then what about going back to the legal, the liabilities of all this? I mean, you talk about space debris momentarily there, but if you have billions of these satellites all flying around space and they're all interconnected by nature, and then you have issues in one pocket because there's other stuff happening in space. All of the time, then yeah, it seems like an incredibly, well, it seems like a nightmare from an insurance liability perspective.

Yep. So look, there's all these headaches. It's first and foremost, I mean, forget about insurance. It's a science problem. And look, don't get me wrong, if there's anyone on the planet that can solve a science problem of this scale, well, it kind of is Elon Musk, but Is this one even too big for him is the question mark. And anyway, I think it'll be really interesting as SpaceX moves towards IPO day. Oh, and by the way, $1.25 trillion as a combined entity now with XAI. Musk's saying it'll be $1.5 trillion come IPO day, you know, in 5 months' time. So, but look, a lot of the IPO process is going to be about obviously telling the story, selling this grand vision to investors. Are the investors just going to be humbly, yes, Mr. Musk, whatever you say, Mr. Musk, here's our money, Mr. Musk. Or are they going to be really drilling into the scientific possibility of any of this? I think probably the former will happen and he'll get this away at 1.5 trillion. And then, you know, let's see.

So just to wrap on this part then. So you've got the science implications, you've got the, like, the liability part. What about the economics of this? Because, well, you can either go up, space, or down, sea.

Yeah. Well, didn't someone try the down one? Hasn't someone's been down, haven't they?

Right. So Microsoft, yeah, Microsoft, they tried putting data centers underwater. This was a project called Natick. And actually this was, this was like over a decade ago. So it's not been a new pursuit in order to find solutions to these increasing compute power challenges. And actually one of the interesting things here was that it was a technical success. Servers were apparently 8 times more reliable. I'm assuming because of the conditions that they're allowed to operate within from a temperature perspective. Problems though, when you talk about having a data center deep underwater, just imagine a server breaks in the ocean or in orbit.

Yeah.

In the case of space. It's not like my Virgin internet. I jump on the chat, the guy rocks up in his van, and then, boss, it's fixed that afternoon. Getting down into the deep depths of the ocean or up into space doesn't quite work in the same way. And so, you know, you're having to launch a whole new satellite. So time, cost, build, all the rest of it. Or the other thing is then the easiest solution probably is not to fix, but just to replace. And then what happens to the redundant hardware? What, it just floats in space and that accumulates over time. So yeah, it's interesting because launching what I've heard called frozen hardware into space means your trillion-dollar data center is essentially a dinosaur by the time it gets to in position. And so how do you square that circle? But I'm sure Elon would tell me, well, This is where the robotics part comes in.

Right.

And the intelligent systems or self-replenishing in terms of being able to deal with themselves in that way. But yeah, just on that point.

So, but one thing's for sure, it's going to need some money. So let's IPO then, because his IPO that he's shaping up for mid-year, they're looking to raise $50 billion. So on a $1.5 trillion valuation, they're looking to raise $50 billion. So this is where the money's going to come from to try and, yeah, solve this science problem. And look, I don't know. Let's see. It's going to be very interesting.

So who facilitates this then? And who's on the ticket from an investment bank advisory perspective?

Yeah. Well, I mean, ka-ching. This is like payday times 10, right? If you are on this deal, 'cause it will be the biggest. So they've just pulled off the biggest merger in history. They will become the biggest IPO capital raise ever in history. They'll raise $50 billion. I think it was Saudi Aramco that are currently at the top of that table where they raised early $20s billion, I think $22, $23. You might have to fact check that, but it'd be more than double. The previous largest ever capital raise. So this means if you're involved from a bank's point of view, you know, big deals equals big fees and this will, they'll, this will be the biggest of the whole lot. And for sure who's parked in the number one spot for this is Morgan Stanley. They will be left lead or lead left. And this will be really because it's quite interesting. We'll talk about some of the other banks on the ticket. In a minute, but you know, why is it that Morgan Stanley have been able to maneuver themselves into position here for being basically Musk's go-to bank for all of his deals, right? Not just this SpaceX IPO, you know, thing that's coming down the track and it's got a bit incestuous, I have to say. So basically Musk's right-hand man and head of his family office this guy called Jared Burchell, former Morgan Stanley. And so he's basically the primary architect behind the Muskgonaby sort of consolidation that we've spent the last 30 minutes talking about. So you've got Jared Burchell, ex-Morgan Stanley. You've then got this guy, Anthony Armstrong, who's an incredibly high-profile dealmaker at Morgan Stanley, who now has moved and is CFO of a company you might have heard of, xAI. So yeah, the guy, the head of his family office, the CFO of XAI are both straight out of the Morgan Stanley deal room teams. Okay. Then you've got Brett Johnson, who's SpaceX CFO. And basically he's going to be the lead officer for this kind of new or the merger that's kind of happening at the moment. And yeah, basically he's in the mix as well. So you've got you've got this unbelievable sort of connection between, you know, Musk's, you know, disciples and the people that are going to be running these deals behind the scenes and Morgan Stanley.

And this hasn't just happened like now, because, you know, if you go back to who ran the Tesla IPO, yeah, like, right, like 15 years ago, 16 years ago, this was Morgan Stanley who advised Musk on that $44 billion Twitter acquisition. It was Morgan Stanley. So maybe though, just could you explain like the lead left contender or that analogy of on the sheet where they sit on the term sheet on the left placing as the main person, but main person for what?

Yeah, it's pole position. And basically this just means they're essentially the, you can say the quarterback. Of the IPO. So it sits first on the prospectus, it kind of controls investor messaging, it's controlling the pricing strategy, the kind of share allocation, um, and therefore typically earns the most fees and is that number one on the left name on the ticket. So you get the most prestige. But look, this is such a monster-sized deal. You can't just have one bank. There's a lot of stuff to do here. So The current thought is that Goldman Sachs will be strategic advisor, so they'll be involved in what's called the bake-off for the IPO and likely advising on the complex stock swap valuation for this XAI kind of merger with SpaceX. But basically they're helping to shape the structure of the deal. So rather than just selling the stock, and they're, so they're very much advising on the valuation side, on the structure and the mechanics behind the stock swap. Looking at the governance side of things. And then ultimately how these very different entities, xAI and SpaceX, how are they going to be combined and packaged and presented to investors in this IPO? So really they're the kind of financial architect, you might say. Then you've got the likes of JP Morgan who are kind of being wheeled in to be lead underwriter. Which makes sense. Basically, you know, this is a $50 billion offering, right? This is a huge amount of money. So to be a lead underwriter for something of this size, then you need a big balance sheet. Who's got the biggest balance sheet on the planet from a bank's point of view? JP Morgan. And so they're kind of parked there. Basically, they'll be responsible for actually selling the shares to investors, right? And then So building the order book, stabilizing the stock after listing in the kind of secondary markets, and then often therefore committing its balance sheet to support the offering. And that's why JP Morgan are in prime position here, cause they've got the biggest balance sheet for what will be this biggest ever deal. Then you're going to need your kind of syndicate members, and probably the key syndicate member bank will be Bank of America. So they're your big four, the big four Americans, right? Your Morgan Stanley's, Goldman's, JP Morgan's, Bank of America. And what does the syndicate member do? I mean, basically they would be supporting bank that distributes shares to its investor network, contributing research, market access, and basically helps to ensure the deal is fully placed. So yeah, that's probably your lineup then of the different You know, from a banking point of view, the different players that are needed and the likely names that will fill those spots and the names that are going to generate huge fees for getting this IPO over the line. So to kind of sum up, you can basically think of Morgan Stanley, they're running the playbook. You got Goldman's designing the deal, you got JP Morgan selling the stock. And then you got Bank of America helping to kind of move it out to like a global scale.

As you were explaining that, and I was kind of thinking in my head, I'm just going to wish all the best to the young grad bankers working at those four organizations over the course of the next few weeks. I wish you well. I wish you good health and happiness. And the intensity of that work will not last forever. But you'll also have an incredible deal under your belt very early in your career. So that is something which probably won't be broken again in some time. So exactly, your career is off to the races very early on. So dig deep, guys. Let's go.

Strap in. If you get, if you get this on your kind of your, you know, your, your list of achievements, I mean, that Yeah, if you're part of the biggest deal ever in the history of mankind, both from a merger point of view first, then an IPO point of view, if you're involved in these, you'll be living off that for the rest of your career.

Let's go. All right. On that note, have you enjoyed that discussion? Obviously there's lots of things I'm sure we've missed, uh, but, and lots of different points of view. So please do share them. I mean, drop us a comment. I know anything to do with Musk tends to provoke many different types of people in lots of different types of ways, but we love to engage and we love to hear what you have to say, whether in agreement or disagreement. So also, I've got some really cool episodes that are recorded with guests coming up in a sequence of the next couple of episodes to look out for. So don't forget to subscribe to the channel, put on your notifications.

You like to name drop. I know, I know you've got who you've got coming. You're not going to name drop it.

Well, I'll give you, so of two that are coming down the pipe, one is a portfolio manager at one of the biggest bond funds in the world, and she's been in that position for 25 years. So she knows a thing or two about the bond market. The other guy, he lost a cool $1.2 billion when he was trading and then found himself in jail for a bit. Found himself in jail and he was the most famous trader on planet Earth for a period about 25 years ago. And he's, you know, been kind enough to join me to unpack that part of his life. So yeah, you're going to love it. So stay tuned, that will drop as well very shortly. But thank you very much, Piers, and wish everyone a great week ahead.

Yep. Have a good week.