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Google to pay SpaceX $920M a month for compute capacity at xAI data centers

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Re: Google to pay SpaceX $920M a month for compute capacity at xAI data centers

#461

Post by matthewdgreen »

benl wrote: post #234
tristanj wrote: post #205

This is a masterful piece of financial engineering by Google and SpaceX. Google purchased 10% of SpaceX over a decade ago. After dilution they probably own around 5%. SpaceX is valued at a whopping 94x revenue. This deal increases SpaceX's revenue by $11 billion per year. If SpaceX maintains this revenue multiplier, then this single deal boosts SpaceX's valuation by 94 x 11 billion = $1 trillion dollars. Google owns…

SpaceX is valued at that revenue multiple because of its expected revenue growth rate. This deal is part of that revenue growth. So the new revenue would be already partially or even fully priced-in. Perhaps it reduces uncertainty around the growth rate, but expectations were already sky-high, as shown by the multiple!

SpaceX's S-1 says they're going to make more than $320bn by 2030 at a 74% expected profit margin. That implies they're going to succeed at selling high-value AI services, not compute, which is a competive business with typical profit margins at or below 30%.

Re: Google to pay SpaceX $920M a month for compute capacity at xAI data centers

#462

Post by jpmattia »

tristanj wrote: post #205

This is a masterful piece of financial engineering by Google and SpaceX. Google purchased 10% of SpaceX over a decade ago. After dilution they probably own around 5%. SpaceX is valued at a whopping 94x revenue. This deal increases SpaceX's revenue by $11 billion per year. If SpaceX maintains this revenue multiplier, then this single deal boosts SpaceX's valuation by 94 x 11 billion = $1 trillion dollars. Google owns…

> and they get to join the index next year without a rule change.

You seem to have ignored the 50% float rule. SpaceX is proposing to go public with about 5% of the float, but S&P requires 50%.

Do we think that the market will absorb the release of 45% of the shares? I'm dubious.

Re: Google to pay SpaceX $920M a month for compute capacity at xAI data centers

#463

Post by l23k4 »

nullstyle wrote: post #452
l23k4 wrote: post #436

Earlier quoted context omitted.

Why "unwilling"? That's a weird wording. S&P Dow Jones Indices decided to not go through with their rule change after it became a political issue. Obviously they were willing, the proposed rule change originated from them!

Please provide some support that the rule changes were proposed from within. Given the fact they tried pulling this nonsense on 3 indices, it seems very unlikely the rules changes originated from within.

It is what S&P Dow Jones Indices themselves say, so the burden of proof to prove otherwise must fall on you.

And anyway, the rule change is truly the only reasonable way they can react to the current situation.

It will absolutely be untenable to keep Anthropic , OpenAI and SpaceX off the S&P 500 with them also being the highest valued companies on the market.

Re: Google to pay SpaceX $920M a month for compute capacity at xAI data centers

#464

Post by TheOtherHobbes »

benl wrote: post #234
tristanj wrote: post #205

This is a masterful piece of financial engineering by Google and SpaceX. Google purchased 10% of SpaceX over a decade ago. After dilution they probably own around 5%. SpaceX is valued at a whopping 94x revenue. This deal increases SpaceX's revenue by $11 billion per year. If SpaceX maintains this revenue multiplier, then this single deal boosts SpaceX's valuation by 94 x 11 billion = $1 trillion dollars. Google owns…

SpaceX is valued at that revenue multiple because of its expected revenue growth rate. This deal is part of that revenue growth. So the new revenue would be already partially or even fully priced-in. Perhaps it reduces uncertainty around the growth rate, but expectations were already sky-high, as shown by the multiple!

A cynic might wonder given Musk's implausible trajectory and questionable associations whether the X project is primarily a grift and/or money laundering project that happens to do high-profile tech, and the primary aim is to pump the stock and hope some other opportunity to pump it further arrives in the future.

Otherwise a dump works too. There's plenty of money to be made from carefully timed shorting.

The entire AI field has been plagued by circular financing deals, so this is not new. But it's new in aerospace, and the market institutions appear complicit.

Otherwise, why is this IPO getting such unique treatment on such flimsy fundamentals?

Re: Google to pay SpaceX $920M a month for compute capacity at xAI data centers

#465

Post by pqtyw »

deadbabe wrote: post #318
noir_lord wrote: post #272

Earlier quoted context omitted.

> Truly a brilliant deal for everyone involved. Except for people who have pensions/investments in whole market class investments who become exposed to an over valued company with a propped up value.

If you want to play “active investor” and pick and choose what companies you invest in, don’t be surprised when you underperform the whole market. SpaceX could rise to be a major winner that makes people a lot of money. And then what? You missed out and underperform the whole market.

> SpaceX could rise to be a major winner that makes people a lot of money

Based on "sane"/traditional metrics that and much more is already priced in into the IPO valuation.

e.g. Google had a many times lower P/S ratio at their IPO and was actually profitable (and software companies usually have higher valuations than capital intensive ones like SpaceX anyway). SpaceX is already valued at more than Google was 10 years after its IPO while barely making a tiny fraction of its revenue.

Re: Google to pay SpaceX $920M a month for compute capacity at xAI data centers

#466

Post by matthewdgreen »

dyauspitr wrote: post #443
carefulfungi wrote: post #385

Earlier quoted context omitted.

The problem described isn't companies buying goods and services. It's buying from an entity they partially own and then profiting as that entity becomes more valuable because of the purchase.

It’s still very tenuous you can’t prevent companies that own 5% of other companies from buying services from the that company

We can prevent anything we want. If there's a major AI crash analogous to the Depression, we'll probably institute a lot of new regulations.

Re: Google to pay SpaceX $920M a month for compute capacity at xAI data centers

#467

Post by marcosdumay »

ralfd wrote: post #379
BobbyJo wrote: post #363

Earlier quoted context omitted.

P/E is price to earning. Price to revenue is P/S. AER's P/S is like 3, so the discrepancy is much worse than you think. Sidenote: 3 is actually high. 94 is absolutely ridiculous.

> Sidenote: 3 is actually high. Do you mean low? AAPL has a ps of 10.

Most companies have a P/S of 1 or 2, almost all have it bellow 4.

A few segments of the economy are known to have low revenue/investment ratios, and companies there get P/S up to 7 or so.

Then, very few companies have people betting on their growth so much that their P/S get as high as 15.

And then you have literally about half a dozen exceptions on the ones S&P tracks that get higher than that.

Re: Google to pay SpaceX $920M a month for compute capacity at xAI data centers

#469

Post by Imustaskforhelp »

dekhn wrote: post #351
Alive-in-2025 wrote: post #340

Earlier quoted context omitted.

Demis? Democrats or something else? Elon likes money and power.

Demis Hassabis - head of Google DeepMind.

Thanks for the comment but then commenting to the GP (@Hellojimbo) that sure Elon might hate Demis

But nobody denies a 920M$ per deal for an unprofitable company's like SpaceX at this point, last line to somehow become profitable after this deal.

The scale at this money & influence operates, although I feel like people project to the general public that they lean a particular side and sometimes they do but what they lean the most is towards money and whatever response is the most convenient for them at that time.

Re: Google to pay SpaceX $920M a month for compute capacity at xAI data centers

#470

Post by pqtyw »

tasuki wrote: post #445
nrclark wrote: post #321

Earlier quoted context omitted.

OK, but SpaceX is not printing money out of thin air. And neither does the stock market. Somebody will be left holding the bag eventually.

> Somebody will be left holding the bag eventually. I think so too. I also thought that about Facebook: IPO around 40, swiftly down to 20 - I was laughing about stupid retail getting wrecked. Now it's around 600...

Maybe you are right, maybe not.. However Facebook as an example seems entirely irrelevant, though? It was valued 15 P/S ratio at IPO and went down to 10 a year after the IPO. You'd have a point if Facebook IPO at $400 instead of $40. But it took it 10 years to reach that.

SpaceX IPO price already has many years of extremely high growth priced in. Comparing it to Facebook's or Google's IPOs is like apples to oranges.

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