Elon Musk Merges SpaceX With His A.I. Start-Up xAI
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| Elon Musk Merges SpaceX With His A.I. Start-Up xAI |
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Gil Lauria is the managing director of technology research at DA Davidson and the company. He joins us from Detroit.
Gil, it’s great to have you back with us. Um, what do you make first? It seems like investors like what they got from Palantir.
Break it down for us and tell us what you see. Yeah, they pretty much exceeded expectations. Their growth accelerated from 60% to over 70%.
No other software company is even close. If you look at software companies 2 to 10, they are happy to grow between 20 and 30%, and they are generally slowing down.
So what Pounder is doing is remarkable. We have the excellence to go with it. It is remarkable, and it has exceeded the high expectations that have come in, which is what the valuation shows.
That is why Palantir is valued so highly because there is no other company like it. Yeah. I mean, the company said we are one. Do you agree with that? Absolutely.
More work than we do, and we cover 40 other software companies. There is not even one that can do what Pounder can do. It is a very unique set of skills.
They have complete ownership in terms of their ability to organize their customers' data in a useful way. They have an army of four dedicated engineers who help companies solve problems.
They have a direct relationship with their CEO. They have a strong sense of mission and purpose. There’s no other software company like it.
And the main reason for that is that they’re actually solving their customers’ problems. All of these companies have been trying to figure out what I can do with AI for the last three years.
How can AI improve my business? And most haven’t made much of a difference, except for Palunteer customers who said, “Hey Palunteer,
I’ll give you the keys and about $40 million a year, and you’ll help me improve my mission-critical systems with AI, and they’re getting results.”
That’s why they keep growing the business, especially the commercial business, at an incredibly fast pace. So, it sounds presumptuous to say that you’re the 901, but they’re delivering on that promise.
They have to be supported at some level. But having said that, I mean, one thing that investors are concerned about is
That more than half of their revenue comes from the government, you talk about the customer base, more than half of their revenue comes from the government. Um, and some might say that's overexposure.
How do you look at that? Yeah, but it's not going to last long, right? The commercial business is growing much faster than the government. Mindyou,
The U.S. government business grew only 66% year over year. It's just that the commercial grew much faster than that. So, in a few quarters,
The commercial business will be well ahead of the government business because it's doubling every year now. And the government business is growing, um, quote unquote, only 66%.
Only 66%. Um, can you elaborate a little bit more, like, just translate it a little bit? We were talking to Roma earlier, and you know,
Normally, I would go to a press release to try to get information, but I couldn't understand what Alex Karp was saying here.
He's the co-founder and CEO of Palantir. He says, quote, "The Palantir rule of 40 score is now an incredible 127%. What does that mean?
Oh, he's growing revenue with an operating margin. And if you think about most companies, the term 40 was coined as a trade-off between revenue growth and profitability.
And most software companies are hovering somewhere around that. If they're growing 10%, they have 30% profitability, which is 40. If they're growing 30%
and 10% operating margin, that's 40. So that's the yardstick that the industry has created for itself. And that's the yardstick that M.D. Karp likes to measure
Because it shows how far ahead Palantir is of any software company. The second largest company is probably half their rate. So, wow, they are growing faster than any software company at a higher margin.
These are the biggest software companies: Microsoft, Adobe, Oracle, and Salesforce. They're more profitable than those companies.
And they're growing three or four times faster than those companies. So, um, I think Dr. Karp has fun pointing at everyone.
Is this one quarter, or is there enough there that tells you that commercial revenue is up 137% year over year, that this is something that's a significant change
And is it something that we can assume will continue, or is this something that has to be grilled, you know, with the um, Caviton call.
Well, we think it will continue, but realistically, we thought it would continue at 20% and then 30% and then 40 and then 50 and then 60 and here we are, they're growing at 70%.
So, we think, you know, we would expect that to continue, but it could actually be higher in the next quarter. Again, that's when
When you deliver results at the level that they deliver to their customers, customer acquisition becomes a rare thing because of one CEO and CFO.
And the other CEO tells the CFO, you know what, we just gave the keys to Palantir, and it has improved our business.
And it seems to be doing very well right now. So, it seems like they should be able to grow at least that fast for the rest of the year. Is there a long-term political risk with this company?
This was seen as part of the Trump trade last year, and certainly, the DNA of this company shares elements with the Trump administration.
People are going back and forth, certainly some people in power, and there is no question that you know that this administration supports the work that Palantir is doing.
What happens when or if this administration changes? It is a risk because there is an ideological alignment in your approach. I would say it is probably not about the personalities.
Because the personalities have changed a lot over the years in terms of who is in the administration. For example, Mr. Musk is out of the administration. Uhbut the company then I talked about a very clear mission.
They believe that their mission is to help defend Western civilization. Which resonates very well. It's very ideologically tied to this administration.
But as you say, we could have a different president 3 years from now, who might have different ideas, and Ahneni Palantir is tied to this administration.
And that would be a threat 3 years from now if there were to be a change in the US government. Hey, listen, and I'm sorry if I'm researching this technology.
So forgive me. Don't you know one of the companies that you cover, but I'm sure you have a software guy who is that software guy.
That is, we got a story that went around Bloomberg that Elon is planning to merge SpaceX with XAI. That is according to people who are familiar with the matter.
And it seems to me you know last weekend, and then certainly this morning. So I'm just curious if this is a deal that could be
Elon's ambitions to dominate AI and space exploration. Do you have any thoughts on that? I have a lot of thoughts on that.
So we always looked at it as Elon Inc. Elon has different businesses right now, but a really unified set of principles and goals that he's pursuing.
And in some places, it makes more sense for Tesla to go public and for other companies not go public. Um, the capital demands of the XAI business are very high.
Let's not forget that he needs to build data centers as fast as Google, Meta, and uh, and Amazon and Microsoft, and he doesn't have the cash flow that those companies have.
So he needs more capital. SpaceX is in a much better position right now to raise capital. So is Tesla.
I would think of the endgame as an ElonInc. So the merger of XAI and SpaceX would actually set the stage for it to merge with Tesla because again, the goals are the same.
We want to send the Optimus robot to Mars, the Soar Neural Links can control it, and we can search on Grok. That’s Elon’s plan.
Right now, it’s several commercial entities, but long-term, he has a vision. Yeah. And for that, it just makes more sense to combine it into one entity.
An entity that can provide him with the capital to pursue these opportunities, which really fits into the conversations he had with Ross Gerber earlier.
He had disclosed something about these companies, private Elon entities, as well as public ones. But he said that X was out of money.
He just said it on X, by the way. Yeah, he said it on X., And he said, you should note that X ran out of money, merged with XAI.
XAI ran out of money. Merge with SpaceX. SpaceX is out of money, merge with Tesla when they run out of money.
And then it's like dot dot dot. But it's interesting how you say SpaceX, we talk about value all the time in this company, right? And Teslain, increasingly, everyone says, well,
The value will be in the future, whether it's robotics or autonomous driving and autonomous systems, if you will. And so how you're saying where Tesla's value is,
The value of SpaceX. You can raise money from it and then eventually combine all of that into this Elon Inc. Is that what you think?
That's what we think. Again, for him, commercial entities are just a way to get there, and he'll keep them as long as it's the best way to get there.
But right now, SpaceX is the most valuable asset in the sense that [snorts] there's no one else who does what they do and there's no one else who will do what they do
for decades. So, that creates a tremendous amount of economic value that they can raise capital from. And on the Tesla side,
Thebut stock price is still very good considering the car business, you just talked about it earlier, the car business is a declining business.
Yeah, we've done that business. Now we're doing self-driving and [snorts] we're doing robots again. And then, it's the same thing.
All this information that he's getting from self-driving, not only will it make a great business, but it will also help Optimus robots work in the world
because they'll have billions and billions of hours of video to analyze to help these robots work in the real world. So then a business
where he's at least several years ahead of anyone else in the West outside of China. There's the ability to raise capital. He's just going to get to
where he can raise capital to stay competitive in AI, because it still helps Optimus robots work in the world, because Optimus robots are going to need the best model of AI to do that. That's all for him. This is a sit tight for a second. This is interesting, and hopefully our Ed Laidlaw is listening too.
who covers Tesla and Elon closely. Don't go anywhere. Ed Laidlaw, co-host of Bloomberg Tech on Bloomberg Television. Um, Ed, I hope.
You're listening. I'm just interested in the story you and Lauren have that Elon is planning to merge SpaceX with XAI, according to people familiar with the matter.
Um, get us up to speed on the latest. Yeah, so we've lost two memories in our understanding. One of Elon Musk's people from SpaceX to the staff, and I think also at XAI.
And that basically explains that a merger or combination is happening, and the reason for that is because you know about vertical integration, which is something that's hidden in plain sight.
And the three of us have talked a lot in the last week, but you know the two companies design Spacepacate and SpacePAX together.
Factor data centers are very focused on the spec. Um, and so you know the models that XAI is developing can be operated in space, and you might know.
If we have time today or later this month, we can talk about the technicalities of why space-based data centers should work.
Then separately, Brett Johnson, who is the CFO of SpaceX, sent out a memo stating that this combined entity of SpaceX and XAI is valued at $1.25 trillion,
which is like math, right? Because SpaceX's last valuation at T was 800 billion, and XAI's last valuation at its primary was 230 billion.
Um, and just one thing to add to bring you up to speed, I guess, from sources and my understanding throughout this process is that this IPO is still going ahead. It's still going on in June.
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