Talking SpaceX IPO (FvF Ep. 190)

In Episode 190 of Facts vs Feelings, Ryan Detrick, Chief Market Strategist at Carson Group, and Sonu Varghese, Chief Macro Strategist at Carson Group, take on the SpaceX IPO and what it could mean for indexes, mega-cap weights, and the next phase of the AI trade. They’re joined by Blake Anderson, Director of Portfolio Management at Carson Group, for a wide-ranging conversation on market breadth, small caps, tech leadership, Google’s AI spending, software, and the growing influence of data centers and high-quality cash flows in today’s market.

The episode also digs into the latest rally in stocks, the role of FOMO, the state of the bond market, and why this bull market may still have more room to run even as leadership narrows.

From IPO mechanics and index inclusion rules to the economics of AI infrastructure, the conversation connects the market’s biggest headlines to the harder data underneath.

Key Takeaways:

• The S&P 500 is up nine consecutive weeks. When it has gained more than 15% in April and May combined, June has never been lower and the rest of the year averages nearly 19% gains.
• Small caps are up 18% year-to-date and it seems like nobody is talking about it. A third of those returns trace back to three companies, all tied to data centers and AI infrastructure.
• SpaceX chose the Nasdaq, and Nasdaq changed its rules. Mega-cap companies can now be assessed for index inclusion just 15 days post-IPO instead of waiting six months.
• At a $2 trillion valuation against $19 billion in 2025 revenue, SpaceX carries a price-to-sales ratio above 90. Historically, IPOs with price-to-sales above 40 average a 94% first-day pop, but a negative 45% three-year return.
• A deal disclosed in the SpaceX S1 could see Anthropic pay up to $15 billion annually for data center capacity, nearly matching SpaceX's entire 2025 revenue in a single contract.
• Google is raising $80 billion in equity and has cut buybacks to zero. AI infrastructure spending has moved from optional to existential, with payoff timing still uncertain.

Jump to:

0:00 — Welcome and the SpaceX question
1:19 — Markets rip higher after the spring rally
10:33 — Breadth, small caps, and hidden leaders
14:10 — FOMO signals and the bubble check
15:59 — Blake joins on tech and rates
20:48 — Google funds AI data centers
26:22 — Software’s AI reset and data moats
29:13 — SpaceX IPO filing and index rule changes
43:01 — IPO stats, valuation risk, and consumer wrap

Connect with Ryan:

• LinkedIn: https://www.linkedin.com/in/ryandetrick/

• X: https://x.com/RyanDetrick

Connect with Sonu:

• LinkedIn: https://www.linkedin.com/in/sonu-varghese-phd/

• X: https://x.com/sonusvarghese?lang=en

Questions about the show? We’d love to hear from you! factsvsfeelings@carsongroup.com

#SpaceXIPO #FactsVsFeelings #investing #stockmarket #AI #techinvesting #IPO #smallcaps #SP500 #bullmarket #NVIDIA #Starlink #Anthropic #OpenAI #marketanalysis #portfoliomanagement #indexfunds #WallStreet #fintech #CarsonGroup

Transcript

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SPEAKER_00 0:02

Welcome to the Facts versus Feelings Podcast. I'm your host, Ryan Dieter, and I'm joined by my co-host, Sony Vargis. Cutting through the noise, each week, Ryan Dieter, chief market strategist, and Sonovarge, Chief Macro Strategist, taking out the boring and helping investors focus on what really matters. And we are blasting off into outer space with the SpaceX IPO. Sonu and Ryan here. We have a very special guest joining us later from our team. Sono, we'll save that. That's gonna be an amazing discussion. But I've done this for a while. I remember the I guess it was called Facebook IPO back in the day. They're called Meta. Now that was a lot of excitement, but this SpaceX IPO, we've heard a lot. So we get to work with advisors every day, get to work with their clients. Everybody's like, how can I get this? What should I do? We're gonna get into some of that stuff today. Um, you excited about this big IPO coming out Sony?

SPEAKER_03 1:03

Just so we're just when we were getting all the emails and questions about SpaceX, now anthropic files and S1. That's true. That's coming. OpenAI is probably coming, but we have the perfect person on our team to come and talk about this. We'll get him on in a few minutes. But markets, speaking of rocket ships, the market's also taking off.

SPEAKER_00 1:22

It really is taking off. It's taken off in a big way. But everyone, thank you for joining us. Episode 190, talking SpaceX IPO. But let's talk, we're gonna talk markets here for a little bit. Sono being uh Blake Anderson on our team end, but we'll give it away. It's uh he's a he's awesome. He's gonna talk about everything with us here. Uh so markets up nine weeks in a row, SP 500. Sono it hasn't been up 10 in a row since 1985. If my math is right, that's a long time. That's a very long time. We've talked about momentum begets momentum. Thanks to all the listeners. We've pointed out a lot of potential positives that are out there. Just one from me, and then I'll I'll go to you. I know, Connor, I sent this, but the last two months, the SP, well, remember April, who could forget April, gained over 10% in April. We said a month ago, you know what? You usually have a big April, you have a pretty good May. Well, we gained another 5% in May. So we're showing on YouTube now. When you gain more than 15% in those two months, like we just did, we just gained 16%. June's never been lower, and the rest of the year is up close to 19% on average, up a double digit every time. I get it. It's a sample size of four. I mean, that's a small sample size, but still, I call these I'd rather know than not know. This blast that we've seen, get it blast, rocket sand. We're trying to play along here. Um, the reality though is we might be due for a pause. Let's just be clear. We very well could be. But bigger picture as in the rest of the year, so no, I think any weakness will be actually fairly shallow. You we had a 9.1% Pikachu correction. Do we hit a double digit correction in the second half of this year? I mean, maybe, you know, maybe. Um, but I don't think it'd be much more than that. We're not going in a bear market, in our opinion. So it'll be fairly shallow and probably an opportunity. How do you want to take this conversation on markets now?

SPEAKER_03 2:59

I mean, just what maybe it was nine weeks ago. I think the tech sector was negative year today. Oh, yeah. Maybe over 10 weeks ago, something like that. Sure. It was negative. You and I do this every week, and now tech is up. This is large cap tech, it's up 33% year to date. Wow. That's that's crazy. This is as of the end of May, and then yesterday was another, you know, good day for technology stocks. Yes, energy is up there too, 27% year to date, materials up 13%, and then at the bottom you see, you know, so those three areas the market make up about 40% of the index. And then you go to the bottom, financials down. Are we sharing this?

SPEAKER_00 3:38

Do you have this? Did we send this to I don't have to send that? Let's put this on, we'll get this to you, Connor. But it's it's all the like you said, the central performance. So that way you can describe it on the YouTube channel. Go ahead, Sonu.

SPEAKER_03 3:47

Yeah, financials are down five percent, healthcare is down three percent. Now, this is a strange one. If I told you tech was up 33%, you would think communication services is up. I don't know, like I would have said 25%, something like that. Yeah, no, it's down, it's down one percent. Consumer discretionary. I mean, we'll talk about the economy and all that. I think economic growth is fine nominally. You know, economic growth is clocking in five to six percent. That's what actually matters for profits and revenues. Okay, consumer discretionary is up only one percent. Now I know it's Amazon Tesla and not recommending recommending any names, but yeah, there's like the stuff is not doing well, but then you have tech and small cap, and you know, this gets into the breadth question, right? People like oh mid and small caps actually doing well. Small cap's actually up 18, something like that. But even in there, it's a tech story. Small cap tech is up 54, energy is up 41, but small cap consumer discretionary is up only four and a half percent. Small cap healthcare is like flat or slightly negative, something like that. So we are seeing this bifurcated market, but there's a wave, there's a rocket ship clearly happening on one side of the market.

SPEAKER_00 4:55

And you look at financials, you mentioned financials, uh like XLF, you know, the big financial ETF, a lot of the big banks and things, it's down what, four or five percent on the year, yet regional banks are up like four or five percent on the year. So it's another, I mean, that's nothing to do with tech, but it's another example of you know, kind of the smaller names are actually doing better. And my take, you know, is hey, when small is doing well, that's usually a good sign. It means the economy's probably good. We've talked about inflationary growth. We'll probably end our conversation after Blake joined us on inflationary growth and talking about the economy. But those things aren't too surprising uh uh to us, you know, when you see this. And uh funny thing, I talked to um someone in the media just literally before we did this, and he said, you know, small caps are up a whole bunch this year. He's like, nobody's talking about it. Yeah, like when small caps lagged, you know, in 23, 24, 25, it felt like forever. Everybody was, you know, if you were remotely bullish, small caps, everybody kind of poke at you and say, Oh, small caps, when are they gonna go? I mean, our buddy Tom Lee gave some pretty bombastic small cap targets, which didn't work. I mean, but Tom's been more right than wrong. Everybody makes mistakes and they just hammered Tom. And now small caps are like ripping to all-time highs. Nobody seems to care because I guess we have AI in this. Trust me, people care that manage money, but for the most part, like the media and and rate retail clients, I promise you, most retail clients have no idea that small caps are up 18% this year. They know what NVIDIA is doing and Microsoft and Apple, rightfully so, because they own that stuff. But I think from a kind of a contrarian point of view, someone who likes to look at sentiment, hey, listen, these IPOs, and I can't wait to get Blake's take. Are we going to peak because these IPOs are near term? Yeah, maybe, maybe with technology, but you know what? That baton gets passed around, and I think it's still positive from that point of view. I got a couple more things on markets. What do you want to point out here before we bring Blake in?

SPEAKER_03 6:30

On small caps, small caps up 18%. So I looked at the attribution. What's contribute? What's making up that 18%? So this is interesting. You have three companies right on top contributing six percentage points out of 18%. So a third of the year-to-date returns. Three companies. Those three companies make up about under 4% of the index. Now, which three companies also interesting. The top one is Bloom Energy. This is not a recommendation by any means, people. So Bloom Energy is up 215% year to day. Okay. Then he has Sterling Infrastructure. I looked at it, I was like, wait, real estate? Like then I had I had an inkling. I think I know what's going on here. Sterling infrastructure is up 176%. What are they involved in? Data centers. Exactly construction at data centers. Then the third one is credo technology. I've never heard of any of these, by the way. No, I haven't. I can't pick a stock to save my life. Don't ask me about this. There's not that's why I'm saying this is not a recommendation, right? Credo technology is up about 57%. These are the top three names, contributing a third of the you know, Russell 2000 return of you know six percentage points out of 18. Yeah, credo technology, what do they do? Optical networks, data centers. Same thing, the technology thing, right? So again, within you know, you're seeing like this big AI story playing out, but that's what we talked about at the start of the year. There's a wave and the wave has just gotten bigger.

SPEAKER_00 7:55

It has, and we're we we actually internally put kind of the final touches on our first draft of our mid-year outlook, which will come out, you know, maybe second week or so in July. I don't want to give an exact date yet, but it's it's coming. And you know, I mean, I hate to say I joked for all amongst friends on this podcast, right? I joked we should have just called our mid-year outlook we were right, and you open it and say, go read what we said six months ago, because literally nothing's really changed. Like these waves are happening. The wave of the bull market, the wave of fiscal spending, monetary policy, AI. I mean, these waves are real, you know, and and we talked about being diversified, right? Who in their right mind wanted to own a bunch of small caps a year ago? Honestly, not many people did, but you know, we said keep a diversified portfolio. The baton gets passed around. One of my what things I'm circling around, you just said tech's up 34, 33, whatever it is. You know, will it be up maybe say 40 to 45 by the end of the year? I think it could be because I don't think the bull market's over, but I think other things catch up. I think other things like financials down five percent. Listen, if we're in a bull market, like I think we're I don't think financials finish down five percent. I bet they could be up as much as 10 because the bull market keeps going and the beaten up stuff kind of comes back, which is perfectly healthy and normal. Now, a couple things for me, Sonna, then love your take, and we'll probably get Blake in here. June, the June swoon. Listen, we work in media, we work in podcasts, we work in blogs, you know, the June swoon. Everybody talks about it. June is historically not that great of a month, it's the worst month on average in a midterm year. So just take that with a grain of salt, something to be aware of. Um, but June's also higher in nine of the last 10 years, all right. So that's something to think about. Uh, so there's something for everybody with this, but I think um, you know, there's there's a lot going on there, and maybe we finally have a negative month after nine weeks in a row up. I mean, if tech who would be shocked if Micron pulled back 25, honestly, it'd be probably normal and healthy. Now, if you bought it recently and it comes back, South Korea or South Korea stock market, which what's it up? I mean, we were joking, we thought it was 90% yesterday. I kind of you know, I don't know.

SPEAKER_03 9:47

Yesterday morning we had a call and I said 90%. It turns out it was 112. And then when I checked it by the end of the day, it's up 119. Okay.

SPEAKER_00 9:58

So, you know, if that had, I mean, remember, there was a two-day period back uh like I don't forget when exactly, probably around the war, but in a two-day period where the South Korean stock market had a bear market, in two days it dropped 20%. All right, now it's soared since then. So that very well could happen again, right? Um, Eisenhower, plans are useless, planning is everything. We're starting to kind of plan for there's gonna be a couple really bad days for some of these names because of the moves they've had. That's not the end of the world. Hey, you know, no pain, no gain. I mean, what's what's bird say? Volatility is the toll we pay to invest. Well, volatility's been wonderful on the way up. It doesn't feel so good on the way down, so just start planning for that. But I think um, well, we'll get with Blake on this, but there's still a lot of fundamental reasons those companies are where they are. I mean, every day, it's like Dell was up 30% last week. You've got um Hewlett Packard's up something like 20% today. Uh Marvel Technology is up a whole bunch. Why's Marvel up? Because Jensen gave some positive comments about. I mean, are you kidding me? I mean, Ford is now an AI play. I mean, so listen, some of this stuff, some of this stuff kind of feels a little bubblish. I don't know, you know, like we didn't Jensen on the podcast.

SPEAKER_03 11:00

That's what we didn't.

SPEAKER_00 11:01

Or just mention it. Fact was a failure.

SPEAKER_03 11:03

Yeah, Jensen. Jensen, you have an invite to join us. Maybe Blake can get it in with us. I have one more set. I saw this on X, Rob Anderson, his tech sector strategist from NDR, Net Davis Research. Yeah, he had this interesting chart. Connor we'll set it to you. Percentage of SP 500 stocks outperforming the SP 500 over the past two months. That's at its third lowest reading since 1972. Again, small sample size. The last two times it happened was March 1980 and July 2024. The idea is what happened after that, breath improve improved. You saw a change in leadership that lasted several months after that. That's what he's talking about. So that's interesting. To your point about, you know, we could see other areas of the market start to take over. I mean, it's hard to think anything taking over, you know, tech and AI right now. Like yeah, SpaceX coming and then open AI and Anthropic and all these things. So it seems like by next year, this time, all of this stuff will be maybe what 50% of the SP 500 index. We're still talking about tech.

SPEAKER_00 12:07

I don't know. Yeah, one more Grant Hawkridge, who does a lot of good technical work over at All-Star Charts with JC and that team. Um, he noted we had a new all-time high five days around the SP 500. We know that, right? We're in the middle of it right now. But all five of those days saw more stocks in the SP 500 down than up, right? And we know why. I mean, it's technology. I mean, technology is really pulling things higher here. Now, he noted uh this happened only a couple times last few decades. It potentially did mark some near-term peaks, but nothing major. And it didn't like kill the bull market. So these just things we're thinking about. Now, one more from me, and then we'll bring Blake in. Um, this bull market is six, I'm sorry, uh, just past the length of the 1960s bull market. It's like 3.6 years. So, Sonu, this bull market now, we can put this chart up, uh, Connor. I sent it to you. Actually, it's a table. It's a table, uh, this table up. This bull market's now the eighth longest bull market since World War II. And one of the themes we've laid out a lot is bull markets last longer than you think. We've been talking about this for a couple of years now. People say, Oh, bull market's like two years old. But listen, that's not an old bull market. And what I really want to focus on here, as you can see on the screen, is looking at the other seven, the average length of those seven that obviously got to this at least this point, made it more than seven years, right? Only one of them, and you're talking one back from the 1950s and 60s, didn't make it to their fifth birthday. So the odds of this bull market make it to at least its fifth birthday, which again is a ways away. That'd be uh what, two Octobers from now, so whatever that math comes out to. That doesn't mean that's our call. It doesn't mean we're, you know, I guess you could say we're kind of positioned for it, but you know, if it changes, you know, the information changes, we'll change. But we are over at equities. And I just, it's a theme that I've been harping on. And you have too, Sonu. That this bull market might feel old, but then you look at other bull markets that made this point, and I know I sound like a broken record, bull markets like a cruise ship. Once they get moving, yeah, they're kind of slow, they don't have the record gains they do off the lows, but they're hard to slow down, they're hard to turn around, and they're really hard to stop. Those are just some things to think about as this bull market again continues to kind of break records, um, if you will. Anything final on markets? And let's get Blake in here.

SPEAKER_03 14:10

No, I I think to that point, I mean, when I think about when I see a charts showing the age of bull markets, one thing that always you know sort of glibly comes into my mind, or I probably say it aloud too bull markets need not die of old age. Right, right, just because it's gone on for two or three or four or five or seven years, even like there has to be some catalyst. Usually there's some external shock, maybe internal shock, you know, Fed, whatever, right? Yeah, but or things just get too stretched. And momentum, one reason momentum exists and momentum begets momentum is you get FOMO. And initially during you know, a particular stage of the market, you don't have that FOMO, but as you get these massive returns, FOMO or fear of missing out keeps building, and that's when you see more and more people coming in, sentiment is improving. I don't think we're quite there yet, and maybe this is one nice way to segue into you know Blake coming in. You don't see what I typically think of as junky parts of the market participating right now. I think of you know Kathy Woods ARC. We've had Kathy on the podcast, she's great, you know, like love her, don't, you know, it doesn't matter. She's an active manager. We can get Blake's perspective. I'd love to get Blake's perspective on this. ARK, you know, I think of it as investing in the future in some form. They don't care about whether the company's profitable. ARK is up just 3.7 years a day. That's not what we were seeing in 2021, right? You think like this is future technology, space, all that. ARC is not participating. Then you think about Bitcoin, you know, people say currency of the future, all that. Bitcoin's now below 70,000 again, as we speak on what June 2nd. The Bitcoin ETF is down 21% year to date, right? So this is not quite a junk rally, it's coming in the back of profits. But with that, you know, probably the time to get Blake in.

SPEAKER_00 15:59

We're going to now introduce Blake Anderson on our team. Hey guys, thanks for being late. You got it. Now, we do like titles. Blake, I wasn't 100% sure what your title is. So feel free and give us your official title. You got a promotion recently, so well deserved, but give us your official title.

SPEAKER_01 16:13

Thank you guys very much. Yeah, my name is Blake Anderson. I'm director of portfolio management here at Carson Group.

SPEAKER_00 16:19

And before we get into it, what what do you do all day? Because Sona and I run around and we're just out of breath most of the time. What do you do all day?

SPEAKER_01 16:25

My job isn't quite as active as you guys are. I sit around and read a lot of reports, work in Excel, uh, really learning and reading about stocks and running some of our individual equity SMAs here at Carson.

SPEAKER_00 16:36

And I mean, I think we could probably say this. How many millions do you run? I mean, how much are you? You're a portfolio manager. Like you're in charge of a lot of money, right?

SPEAKER_01 16:43

I am. Yeah. The two strategies I run now are over 700 million and maybe up to 750 million, depending on the day we look at it.

SPEAKER_00 16:50

Exactly. Uh yeah, so that's a lot, a lot of money. A lot, a lot of money.

SPEAKER_01 16:54

Um, you guys enough for the trust in our ecosystem.

SPEAKER_00 16:57

No, we're we're pumped, we're pumped you could join us. I say you're um you're like Dan Ives. You know what? I was on TV with Dan yesterday morning and now I'm on with you. So you guys are literally the two smartest tech people I know, so I get to talk with both of you. So um, so no, go ahead. Let's we've we'll probably plan on 15, 20 minutes or so with Blake and talk about IPOs and tech and all this stuff. Let's let's get it started.

SPEAKER_03 17:14

Yeah, no, actually, Blake, I will say, is the oldest person on the team, not my age, because Blake is obviously younger than us, maybe two generations younger than us. I don't know. Are you a millennial?

SPEAKER_01 17:27

I think so. Or even or what is below millennial?

SPEAKER_03 17:31

What's the you know, I don't know. What do you call these things?

SPEAKER_01 17:34

Gen X, maybe? No, no, no. We had Gen X. Ryan and I are Gen X. Gen Z. Maybe Gen Z.

SPEAKER_00 17:40

Maybe he didn't prepare for this question, Soto. He prepared for everything else.

SPEAKER_01 17:44

Let's just say that I wasn't an investor during the dot-com boom.

SPEAKER_03 17:47

Okay, okay. So Gen Z. Let's say we'll just say Gen Z. But yeah, no, you've been around longer than I have. I've been here for seven years. You just crossed seven years. So congratulations. I mean, I've worked with Blake. All this is I've worked with Blake now for seven years. So he's my oldest colleague here on the team. It's been you know an absolute pleasure.

SPEAKER_01 18:04

It's pretty incredible to think about. Yeah, the great years together.

SPEAKER_03 18:07

So let's just continue where we left off. We were talking about ARC and this not quite being a junk rally. This is coming on the back of profits. It is right. And yet, you see, even within tech, you see this bifurcation. We're talking about bifurcation with the markets, but even tech within tech, there's a bifurcation. There's all this stuff associated with the infrastructure build-out related to AI. And then you have software on the side. I know software has come back recently, but it's still like kind of down in the dumps. And you see that impacting other areas of the market, like you know, your private credit and you know, private equity, things like that, right? There's it's hitting capital market companies as well. But what's your take on, you know, the rally so far, the momentum, and you're invested in individual stocks, obviously.

SPEAKER_01 19:10

Yeah, some of the stories that continue to impact my work on a day-to-day basis route both around a couple macroeconomic factors. And I would say that, you know, the higher bond yields that we've seen so far this year have hurt these long duration assets. You can think about assets like, you know, innovation in the Kathy Wood sense of the word, where those strategies thrived during 2020, 2021 when bond yields were ultra low. But as we've seen the 10 and 30 year yields extend out this year, it's really pushed investors into lower duration assets or companies that are making profits today. And like you guys were talking about. I know one company that's making a lot of profits today, NVIDIA. And really the story, who is that?

SPEAKER_00 19:55

What name is that again?

SPEAKER_01 19:57

Uh NVDA, maybe you've said that. Oh, yeah, yeah, yeah. I've heard of that one.

SPEAKER_00 20:00

Okay, yeah, yeah.

unknown 20:01

Right.

SPEAKER_01 20:01

They're making a lot of profits today. And the story of tech investing and even tech adjacent investing this year has been about finding companies that plug into their ecosystem, plug into their profits. You had mentioned earlier in the podcast that there's a company called Marvell Technologies today. It was came into today about a $200 billion market cap. It's up 27% on my screen right now because uh Jensen Wong is it is it today? No way. Wow. Today it's adding about $50 billion of market cap because Jensen Wong teased the CEO that oh, you guys could be the next trillion dollar company because they're plugged into NVIDIA's ecosystem.

SPEAKER_03 20:40

Actually, I have a question on that because you know, like I like to think about macroeconomic concepts simply. And one concept I have is one person's spending is another person's income. And you just mentioned what you know, one company making a lot of income profits right now is Nvidia. Now that on the other side of that are hyperscalers. I I know we're going to talk about SpaceX, but I want to get to the Google news yesterday. And you know, Berkshire investing in Google or you know, 80, they're raising 80 billion. And I'd love to get your perspective because I don't follow individual strats. My general sense is look, if a company needs money, go to the debt market. And Google's a I assume an A-rated, triple A rated company or die or double A. I guess the US government's only double A. The US government's not triple A.

SPEAKER_01 21:24

I would think so. Whatever close to the highest is, yeah.

SPEAKER_03 21:26

Yeah, yeah, yeah. I think only Apple and Johnson and Johnson have a higher credit rating than the US, which is interesting to think about. But anyway, so Google's not going to the debt market. I mean, they have.

SPEAKER_04 21:36

They have.

SPEAKER_03 21:36

They're raising equity, so they're diluting existing shareholders, right? So talk about that and talk about the whole world share angle. I know you're a Warren Buffett, you know, follower. Of course, Warren's gone now. I know you, yeah, exactly. He's right behind you as well.

SPEAKER_01 21:50

So exactly. Uh, I think what we're seeing in the Google news today is pretty incredible. Uh, my one of my best guesses as to what they're maybe doing with the equity are to try to gain leverage on the equity and play the meta playbook. Meta has used some of their equity and cash to go fund these off balance sheet vehicles that they can then lever up those off balance sheet vehicles to four or five, six X to gain even more leverage. To go build a more data to go and build even more data centers. Uh, so perhaps this is just the beginning of that for Google. Maybe they wanted to preserve that single A, double A, very high-rated uh credit rating for the parent alphabet and then use this money as an equity check into some of these off-balance sheet vehicles to then go and really extend the leverage there. But um, you know, I'm taking the news at face value. They want to buy data centers. Uh, my guess is that some of their internal calculations are still showing very high rates of return. They want to accelerate those and get ahead of the pack. You know, we've all heard of these bottlenecks in the AI trade. My guess is Google is trying to get in front of those almost or at least book out further and further into the future.

SPEAKER_03 23:05

And everybody else. I mean, that's why we see the PCE personal consumption expenditures index where computer software and accessories up 83%, you know, a lot of three months, right? But that means somebody's making money on the other side. The people who own the bottlenecks, C Speak. People who own that, as you say. Right. One one thing I had on that, without getting too much into this, like you said something about the company wanting to protect its credit rating. And normally I think, look, if you're raising debt for doing projects, whatever, I assume you know you have the stable, stable cash flows, things like that. There's some predictability about it. Now you mentioned one thing which is interesting, like these data center projects may have high returns, but I imagine there's a lot of uncertainty there too.

SPEAKER_01 23:45

A lot of unknowns.

SPEAKER_03 23:46

And I wonder if that's why they're using equity because the capex that they're investing in on certain payoffs, uncertain timing, you know, basically that's essentially what AI infrastructure is. You don't know when that payoff is going to come. And so they tap the equity market instead of the credit market.

SPEAKER_01 24:04

It really is. That's sort of the existential question hanging over a lot of players in the market. And, you know, there were anecdotes that at one of the Alphabet company meetings last year, some of the co-founders essentially said they would rather go bankrupt than lose this AI race. And we're seeing it in the uh it's finally sort of coming to the equity markets to dilute. And as Warren Buffett and Charlie Munger has always said, you know, one of the ways to go broke is leverage in debt. And perhaps this is Google trying to get out in front of that, use equity as more of sort of the non-recourse way to accelerate their AI investments into it.

SPEAKER_00 24:42

I um I believe it was Munger, and he said the three ways to go broke are liquor, ladies, and leverage.

SPEAKER_03 24:47

So three L's of light. Three L's. Three L's of light. Do you think Warren would have made this investment in Google? Um, I'm sure your best guess.

SPEAKER_01 24:59

I mean, you know, we don't know, but well, Berkshire's buying studied him enough. Berkshire's buying 10 billion of this 80 billion from Google. And I'm sure Abel at least sent a text saying, hey, yeah, what do you think about this? And evidently Warren didn't say no. Um, I think you know, there's just a little bit of irony in this that Berkshire's held over 200 billion, over 300 billion of cash for three years warning about market bubbles and how to be safe. And here they are buying Google two days off of all-time highs.

SPEAKER_03 25:31

And Google's not doing any buybacks at a thing, like just what, a year ago, we were all of us are like, Oh, these companies have amazing cash flows. I I think we wrote that in an Outlook, and now it's like this somewhere all the free cash flow is going through CapEx. And no buybacks either.

SPEAKER_01 25:46

Google's quarterly buybacks have gone from 12 billion two quarters ago to 5 billion a quarter ago to zero in its most recent quarter. And that's that was probably the clearest signal to me that they need the cash.

SPEAKER_00 26:01

Yeah. The uh my contrarian bells are ringing a tad on what we just said, though, that you know they've got a lot of cash. You know, obviously their stock performance has underperformed the SP. Now, let's say that happens over the long run. Uh yeah, periods. But then, you know, and obviously they bought a bunch of Apple. I mean, what how much Apple? They now they sold some too, but when did he start buying Apple? By he, I guess, Buck.

SPEAKER_01 26:20

But when you buy an Apple buying Apple long time ago, a decade ago, 2013, 2015, and it's grown to be 40% of their equity portfolio. I mean, wow. Talk about a guy who's preached diversification, but uh, you know, what's the old saying, watch what I do, not what I say?

SPEAKER_00 26:36

Yeah, well, interesting. One more, maybe let's just talk some SpaceX. But we mentioned software. Obviously, software had one of its worst quarters in history in the first quarter. Now, I believe it was up over 20% last month. What's your take? Is this just like a bear market bounce or is it uh a one-time thing? Or how do you think about software here?

SPEAKER_01 26:54

And this is making money, right?

SPEAKER_00 26:56

To be clear speaking.

SPEAKER_01 26:57

Many of them are, right? And the uncertainty from investors is understandable. Uh, one of my heuristics is that AI is either the best thing or the worst thing to happen to your software business, and that it's probably time to look at each individual company and not just the overall industry. But I can look at some of the software high flyers coming out of this earnings season where you're hitting new highs in cybersecurity, data management, data observability, and sort of the flow of data that is going to underpin AI is starting to be rewarded.

SPEAKER_03 27:32

Is it just because the winners here, or presumably the winners there, are the ones who have access to a lot of proprietary data, a lot of data that other people don't have?

SPEAKER_01 27:42

I think you hit the nail on the head there. Imagine all the stuff we upload on a day-to-day basis where previously it may have just been myself accessing, you know, a page on Salesforce, for instance. But now that same data in Salesforce could be accessed five to 10 times per day with the agents I'm running potentially. And you can see sort of the monetization potential.

SPEAKER_00 28:03

You know, who's someone who manages you know hundreds of millions of dollars and obviously works on a Carson Investor Research team, how do you leverage AI? How does it help you that two years ago you didn't know existed?

SPEAKER_01 28:14

For me, I spend a lot of time on competitor research, uh figuring out what new products the competitors are launching. You know, I make the joke that a lot of investors have an eye eyes wide shut approach. You know, they'll fall in love with the company, look at everything the one company is doing, and say, Oh, I know so much about this company. My eyes are wide open. But then you ask them about what they're what those excuse me, what the competitors of those companies are doing, and they go, oh, it doesn't really matter. You know, this this company is just in control of its own destiny. I think AI has shown both on the competitive front that with how fast AI's capabilities are advancing, not every company is safe. And in fact, many are coming under pressure. And I actually use AI to ask it about, you know, what are competitors that I'm missing? How is this company falling behind? Or sort of what's the bigger story going on here uh that I might be missing? So it's really taken me into the eyes wide open approach.

SPEAKER_00 29:12

Well, and I want to point out one more time. I mean, we can't get too specific, but the models that you run for our Carson advisors and their clients have done incredibly well. Um, so again, I know uh thank you for that. And hopefully we're not jinxing it by having you on the podcast with some type of matrix. Some of this stuff has crossed my mind too, trust me. Um, all right. Well, let's let's get into the SpaceX IPO. First off, when is it? What's the latest? Is it still June 12th, or when's it supposed to be?

SPEAKER_01 29:37

Those are the latest rumors I've heard. Um Wall Street rumors are rumors, and maybe just as good as maybe just as valuable as the piece of digital paper they're printed on. Um, but that's the latest I've heard, June 12th. Well, Sonic, go ahead.

SPEAKER_03 29:51

Surprised it wasn't on April 20th or something. Yeah, or April 1st. Right, knowing Elon. Why not 420? But anyway. No, I I I've been looking at some work, did some work on IPOs, and I want to I know you've looked at the S1, V VEX stained some uh messages on that as well. What's an S1 by the way? So for the listeners, what's that exactly? That's the filing they you know companies do. That's the IPO filing, basically.

SPEAKER_00 30:18

But and I thought I think that was on 420. I'm pretty sure he they filed on 420, though. So that was probably on.

SPEAKER_03 30:24

It could have been it, yeah.

SPEAKER_00 30:25

Yeah.

SPEAKER_03 30:26

But you could do that confidentially, which is what Anthropic did, right? Yesterday. Correct. And SpaceX did originally as well. Oh, so that was also confidential.

SPEAKER_01 30:36

Correct. For about, I think they say confidential for about five or six weeks while the SEC sort of does their first compliance review, you know, make sure you're not making out any outlandish claims, and then the company will receive approval to turn it public before they go talking to investors.

SPEAKER_03 30:52

Yeah, I have some IPO stats, but before we go there, let's talk about SpaceX and the impact on indices because all the big index providers, uh, see whether it's SP, Russell, they seem to be sort of falling over themselves to get the stuff in the indices, right? And talk about some index rules and things like that, like without getting bending the rules. Yeah, yes, yes. But they're the ones allowed to bend it because they're creating it. And yeah, no, totally, totally.

SPEAKER_01 31:19

Absolutely. I mean, SpaceX is quite literally changing the rules of indexing before our very eyes. You guys had talked earlier, we're living through a moment, and the SP 500 will never be the same again now that these rules have changed. Uh, it's pretty incredible to think about. But what I'd seen the latest is that uh SpaceX has chosen to IPO on the Nasdaq, which makes them which gets them into the eligibility for QQQ, the Nasdaq 100.

SPEAKER_04 31:48

Okay.

SPEAKER_01 31:48

That the QQQ, NASDAQ 100 originally needed, I think, six months post-IPO for a company to then be considered to be included in the NASDAQ 100. The Nasdaq 100 doesn't have any profitability rules. Um, so if SpaceX was big enough at the time, which it looked like they were, they would have almost certainly been included in the Nasdaq 100 six months IPO, six months post-IPO. Uh, but among all the horse and goggling and bargaining in this IPO process, NASDAQ really went to SpaceX with that winning bid to say we'll alter our rules so that 15 days post-IPO, if you're a mega company, which I think is in the top 10 or top 15 of the NASDAQ, then we'll assess you 15 days post-IPO.

SPEAKER_03 32:39

So uh now the cues is important here because tons of people own the cues, it's massive. And when you own the cues, now the moment SpaceX is included in the cues, which means everyone, you know, at the back end, we're not doing this in our brokerage accounts, but you know, at the back end they have to go buy SpaceX, right? Exactly. But which means everything else has to sort of compress, right? To make room for SpaceX.

SPEAKER_01 33:03

And we had pulled, I had put together a chart here, you know, what an index inclusion would or how the SP inclusion would reshuffle the mega caps. Today the SP 500 is about at 68 trillion dollars in total market cap, probably a little higher when we when this gets published. Uh but if SpaceX hypothetically becomes public at around a $2 trillion valuation, that would make up about 2.9% of the SP 500. Now again, it's bigger than Tesla? Uh bigger than Tesla, yeah. Tesla's 1.7 or so, I believe. Yeah, 1.5 or 1.7. So it would come out bigger than Tesla. Uh, and this is all hypothetical. The SP does still reserve the right to free float market cap adjust. So they can include it little by little over time as more shares come released.

SPEAKER_03 33:56

But the bottom line being that free float is basically the amount of shares Elon's making available for the public. To the public.

SPEAKER_01 34:04

Exactly. And, you know, me as an investor, I sort of care about where that free flow market cap would be going, right? So if I know in six months there's going to be more shares outstanding and that free flow market cap is going to be bigger, I'm sort of thinking about where it's going to be in the index, uh, which is what that hypothetical is all about. So it might not be 2.9% on day five of SP 500 inclusion, but it could very well get there over time. So by the end of the year or so.

SPEAKER_02 34:35

Yeah.

SPEAKER_01 34:35

Exactly.

SPEAKER_00 34:36

You you helped me with some great stats when I was on CBC last week, so thanks. And I'm going by memory here, but we said, okay, $2 trillion market cap, but $68 trillion for the SP 500. So that's about 2.9%. At the time, so about a week ago or so, NVIDIA was 8% the SP 500. That would go down to 7.77%. Apple's about 7%. That goes down to about 6.7%. I guess does that mean the big the big ETFs are simply selling those names? And could they have at least a near-term weakness if they're selling and buying the other? Do you have a feel on that?

SPEAKER_01 35:07

They very well could. And yeah, Ryan, you're exactly right.

SPEAKER_00 35:09

Nvidia I'm exactly right because I cited what you told me to say. So yeah, that's exactly what you I cited out on TV last week. So thank you.

SPEAKER_01 35:16

Good, absolutely. No, you're welcome. That's what our research is here to do. You know, this says that NVIDIA could potentially go from an 8.1% weight to a 7.9% weight, or about 24 basis points lower.

SPEAKER_03 35:28

Unless NVIDIA rises another 20%. That's true. I wouldn't rule out any possibility. It sort of like overcompensates for that. And yes, go ahead.

SPEAKER_01 35:37

So NVIDIA would take the biggest hit just because they're the biggest market cap. Apple would see about 20 basis points lower, Microsoft about 15. The point being that unless the SP, unless SPY sees a very large dollar inflow on the day that SpaceX is included, I in all likelihood these names would become a lot lower weighting in the index. And we've actually seen a little bit of that in the market. If I look at the Magnificent 7 ETF, N-A-G-S, it's relatively lagged the SPY and the IWF in most recent days. And maybe that's active investors like myself trimming on the margins some of these established holdings to be able to raise cash for that.

SPEAKER_03 36:24

Go tell people.

SPEAKER_01 36:27

Something is going on in the markets ahead of this and gets me thinking that uh we might just see the we might just see be seeing the beginning of what's about to happen.

SPEAKER_00 36:36

So Soda, I know you've got some really cool stats from Professor. Is it Ritter? Ritter at Freddie. Ritter, Jay Ritter at the University of the Yeah. We'll get there one second. One second. The one thing I want to bring up, because this is out there, and a lot of smart people, way above my pay grade, think it's going to happen. I want your a take. Okay, we're gonna have Tesla Tesla over here, and we're gonna have SpaceX over here. When do they merge? Is it gonna happen? What what's your crystal ball say, Blake?

SPEAKER_01 36:58

Uh, one of the Musk insiders that I keep an ear and out for is Walter Isaacson.

SPEAKER_00 37:03

Okay.

SPEAKER_01 37:03

He was uh author of Elon Musk, the auto authorized autobiography. The authorized version. Walter got inside access to Musk, you know, board meetings, private meetings, his life for I think two years or something while writing this.

SPEAKER_00 37:19

So you know, one of those with Elon particularly. He had assigned some stuff. Like how many kids does he really have? He's probably not allowed to talk about that, but like there's some wild stuff. Yeah.

SPEAKER_01 37:28

Uh, but he's been on the record for the last six months and recently reiterated that he thinks SpaceX and Tesla merge maybe by the end of 2027, maybe sooner, maybe a little bit later. That soon.

SPEAKER_00 37:40

Wow. Okay.

SPEAKER_01 37:40

Well, that's it could be very quick. And oh and you know, me as an investor, um, when I see a CEO of two different public companies, I'm a little bit like, yeah, what's going on here? You know, are there any conflicts of interest? Are they truly arm length deals? Why is he splitting his time? Uh, you know, I I could see the case that a lot of synergies would come from a merger like that.

SPEAKER_03 38:05

Didn't quite work for what is it, the door, the Jack Dorsey, right? Exit Square. Square, not block square.

SPEAKER_01 38:11

Yeah, right. Yeah, you know, Twitter underperformed the market for years before being bought out by Elon and Square, I think, has underperformed the market as well.

SPEAKER_03 38:21

I want to get to the IPO stats, but I have one more question. I I mean this it's semi-seriously. What is the what's the point of Tesla now? Right?

SPEAKER_00 38:31

Like, and we've talked about if Elon watches it, he's gonna be mad at us, whatever, whatever about this.

SPEAKER_03 38:37

Yeah, because he stopped making the Tesla. Is it the S or like whatever the IN that's done? He's not doing that anymore. I if you talk to Kathy Wood, which we have, and you have too, you'll tell you it's a whole robot taxi. But then I look at Elon, this guy is looking to put data centers into space. I mean, he's not mucking around with taxis. Come on. Like, I don't know, you have maybe you know, I'm only half joking about this, but yeah, what what's the point of Tesla now?

SPEAKER_01 39:04

Well, and this is a great segue into sort of Tesla and the SpaceX. You know, you can look at Tesla. The the formula between the two companies is very the same. For Tesla, it's enter an established industry, cars with new technology, EVs, uh, and very advanced manufacturing plants to produce very high profit margins with very little market share. So Tesla runs about 16 to 18 percent gross margins in their car business at only under 10% of cars worldwide sold. Again, about 16 to 18% gross margins. Ford and GM produce anywhere from 9% to 12% gross margins at much larger scale. The formula, and then so then they take those profits and invest in those long duration growth potential, right? Think autonomous driving, optimus, everything of that nature that could potentially give them years of revenue growth down the line. SpaceX looks a lot like Tesla in that regard. Enter an established industry broadband with new technology, satellites instead of uh the data data center towers we see everywhere across this country that produce outsized margins at even a fraction of the industry scale. And I'll send this chart over, but you can look at uh even though established telecom dwarfs Starlink, Starlink has much higher margins. You can look at Verizon plus ATT plus T-Mobile that generate about $350 billion in revenue last year.

SPEAKER_03 40:52

My heart sinks when you mention those names. Right. I am subscribed to one of them, by the way I'm in Qatar. I I was on a Qatar flight flying from you know Chicago. I was in India, and it had Starlink. It was phenomenal.

SPEAKER_01 41:07

Exactly. No, and that that's the promise of the industry and the technology.

SPEAKER_00 41:10

I'll just jump in just for a second. So I literally like to fly United now because Cincinnati, I'm a free agent, right? There's Delta America United. I fly United because they have Starlink. I'm flying to Chicago to come see Sono and have our big event in uh Chicago this week. I got the email, this plane has Starlink. I was like, thank God. Like it's un you can do more on your phone with Starlink than I can do in my house internet. I mean, seriously, it's better on an airplane. That that Starlink's incredible. You know, go ahead. Yeah.

SPEAKER_01 41:33

No, that's good to know, but that's exactly the formula that Musk runs, right? Enter an established industry with new technology that produce outsized profit margins because it's so much better. And so I was saying the the telecom industry generated about $350 billion in revenue at about a 20% operating margin in 2025. Starlink in the SpaceX S1 only only did about $11 billion of revenue, but generated an almost 39% profit margin.

SPEAKER_02 42:07

Wow.

SPEAKER_01 42:07

Now, if we adjust costs for space launch and sort of on the space side, that profit margin is still at 33%. So this formula that SpaceX is running is working.

SPEAKER_03 42:20

Let's do some IPO stuff, Sona. Yeah, yeah. I have a question for both of you because it's a quiz, a trivia thing. We mentioned Meta being one of the largest IPOs over the last decade, exciting ones. Uh since let's say over the last 15 years, 15, yeah, 15, 20 years. What's been another massive IPO? But Blake mentioned it in passing. I'm curious what they think. Not Saudi Aramco. I know that you know that that's obviously one of the biggest ones, right? What else, you know, uh that is a big IPO. And it'll, you know, when you hear the name, like, wait, I wouldn't even have thought of that. And it underperformed the market too. Uh is Duncan coming back? Is that what it is? No, no, no. I know, I don't know. It's like you mentioned it, but I'm I'm curious if you remember. I don't know. You mentioned the company.

SPEAKER_01 43:07

I would have said Google. They actually IPO'd well be well past the dot com, though.

SPEAKER_03 43:12

Yes, that was 2004, something like that. Yeah. General Motors 2010. I've heard of something like that. Yeah. General Motors 2010, a 16 billion dollar deal. It was you know large at the time, and underperformed, right? And that gets to like these IPO stats. IPOs generally underperforming. What's interesting, so I and this is where AI, Ryan is asking you like, how does AI help? AI helped me take this massive database from Professor Jay Ritter over at the University of Florida. He's got this big IPO data hub, and he's every single IPO. And he's pretty conservative how he defines IPO. He goes like 80, right? He's like 1980. 1980 to 2025. Wow.

SPEAKER_00 43:53

2025, yes. Yeah.

SPEAKER_03 43:54

And he excludes SPACs and ADRs, closed end funds, REITs, banks, SNL, things like Penny Star, like take all that stuff out. So he's fairly conservative, right? And which is good because he's consistent with definitions, so you can compare apples to apples, things like that, right?

SPEAKER_01 44:09

And try to look at big operating companies.

SPEAKER_03 44:12

Exactly. Exactly. And one thing that was interesting is he looks at the first day return, which Which is basically what's the difference between your closing price on the day of the IPO versus the offer price? Right. And then he looks at you know that difference times the share is offered and figures out how much could have companies raised, how much of money are they leaving on the table? And as it turns out, interestingly, IPOs over the long term do worse than the market. I'll get to some stats, but IPOs tend to be underpriced as well. That's so interesting. I didn't I didn't think about that. So just an example, let's say a company sold 10 million shares, $20 as an offer price. They raised $200 million, but by market close on the first day, it was about $30. So the market gap value is $300 million. You'd say the company left $100 million on the table. That's the idea here. So IPOs are structurally underpriced. He looked at like over 9,000 IPOs, 1980 to 2025. The mean first day return. And we have this data, right? We put the chart up lights on it. Uh yeah, Connor.

SPEAKER_00 45:18

Yeah.

SPEAKER_03 45:19

The mean first day return is 19%. Just the first day on average. The median return is about 7%. So you can see it's skewed by some of these large ones. Aggregate proceeds, total proceeds 1.2 trillion. But out of the 1.2 trillion, he calculates about 250 billion left on the table. IPOs being structurally underpriced, right? And even in 2025, there were 90 IPOs. The mean first day return is 29%. Aggregate proceeds 39 billion. Money left on the table, calculated the way I just talked about, 13 billion, about 33%. The money left on the table because these IPOs are structurally underpriced. And they were underpriced even outside the internet bubble, right? The internet bubble, you know, during the bubble, the average first day return is right 65%. That's the difference in closing price and the offer.

SPEAKER_00 46:13

That's when I got the bug, right? I was at Zave University. I remember, I mean, I would be skipping like, why am I going to go to theology class? I can go day trade this penny stock. And yeah, I was I was making money for a minute. And then we all live and learn. Yeah.

SPEAKER_03 46:26

And that's 99-2000. And then, but okay, you take that out. That was crazy in hindsight and bubble clearly. But since 2001, 2001 to 2025, the average first day return is 19%. That's still large. But then you think about it, and we can put this chart up of a long-term returns for IPOs, is over the following three years, say you buy it at close, which is you know, you can buy it only on the first day, unless you get, you know, you're an inside investor or the brokerage that have given you, you know, uh access to the IPO pre-IPO. But the average three-year buy and hold return from first day close price is 19%. That's cumulative, by the way. It lags the overall market by 21 percentage points. Wow. Right. And even if you even if you're able to get the IPO at the offer price, not the first day close. Even if you're able to get it at offer price, the average return over the next three years is about 36%. But even that lags the market by about 3.3 percentage points. Right. This gets into more your neck of the woods. I'm going to, you know, ask you about this and we'll talk about SpaceX. We'll come back to SpaceX. When it comes to IPOs, long-term returns, size, quality matter, right? IPOs with less than 100 million of sales, so smaller ones, SpaceX obviously is not in that category, but they have a larger first day pop. The average first day return is 23%. If IPO is more than 100 million in sales, average first day return is 13.6%. But then over the following three years, for IPOs, smaller IPOs, less than $100 million of sales, three year return average is 5.3%. It's cumulative. 5.3% over three years, lagging the market by 34% points. For larger IPOs, the three year average return is about 36%. So much better than the 5%. But that still lags the market by about three percentage points. Just split it by profitability.

SPEAKER_00 48:22

Go ahead, right? Well, so what's that stat Sony you said? Like the median stock throughout the last 100 years is down 99.9%. It is something like that. I mean it's kind of the most common return.

SPEAKER_03 48:32

The modem return, the most common return for 29,000. I had 20, something like that. From 1925 to 2025, the most common return is negative 100%.

SPEAKER_00 48:43

Yeah, negative 100. So anyway.

SPEAKER_03 48:45

But then you look at, you know, one of my my second favorite chart that you have, which is the Dow index from 19 but 187, 1896 to 2025, it just goes up and to the right.

SPEAKER_04 48:56

Yeah.

SPEAKER_03 48:56

Right? That's creative destruction for you. Right. But again, coming back to IPOs, we can put this chart up. Size and quality matters for IPOs. You look at profitability. So we just talk about size, right? Larger IPOs do better over the long term, even though the smaller ones get a better first day pop. Same thing for profitability, right? IPOs that are unprofitable. Now SpaceX probably follows it falls into this category here. IPOs that are unprofitable have a larger first day pop, average return of 26, 26 and a half percent. But the three-year average return after that, from first day close to three years later, negative 0.5%. Think about three full years, negative 0.5%, lags the market by about 31% points. If you're profitable, average first day return, you don't get that big of pop, average about 13%. But the three-year forward return is about 34%, still lagging the market by about 13 percentage points, right? So just some stats. Price to sales, you're better off at lower price to sales, lower than five. If price for sales has been greater than 40, the average return, you know, once you're just for the markets, it's lagged the market by about you know 40% or something like that.

SPEAKER_00 50:09

I would just say shout out again to Dr. Ritter over at Florida because I everything you decided came from his studies, right? So exactly. Yeah, so that was amazing.

SPEAKER_02 50:16

AI helps me.

SPEAKER_00 50:16

AI, well, AI helps you. Yeah, so again, this is episode 190 of the most recent Facts versus Feelings, talking SpaceX IPO. Now, this might be a first. I'm probably just going to literally sign off and you guys keep talking. This is awesome. I do I because I fly out I fly to Chicago soon and I get to out talked Ryan Dietrich. Yeah, yeah. I have to pick my setup and do something. Just a couple things for me, and then you guys can bring us home because I do need um Sarah Eisen on CNBC pointed this out. So we're bringing some consumer talk in. You guys finish up. Um, but she point mentioned Hilton, right? It's like, what are companies really saying? The Hilton CEO was literally on Squawkbox, talked about the C-shaped economy. Listen, all these different shapes. The bottom line, uh, Hilton is seeing, I'm gonna read it directly off of Sarah's tweet here. Okay. Uh, higher spending for middle income consumers, very strong summer bookings. So these are concepts, Sona, you and I have talked about, that there's not really much of a middle class anymore because a lot of people have gone to upper middle class because they've invested in stocks, they've invested in housing, they've made good choices over the years. So those are some potential positives um that that that that um that we we're seeing uh right there. Now, Sona, let's talk about the savings rate just for a second. I know I'm jumping in. I want you guys to finish up this conversation, but the savings rate, it dropped, right? It was a 2.6%, it was five and a half percent this time a year ago. Ballpark, everybody on TV and places say, well, consumers are tapped, they're not saving anymore. I know you're gonna push back against that, but what do you think the savings rate going down really means? First of all, I don't think it's correct. I think it's gonna be revised higher. Oh, interesting. Oh, okay. There you go.

SPEAKER_03 51:46

Two years ago, we were talking about the savings rate coming down and then was revised up, right? But anyway, the savings rate collapsed from what it was five and a half percent a year ago, 2.6% in April. And suddenly everyone's like, oh my God, literally, consumers tapped. Right. Now, granted, this is the lowest savings rate we've seen in about 30 years. You know, it matches the lows from 2005, 2007, and even 2022. The savings rate, and you say, oh, the consumer staff is look, the savings rate as defined here is the difference between how much you're bringing in as income versus how much you're spending consumption as a percent of disposable income. So this is an aggregate, right? So think of it as an aggregate amount of income that was not spent on consumption, okay, right? So a falling savings rate, as far as I'm concerned, I am not too worried about that. I think weak real wage growth because inflation's hard, that's a bigger problem. Elevated inflation, that's a bigger problem. Savings rate looks tends to go down during economic expansions and consumers feel wealthy, right? If the stock market goes up, increases household wealth. How home prices go up, increases household wealth. We saw that in 2005-2007, stock market went up 98-99, the savings rate collapsed from 7% to 3.5%. 2005-2007, as I said, home prices are rising. So you had that wealth effect that led to very low savings rates. So it's not unusual. It just means, you know, household balance sheets are in strong shape.

SPEAKER_00 53:14

Yeah, I mean, that listen, uh, Sam Rowe uh shared a really cool chart over the weekend from uh I believe Bank of America, but again, looked at like household net wealth as a percent of disposable incomes from apples to apples. Keep this real simple. When that's going higher, when people are worth a lot more as a percent of their disposable income, you know what goes down? The savings rate. We've seen that for decades. So it's almost Sonya, you're saying if we have a recession and everything really just falls apart, that's when the saving rate goes up, and that's when we should be worried.

SPEAKER_03 53:40

Exactly. We can put this chart up, Connor, of the savings rate. You see, in if you're on YouTube, you can see the chart. There are bans for recessions, and during recessionary periods, literally, Ryan, as you said, the savings rate goes up because people want to save more. Right. Right? Okay. Right now, obviously, the drop in savings is the savings rate, I should say. It's not the drop in savings, the savings rate. Yes, they're just saving less. Right. They're not saving as much as they were a year ago, right? They're not depleting savings. That's a whole other thing, right? Back in response to inflation, back in 2022, inflation was high. That time consumers drew down their stock of savings, right? Because we had, you know, this big buildup of savings from COVID stimulus checks, all of that, and you weren't spending during COVID, so you had a lot of money in the bank. Right now, like you mentioned something like you know, the Hilton guy talking about consumers, yeah. Consumer spending over the last three months has clocked it at nine percent annualized pace. Nine percent annualized space. Now that is nominal, it's not adjusted for inflation, but once you adjust for inflation, it's about 2.8 percent. And 2.8% is not bad, by the way. Now it is boosted by auto sales. But think about that. If people are buying more cars, that means they can afford big ticket items. Yeah, the consumer's not I the consumer's not tapped. I mean, right, I I don't I don't know when the consumer's ever tapped. Now, you could say the consumer's tapped if the unemployment rate starts going up, but you and I have talked about that. That's not what we're seeing.

SPEAKER_00 55:12

The consumer unemployment rate is close to historical lows. We'll we'll talk more at a future podcast, but we have a lot of economic data coming out this week on the state of the labor market. You've been saying the labor market looks, I mean, not spectacular, but improving, right? And if the labor market improves the second half this year, like is our base case, then that's only going to help the consumer. One final thing for me, and I'll let you guys bring us home. Uh, on May 22nd, we had a new Fed chairperson, right? We talked about this last week. Well, you know what's happened since then, uh, since Warsh took over? The stock market hasn't gone down. Okay. Six days in a row, the stock market by the SP 500 has been higher since he took over on May 22nd. The time we're doing this is the seventh day. We're higher right now. We'll see where we close. The all-time record for win streak after a new Fed chairperson was five from Miller, I think back in the 70s. So literally, you know, all this worry about hawkish Warsh and this and that. The market's taking it in stride. I get it, everybody. This is a real small sample size. There's other factors that are out there. But so far, stocks absolutely love Warsh because they literally haven't gone down. It's been like a week and a half. But uh listen, I do have to go pick up Gus from a basketball thing. Sonu, you bring us home. Um, this was this was awesome. I think the listeners are gonna absolutely love this. Sonu, and I also get on a plane a little bit and I'll see you tonight in uh in Chicago. So, Blake, thank you so much. You guys stay and have fun as long as you need to. I have to go do some stuff. This is a facts versus feelings first, but you know what? It's live, it's how it goes. So you guys have fun, bring us home. See you right.

SPEAKER_03 56:34

I'll see you in a few hours, right?

SPEAKER_00 56:35

Exactly. Yep, see you soon. Bye.

SPEAKER_03 56:37

Like, I mean, we won't spend too much time, but maybe we just wrap up with the SpaceX IPO. We'll come back to that, right? I rattled off a whole bunch of IPO stats. Basically, larger the company or smaller the company, the bigger the first day pop, but then longer drag, right? And SpaceX is clearly not a small company, it's one of the largest ones, right? But then there's a profitability aspect, and then the let's say price to sales ratio. I don't know where you think about like valuation ratios. And I know a lot of people look at that and they use that to say, are we in a bubble, things like that, or even individual companies, are they profitable now? Price to sales ratios, you know. If the last the one last stat for IPOs, if IPOs with price to sales ratios above 40, which is crazy, above 40 is a massive amount, yeah, had a first day average return of 94%. And and and we can put this chart up, corner. IPOs high price to sales are being a red flag, but the three-year return, so the first day average is 94%, the three-year average return was negative 45%. Right. It lagged the market by 59 percentage points. Whereas IPOs with price to sales ratios below five had an average first year return of only nine percent.

SPEAKER_04 57:56

Still pretty good.

SPEAKER_03 57:58

But the three-year average return compounded, accumulated, was 41%, still lagged the market by about 1%, one percentage point. But talk about SpaceX from that perspective, because there's a you know, like whenever I talk to active managers, I mean, Kathy Wood again comes to mind. She's like, you know, throw out all those backward-looking metrics, and they are backward looking, right? I'm curious how you think about it. SpaceX, you gave me the stat. I mean, you mentioned 1.7, $1.8 trillion potential market valuation. So the price to sales and sales is about $18.7 billion 2025. Yep. That's obviously well above the hundred million you're talking about. But that means a price to sales ratio ratio would be 91 times.

SPEAKER_01 58:43

90 plus times, right? And so I think just to reflect on that data you shared, uh, there's an anecdote from the intelligent investor, you know, Ben Graham's book. Jason Zwig published an editorial to the I love that one. I love that one. Maybe about maybe about 10 years or so ago, it came out now. Uh, but on the chapter of how Ben Graham approached IPOs and Jason Zwig's commentary on it, you know, IPO stands for initial public offering. Uh, but Jason Zwig said something to the tune of it's overpriced or it's probably overpriced. Probably overpriced. It's probably overpriced. Could be a great psychometric. And I think that data speaks exactly to it. How in how a more active investor might approach the SpaceX IPO and what we got really in the S1 are some forward-looking growth estimates to maybe help understand investors, help investors understand this market cap that they're targeting. And the one thing that sticks out to me is the SpaceX deal with Anthropic. For Anthropic to purchase data center capacity from SpaceX, this could be worth up to $15 billion annually for a total of three years, about $45 billion. Wow. That alone would be.

SPEAKER_03 1:00:00

And from perspective, the 2025 revenue for SpaceX was about 19 billion.

SPEAKER_01 1:00:04

19 billion, right. And so you can think about potentially 15 billion annually being added on top of that. It's uh either party can walk away if they find different compute or if SpaceX needs a compute. So it's not guaranteed, you know, we can't say anything like that. Uh, but the other idea is that Starlink is just growing in their market too. You know, Starlink has 2% of industry revenue that could keep growing over time. And for investors thinking about those long duration growth assets, uh it certainly seems like that story, at least out of Starlink, is attractive, but I can't tell you whether the valuation is or not. And maybe on that point about valuation and profits, you know, one of my heuristics for investing had always been to try to find, you know, what's likely to be included in the S P 500, both because it probably means they're growing and it probably means the company is profitable. I'm reminded.

SPEAKER_03 1:01:03

Oh, there's an asterisk now on that.

SPEAKER_01 1:01:05

Exactly. Maybe, maybe profitability doesn't even matter anymore. And maybe it just is S P 500 inclusion that matters. Well, we can actually test this with a different MUS company, Tesla. Tesla was just included in the S P 500 in 2020 only, more than uh I believe more than a decade after their IPO, because it took them so long to become profitable.

SPEAKER_04 1:01:30

Wow.

SPEAKER_01 1:01:30

One of the one of the biggest value ads that can happen to a company is being included in the world's largest index.

SPEAKER_03 1:01:37

Because everyone's buying that, like literally every two weeks in a 401k.

SPEAKER_01 1:01:41

You the flows are very predictable, not guaranteed, but very predictable. And I put together this chart, you know, being included in the SP 500 is valuable. Just ask Tesla. Tesla during November 2020 was about a $400 billion market cap between the day of the announcement of S P 500 inclusion and and the ultimate day they got added to the SPY, Tesla stock rose more than 40%. Uh just on the inclusion.

SPEAKER_02 1:02:12

You know, maybe I don't maybe they had an earnings report during that time, but the the I mean, and knowing Tesla, it probably is like, you know, meaningless. I mean, because they had to make money for a long time.

SPEAKER_01 1:02:24

Things like that. Yeah. But yeah, that that point's just to serve that you know, being included in these indices sort of is the end game for a lot of these companies. But now that they are at IPO, I I do ask myself, you know, what happens from here?

SPEAKER_03 1:02:39

And it's very hard for well, smaller companies get kicked out all the time. And the SP 500 has, I think about every five years, about 33% turnover. So a third of the index actually is like turned over, which is amazing to think about, right? Again, that's creative disruption right there. But it's hard to imagine something like SpaceX ever getting kicked out once it grows so big.

SPEAKER_01 1:03:00

So big, exactly. Right.

SPEAKER_03 1:03:02

And one last thing I'll leave you with, you know, leave our listeners with SpaceX anthropic, potentially open AI. Which one do you think will be the biggest?

SPEAKER_01 1:03:15

I don't know.

SPEAKER_03 1:03:16

I would normally ask you, given like some of the stats, I was gonna also ask you, which one do you think will be the most underpriced? Like the offer price versus the first day pop, right? But I'm curious, like set that aside, that's hard to gauge, right? But I'm curious which one do you think will be the biggest? I mean, you got SpaceX anthropic open AI potentially.

SPEAKER_01 1:03:34

I it might even be open AI because so many people use their products. You know, think about you know, who's used SpaceX products? Well, no one's gone up in a space launch. People use Starlink, about 10 million people. Um, who uses anthropic, maybe about 30 million software developers globally. Who uses Chat GPT? I've heard 700 million weekly active users.

SPEAKER_03 1:04:01

I think all of my friends' kids use it.

SPEAKER_01 1:04:03

Exactly. Imagine it reminds me a lot of Facebook when they went public. You know, Facebook has three billion global active users, and just sort of the virality and network effects that come with these consumer-facing products uh might might be very powerful.

SPEAKER_03 1:04:20

It's crazy to think a year from now, fingers crossed, tech and within tech, I'll include now SpaceX, Anthropic, OpenAI. Yeah. All these companies could make up close to 50% of the index.

SPEAKER_01 1:04:35

That's crazy. Absolutely crazy. Talk about crowding out. I know we always love to talk about crowding out from a macro effect, but yes, a lot of tons of interesting stuff going on.

SPEAKER_03 1:04:46

Blake, thank you so much for joining. This has been a lot of fun. It's as always, you know, fun talking to you. I know we exchange messages all the time. For all of you listening, Blake is my go-to person anytime I want to think about this stuff and try to draw macro insights from micro you know, uh, what's happening with companies at a ground level, right? And that's what you're looking at and thinking about all day long. Absolutely. Thank you all for listening. Have a great episode, hopefully. And thank you. Uh leave a review, leave a you know, like, unlike, I can't say which one, on YouTube. If you're watching, we'll have all the charts in there. Uh, give us a follow as well. But uh, I hope everyone has an amazing week. And if you're in the Chicago area, June 3rd, 4 30 p.m., Ryan and I will be doing a special facts vs. Feelings live episode with Jeff Kilberg and Jim Bianco. It's gonna be an amazing episode. Like I said, if you're in the area, come by, say hello. 4 30 p.m., June 3rd, uh, Swift Tavern, right opposite Quickly Feel.

SPEAKER_00 1:05:44

With that, thank you all. So you guys, information provided on Facts versus Feelings with some of our geeks and Ryan Dietrich are for general information only and are not intended to provide specific advice or recommendations for any individual. The statements and opinions of show guests may not be reflective of CWM LLC or its affiliates. Past performance is no guarantee of future results. All indices are unmanaged and may not be invested in directly. Investing involves risk, including possible loss of principal. No strategy assures success or protects against loss. To determine what may be appropriate for you, consult with your attorney, accountant, financial, or tax advisor prior to investing. Guests on facts versus feelings are not affiliated with CWMLLC.