Pod Insights Prof G Markets SpaceX’s $1.25 Trillion AI Bet About this episode Ed Elson breaks down why SpaceX acquired xAI with Edward Ludlow, co-host of Bloomberg Technology on Bloomberg Television. Then, he unpacks why Oracle’s stock is taking a dive despite strong demand for its debt with Gil Luria, Head of Technology Research at D. A. Davidson. They also discuss why trouble between Nvidia and OpenAI is bad news for Oracle. Finally, Ed explains what he thinks went wrong with Oracle’s public relations misstep.
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Transcript 5,687 words · 13 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
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1:29 Ed Elson? Today's number? 3.5 million. That's how many Epstein files were released by the Department of Justice last week. Mentioned in the files was Elon Musk, who apparently did not go to the island, but he did try before being politely rejected. We're not sure what's worse.
1:52 Speaker 05 Money markets, Matt. If money is evil, then that building is hell.
2:02 Ed Elson? Welcome to Prof you Markets. I'm Ed Elson. It is February 4th. Let's check in on yesterday's market vitals. The major indices declined amid a broad tech sell-off. Software companies weighed down the market after Anthropic released an automation tool for legal work. The tech drawdown hit Bitcoin as well, dragging it to its lowest level since November 2024. Meanwhile, Disney shares slid again after the company named Josh Demaro, chairman of the Experiences division, as its next CEO. By the way, Rich Greenfield predicted that on our episode yesterday. And Netflix shares fell as the Senate antitrust hearing on the Warner Brothers deal kicked off. A couple of stocks bucked the downward trend. Walmart rose as much as 3% and joined the $1 trillion market cat club.
2:47 Ed Elson? And Palantir gained more than 6% after reporting record revenues and profits for the past quarter. Outside of the stock market, gold and silver pared some of their losses. And finally, oil rose after the US shot down an Iranian drone headed towards an aircraft carrier in the Arabian Sea. Okay, what else is happening? Elon Musk's empire is consolidating. SpaceX has acquired XAI, creating a combined entity worth $1.25 trillion. That makes it the most valuable private company in history. Musk is calling it, quote, "the most ambitious vertically-integrated innovation engine on
3:32 Ed Elson? and off Earth." And the logic behind the deal is bold. It is a bet on space-based data centers, which Musk believes are, quote, "obviously the only way to scale AI." The all-stock deal comes just a week after Musk announced that SpaceX will go public later this year. Okay, here to discuss the deal, we are speaking with one of the reporters who actually broke this story, Ed Ludlow, co-host of Bloomberg Technology on Bloomberg Television. Ed, thank you for joining us on Prof you Markets.
4:03 Speaker 06 Yeah, thank you for having me and big story.
4:05 Ed Elson? Big story. So I guess just tell us the basics. You're the one who who broke this SpaceX and XAI merging together. What do we know so far?
4:17 Speaker 06 Yeah, it's an all stock transaction that values the kind of entire entity at 1.25 trillion dollars. The SpaceX bit 1 trillion, the XAI bit 250 billion dollars. But there's like some structural things that are important, which is the XAI basically operates as a subsidiary of SpaceX, which is important because SpaceX is subject to ITAR rules, right? That rules that govern the use of technology and defense applications. And so like my understanding and our understanding and our reporting is that, you know, even though they're now combined, XAI kind of continues to operate independently as its own company.
4:54 Ed Elson? How does this change things for the IPO? Because obviously SpaceX is gonna be the biggest IPO of the year, one of the biggest of all time. Does this change things there?
5:05 Speaker 06 Yeah, isn't that the the 1.5 trillion dollar or more question?
5:09 Ed Elson? Right.
5:09 Speaker 06 Our our reporting and our understanding is that the work continues for SpaceX and now the combined entity to do an IPO. In the summer, we had reported it would be at the midpoint of of this year. And and while like out there from the sell side, from from lots of people that follow these companies closely, there are still questions about whether it happens. The ultimate rationale behind this, right, is data centers in space. And at the time that we broke the story on why SpaceX would go public and and its motivations for needing to raise tens of billions of dollars, it was quite simple. That there is an ambition in place for for space based data center infrastructure,
5:54 Speaker 06 but somebody's got to buy the GPUs, right? That's that's the kind of fixed cost. And and based on our reporting in the days around this, all of that is still holding true.
6:04 Ed Elson? So this data centers in space thing, which, yes, that is what they've said. He wrote, "The idea is space based AI. That's the only way to scale." So could you just break down what that is? That is literally, "Let's take these data centers that exist on the ground and instead of having them on the ground, we're going to have them in orbit in space because there's not enough." Space in the ground?
6:29 Speaker 06 Yeah.
6:29 Ed Elson? I mean, why do we need to put data centers in space?
6:32 Speaker 06 To Elon Musk's mind, literally, you know, pardon the pun, there's more space in space. The simple way that Musk explains it is that right now, the limiting factor for scaling AI on Earth is energy. Right? You know, there's a great burden on grids across North America and other countries and other jurisdictions. Water consumption is an issue, impact on communities and literal space to build the data centers. If you put a data center in the form of a satellite and put it into orbit, the energy question is solved by solar to the mind of those advocating for this. You have to handle cooling and space is a vacuum and to the mind of the engineers working on it, that's easily solved.
7:17 Speaker 06 And you have plenty of real estate, let's call it, in space to build on. And that is the vision that Elon Musk is pitching here. It's a horrible term when you're a financial news journalist, but what we're talking about basically is vertical integration, deeper vertical integration. Right? Starship provides the rocket that carries these satellites into orbit and deploys them. They are data centers to all intents and purposes. XAI has trained the models, but also those models need to be run inference, which you guys know. That is all outlined in the public comms that SpaceX and XAI put out there, but also the internal comms that we've reported on around this too.
7:56 Ed Elson? As I am somewhat of a Elon Musk skeptic and as the Musk skeptic, my view when I see this is he's saying that the idea is that we got to put these data centers in space. How do we do it? Don't ask too many questions. The idea is we'll get there, we'll figure it out. At the same time, XAI is a company that is competing with the likes of OpenAI and Anthropic, these companies that are burning through billions of dollars in cash and they're having to raise billions of dollars in cash. And XAI is itself burning, I believe, a billion dollars a month. And so when I see this, my initial reaction is this is.
8:37 Ed Elson? The saving grace of XAI. If things aren't looking difficult over at the AI company, well, then why not just roll it up into the bigger company, which perhaps has more cash to play with to invest in in the AI models and training. Is that too cynical? What do you think of that perspective?
8:57 Speaker 06 There are lots of investors and people in the markets that are skeptical about the the financial rationale for this arrangement, combining private XAI with private SpaceX. And what we had also reported last week is that Elon Musk had looked at two distinct scenarios. One scenario involved SpaceX combining with Tesla, which is, of course, a public company. Bloomberg has reported that XAI is burning a billion dollars of cash per month. And on a quarter basis, you know, you can put that in aggregate. It also has a large debt burden, which is now on the balance sheet of SpaceX, technically. Those that would push back against those concerns would say, well, we also learned quite a bit
9:40 Speaker 06 about SpaceX's financials. Revenue is growing with Starlink now a majority contributor, as opposed to Launch being a majority contributor. And on an EBIT basis, at least, it is profitable. And so they're not concerned about SpaceX needing to service the XAI debt or account for the losses at the XAI unit. But again, you know, the the public commentary from SpaceX and from Musk is that this is about deep vertical integration. It makes the use of the talents and resources of both companies to the maximum effect, which is AI development, whether that's here on Earth or up in space.
10:16 Ed Elson? So, Ed, I know you've been looking at this for a long time, reporting on it, observing what's happening. And, you know, your job is to be objective on both sides. I would love to know what you think the real motivation is. Because it seems like there are two things at odds here. There's the financial picture. You bring up the amount of cash they're burning. You bring up the debt picture at XAI, which is, you know, a question. And then there's the deep vertical integration pitch, which is coming from SpaceX. And they're probably saying, no, it's not about the financials. It's because there are synergies here on the business side. What do you think? What is the true strongest primary motivator for Elon Musk to merge these two things together?
10:57 Speaker 06 Yeah. And then none of this is that big a surprise, you know, it's kind of consistent with what we've called Elon Inc., right? You know, Elon Musk has many ventures. They've always had historically close engineering and financial ties, right? There have been engineers that have worked on materials at Tesla and worked at SpaceX.
11:18 Ed Elson? Right.
11:19 Speaker 06 You know, some of the results of SpaceX's more recent success, like the heat shielding on Starship, you know, a lot of Tesla engineers touch those hands. A lot of Tesla engineers with a reason that XAI could build its data centers in Tennessee so quickly. You know, this kind of intercompany cooperation is not new. The financial part is also not that new, right? XAI has been a buyer of Tesla's energy products. From Tesla's earnings recently, the company disclosed a $2 billion equity investment in XAI. It's all kind of linked. Last August, we did this as the cover of Businessweek magazine, you know, the, you know, six months into the Trump administration's term in office. What was it that Elon Musk
12:03 Speaker 06 was trying to get out of being in and around the White House, working with Doge? And it was that a lot of the priorities that he had for his different companies were kind of aligned all around AI, you know, and having proximity to that administration allowed him to try and influence things that would help those priorities. But yeah, it is AI at the end of the day. Tesla has hard pivoted away from cars. It now needs, you know, to develop the software part of AI for autonomous driving and the Optimus humanoid robot program. XAI, per the regulatory filing in the week, it's not just- And a financial investment that Tesla's made, they have a framework to now share and work on the technology.
12:46 Speaker 06 So fast forward, the future is that all of these companies kind of work in parallel.
12:51 Ed Elson? Yeah.
12:51 Speaker 06 What will the space data centers actually be doing? Inference in space, right? Running inference on Optimus or running inference on on models that are underpinning something else, be it the the robot taxi network. It's kind of been hiding in plain sight a little bit.
13:06 Ed Elson? Do you think ultimately they all merge with Tesla? I mean, the way you describe it, Elon Inc., it's a good point. They're all kind of collaborating. It seems as though maybe the ultimate goal is, yeah, just roll it all up into one company. How likely do you think that is?
13:22 Speaker 06 Yeah, our our reporting is still that like the SpaceX XAI combined entity is going to do an IPO later this year.
13:29 Ed Elson? Yeah.
13:29 Speaker 06 But actually, loads and loads of people's immediate reaction to the news was, OK, Tesla must be next. You know, fold Tesla in in in some way. People just think that that is the logical step to make. When we did the the the August edition of Business Week, you know, it was it was well reported. And in conversation with all of these sources in close proximity to the companies and Elon Musk, there there is a a per se a perception, you know, a realization that if you took these massive companies and tried to to fold them into one conglomerate in any environment, that would be tricky. You know, regulators will look at it for one reason or another. The mechanics of it would be difficult. And again, I go back just to the reporting about the two options that we believe were looked at.
14:13 Speaker 06 SpaceX plus Tesla or SpaceX plus XAI. And in the in the first instance, they went with SpaceX plus XAI. But there were a body of SpaceX investors, you know, with with a meaningful footprint on the cap table that that looked at it. And then to them, the Tesla combination made a lot more sense than the XAI one did, not just because of the sort of financial health of such a transaction, but because that what they were working on, you know, at scale, manufacturing, vertical integration of of those more analogous industries. So that to those investors, it was completely obvious.
14:47 Ed Elson? Really fascinating. Ed Ludlow, co-host of Bloomberg Technology and Bloomberg Television. Ed, thank you very much for joining us.
14:54 Speaker 06 Thank you for having me.
14:58 Ed Elson? After the break, Oracle takes a plunge. And for even more markets insights, you can subscribe to my weekly newsletter, simply put, at edwardelsin.substack.com.
15:16 Speaker 00 This episode is brought to you by Michelob Ultra. Good times mean competitions between you and your friends. Like seeing who can throw some pigskin the farthest or rush the field the fastest. Winner gets an ultra. Because it's not just a superior light beer. It's also giving fans superior access to their favorite sporting events. Superior is worth playing for. Visit michelobultra.com/superioraccess to enter. Enjoy responsibly. Copyright 2026 Anheuser Busch InBev Michelob Ultra Beer, St. Louis, Missouri.
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16:48 Ed Elson? We're back with Prof G Markets. Oracle has set investors on edge. On Sunday night, the company announced plans to raise up to $50 billion to fund its cloud infrastructure. It launched the first part of that financing on Monday with a $25 billion bond sale that actually drew record demand, but enthusiasm quickly turned to concern as questions resurfaced about a related matter, specifically Nvidia's investment in OpenAI. As a reminder, back in September, Nvidia announced it planned to invest up to $100 billion in OpenAI. However, CEO Jensen Huang recently clarified that that figure was, quote, "never a commitment",
17:29 Ed Elson? and it appears that the investment has stalled. That poses a serious risk for Oracle as roughly half of its $625 billion in future revenues are made up of spending commitments from OpenAI. So the question is now louder than ever. Will OpenAI be able to pay up? In total, Oracle's stock has fallen roughly 10% since Sunday night. Here to walk us through the situation at Oracle, we're speaking with Gil Luria, Head of Technology Research at DA Davidson. Gil, thank you for joining us.
18:03 Gil Luria? Thanks for having me.
18:04 Ed Elson? So there are a lot of moving parts here. Oracle says that they're going to raise $50 billion worth of debt and equity. They go out and they raise the debt successfully, but the stock is sliding down around 10% in the past couple of days, and it seems to all have to do with OpenAI. Can you just give us the play by play, what on earth is going on with Oracle right now?
18:35 Gil Luria? No, you're exactly right. There's just a lot of moving pieces, especially the last couple of days. So just start with the fact that all of software is down a lot. And all of, more than all of Oracle's cash flow comes from its software business. Let's not forget that Oracle is mostly, almost entirely, a company that sells database software, enterprise resource planning software. That's where they get more than all their profits. And and right now, the market feels like software is just a bad idea in general. So that's been happening at once. And then you have the the fact that they're raising capital. And then they said that this is all the capital they're going to need this year. That's good. The fact they were able to do at least part of the debt.
19:19 Gil Luria? We're not sure they're done, but at least part of the debt, that's good. Then you start getting into some of the other challenges. One is that's that's it for this year. But for them to be able to build the capacity that they promised OpenAI, they're gonna have to do this again next year and probably again the year after that, meaning raise another $50 billion next year and the year after that. What's happened is if you look closely at this debt issuance, it was not cheap. They the rating agencies gave their secured debt, the the senior secured debt, a triple B minus rating, which is to say just above junk bond status.
20:01 Gil Luria? This is a 50 year old company that is now issuing debt almost at junk bond rate. So that's not good. They won't have any cash to pay that debt down. They're gonna have negative cash flow this year. So a year from now, when they need to go back to the debt markets, that's gonna be junk bonds. So even higher yield, higher interest expense. To add insult to injury, there's also the equity offering. They're doing what's called an add the market offering. That means that instead of doing a full issuance overnight, they're gonna sell a little bit of stock every day. And our back of the envelope method, I can walk you through it,
20:40 Gil Luria? is that that's probably 10 weeks of them selling 10% of the daily active trading volume every trading day. So that's gonna keep putting pressure on the stock, possibly for the next 10 weeks. So those are those are some of the puts and takes here in in what is a very dynamic, complicated situation.
21:02 Ed Elson? And where does OpenAI fit into all of this? Because You know, there was reporting that OpenAI had this deal with Nvidia that maybe isn't as secure as people once thought. And then Oracle puts out this really fascinating statement. They say, quote, "The Nvidia-OpenAI deal has zero impact on our financial relationship with OpenAI. We remain highly confident in OpenAI's ability to raise funds and meet its commitments." And then that statement goes viral. And everyone's kind of laughing and pointing fingers at the statement and at Oracle right now. So talk a little bit about how OpenAI fits into this slightly ugly picture for Oracle.
21:46 Gil Luria? Yeah, well, then there's all that. And that tweet was also unfortunate. Thou do protest too much, right? And this isn't what a corporate account should be tweeting. I would take a look at that, and I'm not sure what the instructions were. But we've talked about the fact that Oracle is raising all this capital to build data centers for OpenAI. So Oracle has to raise a lot of capital to build data centers for OpenAI. For OpenAI to be able to pay for this compute capacity, they need to raise a lot of capital as well.
22:21 Ed Elson? Yes.
22:22 Gil Luria? And in fact, if you think about where Oracle stands in line, it's important to see how much OpenAI can raise. If they can't raise enough, Oracle's not getting paid. Because Oracle's probably third or fourth in line in terms of who OpenAI is going to get paid, who OpenAI is going to pay, when they raise the capital. If OpenAI doesn't raise enough capital, only Microsoft gets paid, maybe Amazon. Oracle has to hope that OpenAI raises a hundred billion dollars or more to be able to afford its grand ambitions, which include this OpenAI capacity. So one company raising debt at almost junk ratings in order to build
23:03 Gil Luria? capacity for a startup, a money-losing startup, that's still struggling to raise capital so it can pay for it. We've talked about this. This is bubble-icious behavior. This is not okay. This is unhealthy behavior. It may still work out because this AI stuff is great, but it's very, very risky type of situation for really for both companies.
23:24 Ed Elson? And it's really fascinating how it all kind of ties back to Nvidia because it was all about Nvidia investing the money into OpenAI and then that's the money they're going to use to pay Oracle. But there was this fascinating interview with Jensen Huang, which I would love to to get your reactions to. He was asked about this $100 billion commitment deal that was talked about with OpenAI. He was asked about what's going to happen with that. And this is what he said.
23:54 Speaker 09 There was never a commitment. They invited us to invest up to $100 billion. And of course, we were we were very happy and honored that they invited us. But we will invest one step at a time.
24:09 Ed Elson? It seems that he's kind of frustrated in that video that people are saying that, oh, you're gonna you're gonna invest $100 billion. And he said, no, that's not what's happening. I would just love to get your reactions to how he sounded and also what he said.
24:25 Gil Luria? Yeah, there's a lot of things going on there, too. So first of all, that $100 billion that was talked about a while ago, that was really just a framework for what I would call a rebate. Nvidia Nvidia talked to Nvidia agreed with OpenAI for every gigawatt of capacity that you get out there, we'll invest $10 billion at your current valuation, which at the time was $500 billion. OpenAI hasn't even deployed a gigawatt yet. So they haven't gotten that first $10 billion. So that was a framework. And I understand that Jensen's saying that. By the way, the conversation now is for Nvidia to actually invest tens of billions of dollars actually at this level, not as a rebate, as is the discussion for
25:06 Gil Luria? Microsoft and Amazon and to also invest in OpenAI. So again, it is quite possible that OpenAI raised this capital. But there's a lot of noise. And the last couple of days, there were news items about Nvidia being frustrated with OpenAI, spreading itself too thin in terms of the businesses it's deploying, in terms of the chips that it's buying. So there was frustration in Nvidia. And coincidentally, or not, there was a link from OpenAI that they're frustrated with Nvidia's chip. Performance. So a little bit of childish conflict here. But at some point, the adults are in the room.
25:44 Ed Elson? Yeah.
25:45 Gil Luria? Nvidia has a very significant interest that OpenAI does well, right? Remember, if there's no OpenAI, there's no Anthropic. Everybody's using Google TPUs.
25:54 Ed Elson? Yes.
25:54 Gil Luria? So Nvidia needs OpenAI to do well, and it has the capital to invest, as does Microsoft, as does Amazon. So it is likely that those three will fund the continued expansion of OpenAI at least this year. But if you can imagine that if Nvidia invested OpenAI, there are strings attached. There's no more discussion of other chips. And there certainly will not be communication out of OpenAI about Nvidia chips not performing. So that's where we're at, a little bit of middle school drama. But at the end of the day, there's a lot of incentives going around to make sure that the investment continues.
26:28 Ed Elson? The debt picture that you described at Oracle in concert with the capital problem over at OpenAI and the fact that they need more money to spend on these commitments than they actually have. It's all very concerning. It's just like very flashing bright red signs when you hear that. We were, you know, when a couple of years ago, when Oracle started to position itself as a real AI player, we were quite bullish on the company and that actually, you know, paid dividends going forward. But it's now getting to the point where there are so many red flags here. Do you think that this is just a company that investors probably shouldn't touch?
27:08 Ed Elson? At this point, are we getting into a territory that is genuinely dangerous? If you're buying Oracle or is it safer than I'm portraying?
27:19 Gil Luria? No, it is risky. And let me just put it in context. Oracle is still trading at 20x forward earnings. On what looks like low teens growth next year. Salesforce is going to grow low teens growth next year. It's trading at 16 times. Adobe is going to grow low teens next year. It's trading at 12 times. So Oracle, by, again, given where we are on software, Oracle is not cheap by any stretch of the imagination. They have good business. The baseline database business does generate a lot of cash. The baseline Oracle cloud business was okay. It was growing fast, not very profitably growing fast. The AI part of the business, the AI compute part of the business appears to be such low margin
28:03 Gil Luria? that it's not even clear that they should be investing in it. And yet again, to your point, they just borrowed a lot and they're issuing at least 5% of their shares in order to fund this, which again, may grow their revenue a lot, but may not add any profit anytime soon. Certainly not any cash flow anytime soon. So very risky, especially compared to much better software companies. They're trading at a lower multiple right now.
28:31 Ed Elson? Okay, Gil Lurie, Head of Technology Research at DA Davidson. Thank you so much, Gil. Lots of crazy stuff happening in tech world. I really appreciate you taking us through it.
28:41 Gil Luria? Thank you.
28:46 Ed Elson? So lots of AI drama this week. And at the center of it all, again, it's OpenAI. Through multiple reports, we now know that those $100 billion that Nvidia was going to commit to OpenAI, whatever that means, that is now, quote, on ice. But what might be even more interesting is the extent to which Oracle has been implicated in all of this. And even more interesting than that is perhaps what Oracle said about it. This was the public statement from the official Oracle account on X, which I said to Gil. They said, quote, "The Nvidia OpenAI deal has zero impact on our financial relationship with OpenAI.
29:29 Ed Elson? We remain highly confident in OpenAI's ability to raise funds and meet its commitments." There are several things that are striking about this. Number one, why is a large corporation commenting on a third party deal with which they are not involved? That is kind of strange. Number two, why do they feel the need to say anything about it? And number three, why bring more attention to this deal than it already has? These are all the questions that everyone's asking themselves. It's the question that I'm asking myself, but I'm only asking them because Oracle posted about this. If Oracle hadn't said anything, then perhaps we wouldn't be asking these questions, but they did.
30:10 Ed Elson? And so now we are. And the answer to those questions is quite obvious. They're saying these things because they are worried about them. When they say this has no impact on our relationship with OpenAI, that's how you know it does have an impact on their relationship with OpenAI. When they say they're highly confident that OpenAI will meet its commitments, that's how you know they're not highly confident that OpenAI will meet its commitments. This is public relations 101. This is what is known as the Streisand effect. And that is whenever you try to suppress or downplay an issue that you don't want lots of people talking about, all that happens when you do that is it makes people talk about it even more. And this is
30:54 Ed Elson? the perfect example. That statement, that press release, received 5 million views on X. To put that into perspective, that is more than double the prime time viewership of Fox News. And no, people were not saying it was a good statement. It wasn't going viral for that reason. People said it was a bad statement. They were trolling Oracle. They were saying how embarrassing it was. And crucially, in the hours after that statement was published, Oracle's stock fell 6%. So this should be a learning moment in public relations. Then companies need to remember that business is now more popular than ever as a form of entertainment. It is a sport now. It is a series. You, Oracle, are now
31:38 Ed Elson? part of the show. And so what that means is when you screw up, like they did, the stakes are a lot higher because everyone is watching. Everyone is interested in how this plays out. Now, I don't know who made the call to post that statement. It seems to have come from someone potentially higher up in the company. But if you're running a half a trillion dollar company, which Oracle is, You need to be better. The language needs to be way less defensive. It needs to deal with these concerns a lot more delicately than it did. And most importantly, someone should have asked, do we really need to post this? And the answer should have been, no.
32:20 Ed Elson? You know, maybe 10 years ago, people wouldn't have noticed this. But the year is 2026. We are in a digital era. We live in an age of virality. The costs of these mistakes are higher. And in this case, it cost them roughly $25 billion in market cap. It is quite simple. You've got to be smarter.
32:45 Ed Elson? Okay, that's it for today. This episode was produced by Clay Miller and Alison Weiss, edited by Joel Patterson and engineered by Benjamin Spencer. Our research team is Dan Shalane, Isabel Kinsale, Chris Donahue and Mia Silverio. Thank you for listening to Profitec Markets from Profitec Media. If you liked what you heard, give us a follow. I'm Ed Elson. I will see you tomorrow.
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