(Preview) SpaceX Hype and the Elon Bargain, Nvidia and the Neoclouds, Q&A on Dropbox, Google, Ferrari Luce Backlash

Ben and Andrew begin with a look at SpaceX before its June IPO. Topics include: Why the S-1 math that doesn’t quite pencil out for now, the madness of analyzing Musk companies generally, the company’s ultimate upside, and why the IPO is worth applauding regardless. Then: Questions on terrestrial solutions vs. data centers in space, the durability of SpaceX’s rocket monopoly, Nvidia’s earnings and the future of the ACIE market, why neoclouds are advertising on podcasts, and the op-ed from Cloudflare CEO Matthew Prince explaining his company’s AI-driven layoffs. From there: Dropbox as the Penny Hardaway of tech companies, an emailer worried about enshittifed AI chatbots yields discussion of the real reasons Google’s gotten worse. At the end: The Jony Ive-designed Ferrari Luce, why Ben regrets a tweet, how Ferrari will sell these cars, and more philsophical thoughts on why everyone was upset this week.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Andrew Sharp?

  Hello and welcome to a free preview of Sharp Tech.

• 0:08Andrew Sharp?

  Hello and welcome back to another episode of Sharp Tech. I'm Andrew Sharp and on the other line, Ben Thompson. Ben, how you doing?

• 0:18Ben Thompson?

  Filled with regret, Andrew.

• 0:19Andrew Sharp?

  Over what?

• 0:20Ben Thompson?

  Filled with regrets. Well, so I was, I was going through the rundown last night, late at night. And there was a question about the Ferrari Luce on here. And I decided I'm going to troll on Twitter and, you know, do the guy in the courtroom saying, I like the Luce. But I was in the context of Sharp Tech where last week I explained, I don't like electric cars.

• 0:42Andrew Sharp?

  Right. Not really an EV guy, yeah.

• 0:45Ben Thompson?

  Right, which, which I actually have a much broader take on the Luce that ties into that. But no one on Twitter has that context. So I'm just like hanging out on Twitter, defending the car everyone hates. And I'm not really defending it. I was actually trying to have this very subtle like diss of it.

• 1:03Andrew Sharp?

  Okay.

• 1:04Ben Thompson?

  Total, total failure.

• 1:05Andrew Sharp?

  I did not pick up on your diss at all. I saw the tweet and I was like, what the hell it's been doing?

• 1:10Ben Thompson?

  It's so, it's so poorly, I was so thinking about Sharp Tech. Just, you can't delete a, like, you can't delete that tweet now, right? You just look weak because you're like being beaten down by the cops. You gotta own it. So I'm going to explain myself on this podcast. We actually talked about it on the other rings. I'm going to double dip.

• 1:28Andrew Sharp?

  Okay, great.

• 1:29Ben Thompson?

  I do feel the need to defend myself, but none of that defense is going to make its way to Twitter. This is actually going to be a theme of this podcast of Twitter being annoying.

• 1:39Ben Thompson?

  But this one was.

• 1:40Andrew Sharp?

  I cannot wait. That's going to be the party in the back. It's going to be mostly male on this episode. We'll try to hit as many questions as possible. And the Luce discussion will be the party in the back. Because you've had takes all week long and I felt like you were pushing back against some of the consensus backlash to the Johnny Ive design.

• 2:01Ben Thompson?

  So it's one of those things where the consensus backlash is totally right, but mostly for reasons they don't understand why they're right. And there's a bit of the, our friend Spike Esken has the, what? The accidentally viral critical consensus where it just becomes the thing to have an opinion about something. And the annoying thing about AVCC is number one, I share Spike's. Sort of desire to inherently push back against it. So that definitely fuels the tweet. But the other part where AVCC gets super frustrating is when AVCC is right. But, but people are just so on the bandwagon that it gets really annoying.

• 2:39Andrew Sharp?

  And they're all annoying about it. Okay. Well, we'll dive into all of that in about an hour. For now, uh, we will begin with SpaceX. You wrote a big SpaceX article on Wednesday. It was really sort of an Elon Inc. article because there was a lot of good Tesla discussion in there as well. But as to SpaceX and the impending IPO, I'll read from your article. SpaceX is seeking a $2 trillion valuation on a mere $18.6 billion in revenue, with $4.9 billion in losses last year. Growth actually slowed from 35% to 33%. That slowdown happened despite the addition of XAI and thus also X, which tipped the company from a small profit to that massive loss,

• 3:23Andrew Sharp?

  thanks to $5.1 billion in AI R and D expense. That R and D, keep in mind, went toward building a model that is in fifth place and whose entire founding team recently left the company. But sure, $26.5 trillion AI opportunity. So alongside that note, you also wrote that the SpaceX IPO is an IPO worth supporting. So tell me why? Tell me how you're making sense of all of it.

• 3:53Ben Thompson?

  Well, this is part two of Twitter being annoying. Take him, who, who I quite enjoy. He's sort of like, he has his own newsletter. Yeah, he's a big Nvidia guy, uh, wrote the book, The Nvidia Way, which was, was a great read. He clipped this paragraph and says, oh, I love Ben Thompson. He'll give it straight. So what I ended up with was the reason that paragraph is in there was to upfront say this whole thing from a financial analyst perspective doesn't make any sense.

• 4:20Andrew Sharp?

  Doesn't fully pencil out.

• 4:22Ben Thompson?

  Right. And so just in general, when it comes to anything Elon Musk awaited, I write about him like once every five years. And the reason is because it's really annoying and impossible. Like, why do I never cover Tesla earnings? Because Tesla all along is

• 4:41Ben Thompson?

  Fueled by like promises and belief, especially of like retail investors.

• 4:47Andrew Sharp?

  Coming soon. Imagine how big the market's gonna be. Yeah.

• 4:50Ben Thompson?

  Well, so, so what I wrote, and I, I wrote, it's a Tesla in 2016 or something like that. When the Model 3 was put on, made available for preorder and like 300,000 people put down a thousand dollars in like 12 hours. Like, like, which was, remains pretty incredible for a car that, you know, and it was, it spoke to the power of Elon Musk and the brand.

• 5:14Andrew Sharp?

  Yeah.

• 5:15Ben Thompson?

  And, and, and why, and I wrote another, it's funny, I do like the articles, I don't even tend to write about Elon Musk, but it's just hard, like, I wrote another one a few years later, mistakes and memes about this, this flip where it used to be, you go back to like the March on Washington, uh, you know, very famous civil rights march, which entailed years of preparation, both in terms of, of, of seeding the political ground, but also organizationally and like, like that specific march, I think was like two years in the planning. And it culminated in this sort of incredible moment, one of the most famous speeches in history, Martin Luther King's, I Have A Dream Speech.

• 5:56Ben Thompson?

  And that was how mass movements had, they had to be built.

• 6:01Andrew Sharp?

  Yeah.

• 6:01Ben Thompson?

  You, you built them up and they, they, they culminated in this massive spectacle on the National Mall.

• 6:11Ben Thompson?

  On the internet, it doesn't work that way. Internet, you can spin up masses overnight. And so I think I wrote mistakes and means in the context of like the whole GameStop sort of thing. But there's been other things like the color protests and, and there, and there was a sense that why is it we get these huge movements and nothing happens? And it's because this whole process has been inverted. You can spin up a mass movement on social media, but if you didn't put in the years of building the infrastructure around that movement, then it just sort of sputters out and everyone forgets about it.

• 6:50Ben Thompson?

  However, and this is where I tied Musk into that article. What makes him unique? There's a lot of things that Ian Musk unique and by unique, unique can be good and it can be bad.

• 7:02Andrew Sharp?

  Yeah.

• 7:02Ben Thompson?

  But no question he's unique is the extent to which, and there's a bit of Jobsian sort of reality distortion field, but Musk has like nuclearized that sort of capability. Where you leverage the masses to achieve the means by which you build the structure.

• 7:25Andrew Sharp?

  Hmm.

• 7:25Ben Thompson?

  That spun up the masses in the first place. And the Tesla stock has always been the best story of this. I have not written about Tesla earnings because any sort of breakdown, even once they achieve success, honestly, the stock went to the moon. It was still, if you, if you actually sketch out their, their, their profits and losses.

• 7:45Andrew Sharp?

  Not super rational.

• 7:45Ben Thompson?

  And the expected value. It doesn't really make sense, but at some point, and people on Wall Street have been writing, TSLA stock does not make sense for ages.

• 7:55Andrew Sharp?

  For 10 years, yeah.

• 7:56Ben Thompson?

  And they look dumb though, because the stock that like, they washed their shirts when the Model 3 worked and the Model Y worked and it, and the stock went to the moon. But, but like the, the stock was, just because it went to the moon, it's like, oh wait, if it had stayed where it was, then it actually made sense, but they didn't, it got, it got escalated. But the crazy thing about the Tesla stock that always amazed me, and I'm sure this is the thinking for SpaceX going public, is they would do a stock issuance to get more money. Now, if you issue more stock, you're diluting the stock that's in the market. Like the fundamental value of the company, if the company's worth a thousand dollars and you have 10 shares worth a hundred dollars.

• 8:40Ben Thompson?

  If you issue 10 more shares, nothing has changed about the quality of the company. So the shares should go down to $50 each.

• 8:48Andrew Sharp?

  Yeah, you mentioned this last week.

• 8:50Ben Thompson?

  Tesla would issue shares and the stock price would go up. And so it's like.

• 8:54Andrew Sharp?

  Pile in, man, you know, go for a ride with Elon, see where you end up.

• 8:58Ben Thompson?

  Right. And everyone's like, oh, yes, he's investing more money in the company. We're gonna achieve our dreams, achieve our goals. And it's easy to sit around and mock this. And like, look at these rubes being led astray by Elon. And you're seeing a lot of it with the SpaceX thing, right? Look at, I can't believe these idiots are gonna invest in this company with these numbers. And that's why this paragraph was there in a mocking tone to reflect sort of that reality. But the, what Musk is doing and has done again and again, is sell people on a dream such that they will put money into the dream. And that's the means by which he goes and pursues the dream.

• 9:43Andrew Sharp?

  Yeah.

• 9:44Ben Thompson?

  Like, he's, he's flipped over the process. He creates movements to fund infrastructure instead of infrastructure building to a movement. It's a complete inversion of the way things used to work. He's the master of retail in that way, the master of the internet of memes. Like, like Tesla, like SpaceX is the new meme, meme stock. Like, like, that's just going to be, that's gonna be the case. And so the question then, if you accept that as this is what happens, it seems irrational, but this is what happens. Is there a path?

• 10:19Andrew Sharp?

  To building infrastructure. That's actually gonna make a ton of money and justify any sort of valuation like.

• 10:25Ben Thompson?

  Right, backwards justified. So you look at all the idiots who are like buying unbelievably expensive Tesla stock and doubling down when they were issuing more, like, they all made a lot of money.

• 10:34Andrew Sharp?

  Yeah.

• 10:35Ben Thompson?

  At the end of the day, like, all the people who were pointing out that was dumb, uh.

• 10:38Andrew Sharp?

  And by the way.

• 10:39Ben Thompson?

  People held the stock down.

• 10:40Andrew Sharp?

  I will just note that my best friend is a money manager. He manages my wife's money. I've mentioned in the past, my wife has Tesla stock for literally eight years. My friend Ed has been coming to me and being like, the fundamentals just don't make sense with Tesla. We need to get out. And Alice will always say no. And the fundamentals still don't really make sense with Tesla when you look at the multiple and the valuation and like the cyber cap stuff, you know, it is definitely a real possibility. Um, and on the SpaceX front, I, I mean, there are real things that they have working in their favor. They got a $45 billion contract for compute with Anthropic over the next three years.

• 11:22Andrew Sharp?

  Either side can walk away from that deal with 90 days notice, which is pretty interesting, but Anthropic definitely needs to compute right now. Um, so like the, the AI infrastructure business alone is real and should grow for them. But what I love-

• 11:37Ben Thompson?

  And I do, I, I should have acknowledged, I do like, and I said this before, XAI, like basically I, I, I think the way I'm interpreting it is XAI's new team is basically Cursor. Which I think is, is quite interesting, like they, cause Cursor, like Cursor needs, needs compute. They need to build their own models. They have, they, they, it's not a viable business that they have to be, their ultimate model is throwing out to Anthropic or, or to OpenAI or whatever it might be. But they also have lots of interesting data. They, they have a very good enterprise business that's still growing. And if it's important to be really good at coding, it's hard to imagine sort of a better place to start. So I don't, I don't even hate where XAI is i- in that regard. Um, you know, I almost certainly that deal was structured because you can't do like a $50 billion acquisition,

• 12:22Ben Thompson?

  like as your S1's already filed.

• 12:24Andrew Sharp?

  Yeah.

• 12:24Ben Thompson?

  So, um, but, so I, I don't hate where that's going either. And I probably should have given more sort of credence to it, but I wanted to write about space data centers and I wanted to sort of like acknowledge like, but I think this framework is actually important. It's important to understand the Elon framework, which is not conducive to your friend Ed.

• 12:44Andrew Sharp?

  Exactly. Well, but it has been, I mean, look, the odds of starting a new car company 15 years ago or 20 years ago, whenever Tesla started and actually succeeding literally has not been done in a hundred years.

• 12:58Ben Thompson?

  A hundred years.

• 12:58Andrew Sharp?

  Yeah. So clearly something he's doing is working and I just appreciate any company that is IPO-ing. I feel like I came to Sharp Tech in the post-IPO era and you know, half the companies we talk about are private companies. So I'm excited to open up the balance sheets and have some fun, first of all.

• 13:18Ben Thompson?

  Yeah. Well, this is part of why the IPOs we're supporting. Number one, uh, just in general, look. I'm not gonna defend, this is not a defense of Elon Musk, like up and down, left and right.

• 13:29Andrew Sharp?

  Yeah.

• 13:30Ben Thompson?

  But there is a bit where both sides go too far. So on one hand, again, this is why I come back to that tweet. I just had tons of Elon bros in my mentions.

• 13:40Andrew Sharp?

  Like World War Z crawling into your mentions.

• 13:43Ben Thompson?

  Right, right. They were just attacking that one screenshot and they're like listing all these things like whatever.

• 13:48Andrew Sharp?

  Your, your article was like pretty positive, all things considered, on what's possible for SpaceX.

• 13:54Ben Thompson?

  But it widely got interpreted on Twitter as very negative, which is like, like, it's funny, I was worried about, like, I'm coming across as like way too much of a believer. And so I need to like shield myself and like be like, look, this is all kind of ridiculous. It doesn't make sense. And of course, that's the part that totally got anchored on. Like there is, this is why I don't write about Elon. There's no winning. Like both sides got mad. Um, so whatever. But yeah, but, but, but to the Elon point. Look, Tesla exists. The self-driving is amazing. Is it, fair question, is it ever gonna get to fully autonomous with doing vision only? You know, like we could, we've litigated that. It's still an open question. As it is, it goes door to door and you don't have to touch the steering wheel and it does it reliably.

• 14:36Ben Thompson?

  It's amazing. Like, like, it, it, like, anyone who, everyone needs to have experienced it at least once. Uh, you owe it to yourself just to like, like appreciate how, how good it is. And so that exists. Uh, rocket boosters do land on ships routinely. It happens every week, multiple times a week. It's not even a news story. Like, like, and.

• 14:59Andrew Sharp?

  Starlink exists.

• 15:00Ben Thompson?

  Starship, we'll see, I mean, the Starship is kind of, it, it is.

• 15:06Ben Thompson?

  It's taking a long time. They're spending a lot of money on this. It's definitely, I think, been much more difficult than they think. And I've given the case for iteration, getting on the limit, finding exactly where it is, stuff should blow up. There, like, there's a reason the risk factors of the S1, it starts immediately with Starship. It's like multiple pages long. Cause all this stuff depends on getting that sort of capacity into space. And 2024, they catch that thing with chopsticks. It's like, oh, they're almost there. They're gonna get it. It's been two and a half years. Right? Like the, or two years, I should say. So it's a real risk factor. But number one, like Musk has earned.

• 15:44Ben Thompson?

  Like Musk IPOs are by and large good for society. I think is like number like that's been sort of shown. Number one, uh, number two, their ambitions are so large and the commensurate risk factors are so high. People talk about like, oh, you know, it's not fair that retail investors don't get a chance to get into startups and all they do is sort of like catch stuff at the end. It's like, well, you want to be a VC, here's your chance.

• 16:11Andrew Sharp?

  Yeah.

• 16:11Ben Thompson?

  And by the way, being a VC means you might lose all your money. But that's great. I think it's great that that opportunity exists. So, uh, buyer beware. This is not stock advice. I, I, I don't invest my stock directly. If I did, probably not for me because I, there's a bit where I like.

• 16:29Andrew Sharp?

  Oh, it looks pretty overvalued right now. IPOs, but who knows?

• 16:34Ben Thompson?

  I don't know. Maybe I'd probably get a few shares just because like, hey, we might pull it off. But, uh, but I'm glad it exists.

• 16:40Andrew Sharp?

  Yeah.

• 16:41Ben Thompson?

  And.

• 16:42Andrew Sharp?

  I agree. Well, what I love about SpaceX is it's not a software company. Like they're building real infrastructure that actually matters and could change the way we live in a variety of ways. Like they've already changed national security in some very positive ways, delivering internet in new ways, building out data centers faster than anyone on earth, at least in this country. Maybe going to Mars. I don't know. I don't know if we'll get to Mars, uh, but I support the ambitions in the physical world. I think that's pretty cool. So, um, we'll see what it turns into. Speaking of the physical world though, Justin says, before we go to space for data centers, aren't there uglier but more plausible terrestrial or near terrestrial escape hatches?

• 17:24Andrew Sharp?

  For example, modular data centers attached to offshore oil platforms or other stranded energy sites powered by gas that might otherwise be flared with existing industrial maintenance infrastructure, fiber slash backhaul and the ocean as a heat sink. Lot going on there. Obviously marine environments are brutal and maintenance would still be a nightmare, but that seems dramatically more tractable than launching disposable rack satellites and accepting orbital hardware depreciation. My question is, if the core stick is terrestrial power and zoning opposition, why shouldn't we expect the industry to exhaust every conceivable alternative before orbital data centers pencil out?

• 18:08Andrew Sharp?

  I'm very pro-space industry and I'd love billionaires to subsidize orbital industrial capability. I'm just struggling to see why earthside ugly solutions don't dominate space compute economically for a long time. What do you think, Ben?

• 18:24Ben Thompson?

  So this is totally valid pushback. So in fact, a lot of the pushback we're going to go through is valid. And there is a bit where for SpaceX specifically, there is a, you have a hammer, what's the biggest nail I can find?

• 18:37Andrew Sharp?

  Yeah.

• 18:38Ben Thompson?

  Right? So there was on Tech Me or today, or there's an article from The Information about Apple is going to tout how their own chips gives them an advantage in AI. Like, did Apple develop their chips to give them an advantage in AI? Or are they casting about and retrofitting their advantages to tell a story about how they have an advantage in AI? Now, that's definitely true, and it also might be true that they do have an advantage in AI because of their chips. Like, all these things can be true at the same time. This definitely applies to SpaceX. SpaceX was not created to put data centers in space.

• 19:16Andrew Sharp?

  Yeah.

• 19:17Ben Thompson?

  Right? And like, so there is a certain retrofitting of mission, and there's a bit where AI is like, is arguably rescuing the SpaceX economic case by virtue of delivering this theoretical market that is so large that they didn't plan for, but it happened to come along at the right time. And there, and so all these arguments about space.

• 19:40Andrew Sharp?

  Twenty-six trillion dollar opportunity right there, yeah.

• 19:41Ben Thompson?

  SpaceX is making the argument for data centers in space because they're a space company. Right? So, so totally valid response. Now, the pushback to Justin, and the reason why I am...

• 19:55Ben Thompson?

  Fairly optimistic about data centers in space is a few like you already said there's a lot going on here.

• 20:00Andrew Sharp?

  Yeah.

• 20:01Ben Thompson?

  Like, like now, number one, I absolutely think there will be things like this maximizing everywhere we can find energy. And by the way, in the meantime, there's still a lot of places to build data centers, particularly in places like West Texas. To his point, this bit about there's they actually have more natural gas than they know what to do with.

• 20:17Andrew Sharp?

  Mm hmm.

• 20:17Ben Thompson?

  Cause it's a byproduct of extracting oil and yet they literally just set it on fire.

• 20:21Andrew Sharp?

  Yeah.

• 20:22Ben Thompson?

  Right? Cause they can't get rid of it. So, uh, it'd be, it's actually a net positive. It is carbon positive to the earth to build a data center instead of flaring it up. A lot of existing data centers have been retrofitted for AI were Bitcoin for the same idea. Because look, we can just monetize X actually what is excess energy.

• 20:43Andrew Sharp?

  Mm hmm.

• 20:43Ben Thompson?

  And then everyone's like, oh, wait, I know it's better than Bitcoin. AI like this make tokens and I tear it all out, put with something there. There's this whole ecosystem of like rando old school, like what was the name for like people Wildcats or?

• 20:59Andrew Sharp?

  Uh, yeah, Wildcats.

• 21:00Ben Thompson?

  That would just like find oil wells and stuff.

• 21:02Andrew Sharp?

  Mm hmm.

• 21:02Ben Thompson?

  Like that's going on with AI and finding places to put GPUs.

• 21:06Andrew Sharp?

  Okay.

• 21:06Ben Thompson?

  So absolutely, absolutely a thing. Uh, and so all, yeah. Data centers on oil platforms. Sure. Why not? Um, you do need, there's lots of stuff that goes into that. You have to convert that natural gas into power.

• 21:19Andrew Sharp?

  Yeah.

• 21:20Ben Thompson?

  You need turbines. Guess how long it takes to buy a turbine right now?

• 21:22Andrew Sharp?

  Probably quite some time. I'm sure.

• 21:24Ben Thompson?

  Like seven, eight years or something like that, especially.

• 21:27Andrew Sharp?

  In China.

• 21:28Ben Thompson?

  Well, no, it's actually, a lot of it's not actually, believe it or not.

• 21:31Andrew Sharp?

  Okay, that's good news.

• 21:32Ben Thompson?

  In part because turbine blade technology is one of the West's great secrets. Um, and so there's Siemens, there's GE, there's what? There's, I don't want to say.

• 21:44Andrew Sharp?

  That's right. Yeah.

• 21:45Ben Thompson?

  The third one.

• 21:45Andrew Sharp?

  One of those companies had a big espionage scandal like three or four years ago, because that has been something that China, that's a nut that China has yet to crack.

• 21:53Ben Thompson?

  Yep. Turbine blade technology. Uh, and so, uh, but so there's a bit of big push on like a lot, much less efficient turbines or like, like temporary ones or generators or like they just like. Bloom energy that's doing like fuel cells, which is not nearly as efficient as a proper generator. But you can't get a proper generator and there's like demand right now. So now all these things can, and I think will be solved over time. So it's not dispositive that this means like, it's not like we're fundamentally constrained in how many turbines we have.

• 22:23Andrew Sharp?

  Yeah.

• 22:24Ben Thompson?

  We can make more and which is like, wouldn't it be easier to make more turbines and to have data centers in space? That, let me just write Justin's next email for him. Yes, that might be the case. So the thing about data centers in space is there are some fundamental advantages.

• 22:37Andrew Sharp?

  Okay.

• 22:39Ben Thompson?

  And the fundamental advantage is pretty straightforward, which is free power. Right? And so you do get power and it's actually relatively simple, all things considered. It's not capturing gas than, you know, setting it on fire and spinning and boiling water and spinning blade. If you think about it, the actual power generation is kind of nuts how it works. And this gets back to the bit we talked about last time. We're not talking about putting a warehouse in space. It's putting a bit of compute that's about the size of what Starlink satellites are today. Now you need more cooling. Just to put it in context, I think the International Space Station is like 70 kilowatts.

• 23:22Ben Thompson?

  And that was very difficult to figure out how to deploy the radiation to cool that.

• 23:27Ben Thompson?

  You're gonna have to figure that out with the, if you're going for, I say a hundred kilowatts.

• 23:30Andrew Sharp?

  Yeah.

• 23:31Ben Thompson?

  Positioning it so that one side's always in shade, one side's always in sunlight will solve some of these issues. But the long and short of it is that like, there's a, there's a elegance and simplicity to this that I think is underappreciated. If all these issues can be solved.

• 23:48Andrew Sharp?

  Well, and that's my question is in terms of where they're driving to, would it be a, just a cheaper solution? In addition to more availability in space, like is that the goal? That the SpaceX value proposition that they're trying to offer?

• 24:03Ben Thompson?

  No, I don't think so. Like, so the, the. There is a bit where Elon at his best ends up with very elegant solutions that took astronomical amounts of investment upfront to get in place. They're like Starlink is an example of this, like Starlink on airplanes is so obvious. But to get to this state where of course, every airline is going to sign up for it and took, they had to invent rockets, they had to get rockets that land, they had to do Starlink. It's like the, so there is a complexity in just in solution that is an ongoing operational complexity.

• 24:44Ben Thompson?

  You have to continually figure out what you're going to do with these GPUs and getting the natural gas and powering the turbines and maintaining the turbines and all that is, it's complex on an ongoing basis, even if the path to getting there is much easier. What Musk usually does is the path to getting there is hilariously difficult and seems stupid.

• 25:06Andrew Sharp?

  Nightmare that no one saying would ever try, yes.

• 25:08Ben Thompson?

  But if you get there, it's super elegant and super reproducible and super scalable. And this, and the idea that, we talked about this last week too, space is so much bigger than people realize. And if, this is a bet on actually the demand for compute being effectively infinite. And where these racks in space would be is they're providing marginal compute, which is me, you need one more bit of compute, where are you going to go? Of course, you're still going to have the data centers on earth, which by the way, the data centers on earth are probably going to be extremely profitable because they're cheaper. But the marginal, if compute becomes a commodity, the price of the commodity is set by who adds one more bit of the commodity?

• 25:53Ben Thompson?

  What's their cost structure? So on one hand, it's the most expensive one that has the worst margins that adds that marginal compute. But if demand is large enough, then that marginal piece of compute, if you're the only one that can add marginal compute, like you're, you can make it up in volume. Like is literally the answer here. And so there's a make it up in volume aspect, which by the way, Should always make you worried and suspicious and feels very bubbly. We're gonna make it up in volume. It's always, it's always been like the, the excuse to do things that make no sense. But that's the case is it's a make it up in volume. At some point that a man for compute becomes so large and the constraints on doing it on earth

• 26:36Ben Thompson?

  becomes so difficult and SpaceX gets so good at this and actually, you know, Starship works. They could deploy large at scale that it, this very elegant solution where we basically move all our compute to space.

• 26:53Andrew Sharp?

  And if it works and it's streamlined, yeah, because you can envision a scenario where we get 10 years down the line or 15 years down the line. And sure, you can set up like an offshore data center on an old oil rig that you bring natural gas in for and you jump through every huge.

• 27:11Ben Thompson?

  From the ocean to be clear, they're not bringing in the natural gas. But yes, no, that's, that's Justin's point is the energy is there. But the, it's still, it's one of those things you look at it and if the elegant solution works, it's like, I can't, why are we gonna do it that way? Like just watch more satellites.

• 27:25Andrew Sharp?

  And my point would be you do that and then you get six months down the line and say, oh, actually we need more compute. And then a year down the line, we need more compute.

• 27:36Ben Thompson?

  On this treadmill forever.

• 27:36Andrew Sharp?

  Exactly. So if there's sort of an alternate path where they're offering marginal compute in perpetuity and SpaceX has cracked that nut.

• 27:45Ben Thompson?

  Exactly.

• 27:46Andrew Sharp?

  It's much easier to offer it, even if it's more expensive. Um, so we'll see whether we get that.

• 27:51Ben Thompson?

  Cost of like the, the implementation cost of the alternatives gets very, very high. No, that, that's exactly right. Now, again, everything I just described to you may sound stupid and impossible and you might totally be right. That's why this is an unbelievably risky investment. Like this is why the laws exist. Now, should the laws be changed to make it easier for retail to get into private companies? That's certainly a debate that can be had, particularly as the world has shifted to larger and larger companies staying private longer and longer. This isn't Microsoft going public at like a hundred million dollars or whatever it was. Like when you could ride it all the way up. That's definitely a discussion to be had, but. The reason we have protections against retail investors getting into private companies is because you're likely to lose your money.

• 28:36Andrew Sharp?

  Yeah.

• 28:38Ben Thompson?

  Like SpaceX is like, uh, what if we create a company so audacious and large that we could give the public the opportunity to lose all their money without any regulations whatsoever? Here we are. So it's like.

• 28:50Andrew Sharp?

  Here we are and we'll see where we go. Again, maybe we're going to Mars 10 or 15 years from now. Adam says, last SpaceX question, how durable is the SpaceX rocket monopoly? At present, it seems that SpaceX has two incredibly valuable modes, a monopoly on space delivery, commercial rocket contracts, and a monopoly on lower earth orbit internet, Starlink. You can currently project out a few years, as Ben's done, and see how it's possible that they'll have a third mode in the future, racks in space. This, of course, assumes a lot, and Ben makes that point in his article. For me, however, the most crucial, or the most crucial assumption is that SpaceX will be the only game in town for space delivery going forward.

• 29:35Andrew Sharp?

  Now, there's no doubt that SpaceX has a huge lead in reusable commercial rockets, but is it safe to think that that will stay the case for a decade? Two decades, longer? In other words, if racks in space become as important as Ben thinks they might be, there'd seem to be enormous incentives, far greater than any exists for satellite delivery and internet satellite constellations, for investment into second mover R and D, whether from Blue Origin, other startups, or even nation states. What do you think, Ben? I've wondered the same thing about the SpaceX rockets.

• 30:09Ben Thompson?

  It's a very, it's a very, it's a very relevant question. Blue Origin has landed boosters, like suborbital, I believe, but they, they've done it. China is obviously working on this. And to Adam's point, if the economic incentives get large enough, problems get solved, particularly if it's been demonstrated that they are solvable. Like, it's a lot, it's way easier to invent the second booster that lands precisely because you know it's doable. Just like it's going to be easier in some respects for, for China to invent.

• 30:42Andrew Sharp?

  Turbines.

• 30:43Ben Thompson?

  Chip various, right, because they know it exists.

• 30:45Andrew Sharp?

  Yeah.

• 30:46Ben Thompson?

  A lot of the, the equipment they need, they can take apart and look at it and try to figure it out. And, and so the, the, that's absolutely a, a fair point. This is maybe an argument for why continued investment in XAI is a good thing. If you get there first and your model and your tooling, you, you accrue like software type network effects in part because you were there and you had way, way more capacity than everybody else. That is, provides more durability than just having infrastructure. I think that's probably the point there. It's like, like, actually it is important to get something defensible in the long run. The way I look at it though, not coming here as an Elon Musk fanboy or like a SpaceX stock advocate.

• 31:30Ben Thompson?

  If we get to the state where multiple companies are reusable rockets and there's multiple companies putting compute in space.

• 31:39Andrew Sharp?

  The thesis was correct for SpaceX.

• 31:41Ben Thompson?

  That's right. I'm feeling great. It's a wonderful world. It's a world I want to live in. So I'm actually not worried about it.

• 31:47Andrew Sharp?

  Fair enough. That makes sense.

• 31:49Ben Thompson?

  This is, this is why I, I had to give myself permission, this article. I'm not being a stock analyst here. I'm just like, I think the, this, you know, I wanted to tie it into, you know, the agentic inference idea, this idea that there's just going to be a lot of compute that everything we think about how compute has to look today, I'm not sure is exactly what compute's going to look like in 10, 20 years. And part of that is certainly the thesis here, but yes, it's a fair point, Adam, and I don't care.

• 32:18Andrew Sharp?

  Fair enough. All right. Well, shifting gears, let's run through some mailbag questions. Aaron says, hi guys, in Ben's Tuesday post on Nvidia, he discusses the AI stack and makes an interesting distinction between where the benefits accrue in the short term because of bottlenecks and in the long run because of moats. The distinction tees up how Nvidia's new reporting segmentation, which was likely done to show just how much of their sales were going to the AC customer base where they have a much stronger moat than they do with hyperskillers.

• 32:48Ben Thompson?

  Is there a definitive way how to pronounce this?

• 32:50Andrew Sharp?

  So I saw AC. In this email, and I immediately thought of AC Law. And so in honor of AC Law, former Texas A&M, great. Had some great battles with Kevin Durant about 15 years ago or 20 years ago now. I'm going with AC. I'm probably getting that wrong.

• 33:08Ben Thompson?

  Yeah. So just to be clear, AC is ACIE, which is AI Clouds, Industrial and Enterprise. Basically, it's all of Nvidia's sales to non-hyperscalers. So exclude Google, exclude Microsoft, exclude Amazon, exclude Facebook. Is that, is that all of them? It's hard to keep straight.

• 33:28Andrew Sharp?

  So we're talking like.

• 33:29Ben Thompson?

  It's not hard to keep straight. There's not very many of them. No, so CoreWeave is in the AC category.

• 33:34Andrew Sharp?

  Right.

• 33:34Ben Thompson?

  All these like wildcatters that are finding like old Bitcoin data centers and putting GPUs in there. Those are the AC category. Companies buying GPUs for themselves are in the AC category. And like governments buying anyone but the big guys is AC. We'll go with AC.

• 33:56Andrew Sharp?

  AC Law. AC Earl, another good one. Remember some guys, you know what I mean? Isn't the AC customer segment itself though?

• 34:06Ben Thompson?

  I think that's our age difference. I thought of AC Earl. You thought of AC Law. I think that captures it perfectly.

• 34:12Andrew Sharp?

  Isn't the AC customer segment itself currently benefiting significantly from bottlenecks? Aren't Neo Clouds largely only thriving because there's a huge supply shortage? And ultimately, when there's a balance between supply and demand, won't the very fact that these guys need to buy an entire Nvidia bundle, paying Nvidia's huge gross margins, by definition, mean that they will lose significant share to lower cost hyperscalers who have their own ASICs who can avoid the Nvidia tax? What do you think about that possibility? All right. And that is the end of the free preview. If you'd like to hear more from Ben and I, there are links to subscribe in the show notes, or you can also go to sharptech.fm.

• 34:54Andrew Sharp?

  Either option will get you access to a personalized feed that has all the shows we do every week, plus lots more great content from Strategery and the Strategery Plus bundle. Check it out. And if you've got feedback, please email us at [email protected].