u/WritingisWaiting

WSJ is missing the real point here, this isn't a story about Anthropic vs OpenAI. This is a story about how the demand for AI is very clearly not infinite and growth is stalling already. Meanwhile companies continue to spend trillions on more data centers. Sure, Anthropic had one tokenmaxxing quarter of a perfect storm, but it's growth is likely to stall in another quarter or two which is why it's desperately rushing headfirst into an IPO as quickly as possible.

It also explains all the exec changes at OpenAI.

Good times.

Can I rant about Coreweave and the stock market?

There were such low expectations for that CoreWeave that it's stock nearly doubled this week post-earnings after they reported a 112% increase in revenue (~$13 billion annually now) and a revenue backlog of $104 billion. Which made for good headlines and so the stock went up.

That's because this week the market decided that massively negative cash flow does not matter anymore (a week ago it was bad). All that matters this week is revenue.

CoreWeave also disclosed that their cost of revenue rose 181%. The cost of revenue is growing faster than the actual revenue! For those that aren't financially inclined: that's not good, especially for a company that already is losing money.

And the $104 billion in revenue backlog? Well, that sounds good until you read the notes of their financial statements that disclose how much in "undiscounted lease payments" they have remaining, which are separated by leases they currently pay and leases that have not yet commenced. (These are largely CoreWeave leasing from SPVs so they can keep the debt of many data centers off their books.)

The total amount of payments due on all of those leases is $79.5 billion. Where is the slide on that in their investor deck?

For fun, the amount of principal payments of debt (not interest, just principal) they have to make: $35.5 billion. (They will just refinance this, if their credit rating allows it, but more on that below.)

Adding together the leases and principal payment of debt: $115 billion.

In simple terms, CoreWeave has a revenue backlog of $104 billion which is built on an "expense backlog" of $115 billion. Please note these expenses don't include ~$3 billion (and growing) of annual interest and basic costs like electricity, labor, etc... just to keep their servers running. In other words, there are many tens of billions more of unaccounted for future expenses that aren't included in that $115 billion.

And in the fine print to the revenue backlog, they note they haven't actually built all the capital they need to earn that $104 billion, so they raised their capex to $39 billion for 2026 and forecast similar in 2027. That means they need to raise even more debt which means even more interest, so they can build out the infrastructure necessary to earn that $104 billion.

Given this continued build out and need to refinance debt, their interest expense isn't going to stay at $3B, it's likely to be ~$10 billion annually in about a year or two (again, for reference, they are forecasting $13 billion in revenue this year and the market went wild on that.)

There is a reason that S&P rates CoreWave as B+ (Highly Speculative.) I'd argue that's being way too generous, given their precarious financial situation.

Long story short: there isn't a clear path to profitability for this company. The realistic best case is that interest rates drop enough that they can meander along as a zombie company for years, slowly burning cash but never actually going bankrupt. The worst case is their revenue can't keep up, either because they overbuilt or because their revenue disappears. Given that 70% of their revenue comes from 3 unnamed companies (widely believed to be Open AI (backed by Microsoft), Anthropic, Meta), of which two are wildly unprofitable and one is a potential competitor with their own excess data centers.

The entire company is a bet that OpenAI and Anthropic will suddenly start making so much money on AI (or on an IPO...!) that CoreWeave can dramatically raise their prices, despite massively growing competition to their business model, including from Meta and SpaceX.

I guess that means it's a buy? At least for this week, while the market is not worried about negative cash flow.

(Not investment advice, I don't trade CoreWeave, I'm just pointing out how insane the market can be vs. reality, especially around earnings calls.)

I ran across this site while looking for some evidence on how impactful AI is in the real world. These academics have done a variety of research on who is using AI, how it's being used, and how impactful it is.

Takeaways (emphasis mine):

>We summarize our 12 indicators of transformation, assessing the extent to which each points towards explosive economic growth. By tracking these series over time, we can contextualize recent changes against longer-running economic trends. We see no decisive evidence of transformation at present

No one here will be shocked by this, but they've been unable to find any impact of AI "transforming" our economy. This despite countless media stories on how AI is "transforming" everything!

>Adoption [of AI] is Widespread and Led by US Firms [78%]

On one hand, given how much AI has been pushed by consultants and PE forms into most companies in the US this isn't surprising. On the other hand, if 78% of firms have already adopted it, how much more growth is realistic?

Taking a step back and looking at the rest of the numbers: 78% of US firms have adapted AI but only 13-15% of employees report using AI "daily," while over 50% have used it in the past year. It seems like most people have tried AI and found it lacking.

The #1 reported use for AI: "Text Generation." IE, writing e-mails or best case, chat bots. Not programming, not images, not self-driving cars.

This is what a "transformational" technology looks like after 4 years of being constantly pushed: terrible daily usage rates despite being "widely adopted," followed by no indicators of economic growth. But it's good for rewriting e-mails.

Anyway, lots of interesting data on this site and it looks like they update the data relatively frequently.

This is an AI hail mary. Like all that was missing was even LARGER circular financing. To be clear, this is just to keep the con going for another year for NVIDIA and friends.

"For Nvidia, the effort could help its biggest customers secure the financing needed to buy its high-end GPUs, build power-hungry data centers and lock in long-term electricity capacity."

The "customers" are obviously Anthropic, OpenAI and maybe neoclouds like CoreWeave. It's telling that this is happening now and it's seems like a huge sign that the expected big AI IPOs are being pushed out. The financials must be more damning that we could even imagine. Otherwise Anthropic and OpenAI could raise their own funding vs being at the mercy of a bunch of PEs.

Some highlights from Microsoft's earnings call:

Microsoft CEO Satya Nadella channeled his inner Ed when he said, "We offer the broadest [AI] model catalog in the cloud with over 11,000 models, including the latest from OpenAI, Anthropic, Mistral, xAI, as well as our own MAI Family."

How many times has Ed pointed out that LLMs are a commodity, that the frontier models today are not materially better than models from a year or two ago? Microsoft has now embraced this idea and is trying to spin it into positive marketing to use whatever LLM is the "right model" (cheapest) for you. They could not be running away from their investment in OpenAI faster.

Microsoft highlighted how much income they lost from OpenAI in Q2 (Microsoft's fiscal Q4) as they non-GAAP adjusted it out. OpenAI lost $600 million for Microsoft and based on MSFT's 27% ownership that means that OpenAI lost $2.2 billion for the quarter, which is largely consistent with the numbers Ed reported for 2025 and 2024 and further highlights that OpenAI still can't make money on inference.

Microsoft did not disclose how much of their record setting Azure revenue came from their relationship with money-burning OpenAI, though the CFO did note that "the significant OpenAI contract signed in the prior year will result in some quarterly volatility." This makes it sound like they are preparing for a big decline in OpenAI's Azure revenue in a quarter or two and a lawyer definitely made her say this.

Notably, they did not non-GAAP adjust out their gain from Anthropic, of 3.2 billion (due to Anthropic's increase in valuation to $965B), as that helped them beat non-GAAP EPS (along with removing their OpenAI loss.)

Speaking of window dressing to make earnings look better, there was a big reduction in future capex that is helping Microsoft's stock this morning. Microsoft's CFO said, “The greater impact is on capital expenditures as more of our future data center leases will shift from finance leases to operating leases. As a result of this update, finance leases are included in capital expenditures while operating leases are not."

In other words, Microsoft tweaked an accounting assumption to shift data center leases from 15 to 25 years which means those are now treated as annual expense, not upfront capex. The cash flow doesn't change at all but the market saw lower capex and decided that yes, this was good. Note to the future: if anyone is reading this in 2051, please go check if those data centers are still running.

We're told the world can't build enough data centers, that demand is high for them, that everyone wants them. And yet, here is a real life data center (phase 1) complete with electricity and no one is interested in the data center, except Nvidia, the same company that sold the chips to the data center builder.

What's sketchy about this?

• Nvidia doesn't have a use for this data center and they "could sublease the property to its "neocloud" partners," at a substantial discount, of course.
• Nvidia didn't disclose this arrangement, nor did Hut8. Instead it leaked to the FT, which begs the question: how many arrangements like this does Nvidia have? Ed highlighted the Ohio/OpenAI data center deal from earlier this week, which also leaked, but does anyone really think that's all of them? These leaks points to a potential huge backlog of secret deals with Nvidia stoking demand.
• Nvidia needs to be pressured to disclose this information. It's borderline fraud to be the undisclosed financial backer on all the companies that are buying their chips while claiming seemingly unlimited demand. This is arguably step past circular financing - this is Nvidia buying and selling from themselves and only disclosing half the transaction. The market would react different if this information was fully disclosed.

The AI bubble is driven by the unquestioned idea that there is real demand for AI and yet we're seeing over and over that the demand is driven by the same companies selling the chips that power the bubble.

This WSJ article is on how OpenAI is trying to drive up demand (and keep in mind Ed's reporting that OpenAI spent $5+ billion on sales and marketing.)

Remember, this is supposed to be a positive story, clearly reported on with OpenAI's blessing on how wonderful AI is.

https://www.wsj.com/cio-journal/openais-high-stakes-high-touch-push-to-make-ai-work-for-business-7f08b7d4

>[OpenAI] gave BBVA a new blueprint for how to improve the accuracy and consistency of the solution’s answers, including a new set of AI agents to evaluate and approve the responses of other AI agents. As a result, the tool climbed from less than 60% accuracy to 80%, he said.

Again, this is the humble brag about how good AI is in the real world. Let's be clear, a credit tool that is 80% accurate is still useless and it took months to build this! A bank would go bankrupt using that tool. And there is no detail on the costs of the tool, only talk of agents on top of agents. This is literally the best positive example could find of AI helping an actual company do something?

>But to cover all bases, OpenAI is putting $150 million into its new partner network, where consultants like Boston Consulting Group, Bain and Accenture help sell and deploy its tools inside businesses.

When you wonder why literally everyone is pushing AI, it's because the largest management consultants in the world are being paid by AI to push it. They go to boards and CEOs and tell them to fire a bunch of employees and replace them with AI. Not because it's a proven or useful technology. Because they are being paid by OpenAI to do that. And all that OpenAI money came from PE firms, SoftBank, Microsoft, and NVIDIA.

It would be karmic payback if the AI bubble bursting also burst the fraud that is management consulting, but that's probably asking too much.

I was reading about the newest update to the open-weight AI model from Moonshot and how it was very competitive with or even better than the U.S.-based frontier models, Fable and GPT 5.6 Sol. (I am assuming for purposes of my question, that any of these models have some limited real world value, which is a heavy assumption.)

Earlier this year, Anthropic published a fear-mongering-as-marketing article on "distillation attacks." Essentially, it argues the Chinese models are only competitive because they "distill" (IE, steal) from the better Anthropic (and surely, ChatGPT) models. It then goes on to claim this will give Chinese amazing military prowess and biological weapons, and, well, all the things that a country that already has hundreds and hundreds of nucelar weapons doesn't really need. They also demand that the government somehow stop China. It's a fun read, classic Anthropic.

However, my question is if these companies are really using distillation to copy the frontier models, how are they doing it so quickly? And more importantly, why is no one else doing it?

Wouldn't someone living in a hacker house in San Francisco choose to distill an AI model and turn that into a billion dollar company? Why isn't Meta doing it? They love copying other people's technology. Why is no one in Europe doing this? Why isn't Russia? Where are all the other distilled models? Why only China?

Actually, one other US company has admitted to distillation. Per the New York Times, an OpenAI attorney asked Elon Musk if xAI ever “distilled” technology from OpenAI, to which Musk responded, “Generally A.I. companies distill other A.I. companies.”

Assuming Musk is being honest this one time (he was under oath), this begs the question: why is Grok so much worse than the Chinese open-weight models and the frontier models?

It seems like distillation doesn't magically make great models after all. I'm not disputing that distillation exists, but it seems like there must be something more to this for China open-weight models to be so much further ahead. I'll ask the question: what if the Chinese models have been built more efficiently using other techniques?

Well, for one, China has limited access to NVIDIAs best chips, so it would mean you don't need trillions of dollars of chips to create AI.

And it would mean you don't need trillions of dollars of data centers to run AI.

Which would mean companies don't need to be paying Anthropic (and OpenAI) billions of dollars in token costs to run AI.

This would obviously all be horrific news for an AI bubble!

What's more likely: only China (of all the countries and all the companies in the world) has figured out how to "distill" competitive new models in only a few days after the release of a new frontier model or that Anthropic is trying to mislead investors into dismissing "copycat" competitors?

It's admittedly only circumstantial reasoning, but "distillation attacks" seems very much like a marketing myth contrived to distract investors from the idea that Anthropic (and OpenAI) may not be the only "frontier" models out there.

Everyone probably knows how credit agencies have been complicit in several major financial scandals. Whether it was rating Enron investment grade right up until they filed for bankruptcy or giving AAA ratings to all the CDOs (Collateralized debt obligations) that led to the 2008 financial crisis.

Now it's time for AI, and SpaceX, fresh off asking the public for $85 billion for their IPO quickly followed that up this week with $25 billion in debt (because $85 billion is just not enough cash to run the business). Some of those notes are 30-year notes.

And of course, Fitch and Moody gave SpaceX investment grade (IG) credit ratings, despite hemorrhaging money with a growth story. IG ratings are typically reserved for companies that are stable, large, and actually make money and they allow bonds to be sold to a wider variety of investors, who can hide behind credit agency ratings, vs doing their own diligence.

Here's the Fitch write up, and it's just insane how they bent over backwards to justify an IG rating.

https://www.fitchratings.com/research/corporate-finance/fitch-rates-spacex-proposed-senior-unsecured-notes-bbb-22-06-2026

Some of my favorite parts (my comments in italics):

Over $100 billion in pro forma liquidity supports the rating through a period of elective, deeply negative FCF.

They literally just did an IPO, which is why they have this much liquidity. Will the rating no longer be supported once they spend this money?

Starlink anchors the profile with recurring revenue from more than 12 million active subscribers (as of June 4, 2026), supplemented by enterprise, government, and mobile network operator contracts. Government launch and defense contracts add visibility, reinforced by the absence of credible alternative providers, and a rapidly scaling terrestrial AI compute business provides another high-margin stream.

12 million subscribers! AT&T has 240 million subscribers and over 10X the revenue of Starlink, so Starlink has better margins for now, but Fitch later notes that for Starlink to grow they will have to offer lower price tiers. Essentially, Starlink might be as successful as AT&T, someday.

Also, note that SpaceX isn't being defined as an AI company, like Anthropic or OpenAI, but as a "AI compute business." Effectively, Fitch acknowledges they are a baby hyperscale, since Grok makes no money and they've leased out much of their compute to other companies. Fitch describes this as a high-margin stream, when in fact it has been to-date a negative margin stream. Wow.

Fitch views deeply negative FCF as reflecting elective growth investment rather than structural cash consumption. The operational constellation and terrestrial data centers are deployed assets producing substantial recurring cash flow independent of incremental capital deployment.

The "constellation and terrestrial data centers" require massive infusions of capex to keep running! Starlink satellites last 5 years. NVDIA powered data centers are similar. This entire business requires huge continual maintenance capex just to keep the lights on. There is nothing elective about the amount of capital needed to grow, much less maintain the business. Fitch has to know this and is purposely ignoring it.

The company's AI business has no direct rated peer. Once scaled, its capital intensity, monetization model and competitive dynamics are most comparable to those of hyperscale cloud infrastructure operators.

This company sound exactly like Coreweave, which is a public company and rated by Fitch. However Coreweave bonds are rated junk (sub investment grade). Why is Fitch conveniently forgetting about this obvious peer? Oh, because it wouldn't support the story.

Fitch's Key Rating- Case Assumption: Annual revenue growth averaging more than 100% from 2026 through 2028, driven by Starlink subscriber growth, enterprise and government broadband scaling, and AI compute monetization;

This company is investment grade if they can grow more than 100% a year for 3 years. Said another way, "if this company can generate massive hyper growth, then it is a good investment."

Thank you for that insight Fitch.

For those that can't access WSJ, here's a good summary.

"The chief executive of Microsoft is joining a growing effort to take on artificial-intelligence giants OpenAI and Anthropic, outlining in an interview his vision for the next wave of the AI boom, one involving cheaper models, more user control and political messaging that wins the public’s trust."

It's really hard to take this guy seriously when he's clearly talking up his own book and trying to make himself look good after recent failures with copilot. WSJ pushes back not at all.

Let's break down what he's really saying:

Cheaper Models: Microsoft's CEO Satya Nadella has noticed customers are pushing back on paying billions of dollars in tokens for no returns! For the "next wave of the AI boom" what customers really want is for Microsoft to host a bunch of open source models from China. Then they can continue to generate slop, but for much cheaper! Then all the money can go to Microsoft's azure cloud business instead of the AI giants Anthropic and OpenAI. Though it's probably okay if it goes to OpenAI because Microsoft owns 27%, but we can't have it going to Anthropic.

More User Control: Satya has discovered that pushing Copilot on users constantly and without their consent was hugely unpopular and made everyone mad at Microsoft! Oops! His bad! It turns out users want control on when and how they interact with AI! And most don't want to interact with AI at all. Groundbreaking stuff, really. Not that this will stop Microsoft from trying to put it everywhere again, in about six months.

Political Messaging: Telling everyone they are going to lose their jobs to chat bots has also turned out to be hugely unpopular. And AI driven nuclear armageddon and bio weapons also don't poll well! Maybe, we shouldn't say that? Instead, we should let people feel like they have agency. Not that they actually do, but we want them to feel like it. Wouldn't that be nice?

Also, today's headlines in the WSJ includes Microsoft building (or trying to) another giant AI cloud server in West Texas with 2.7 GW of energy (Or two time-traveling Delorians worth, which are about as real as a 2.7GW plant will be). This is what the public wants right? To use up valuable fossil fuels and drive electricity prices up for ratepayers? This must be the popular political messaging Satya is looking for! How he's going to pay for these build outs by selling people "cheap" open source models from China remains a question, but honestly that's Microsoft's next CEO's problem.

For anyone who prefers financials to look like financials, here's chart form of OpenAIs financials from what Ed released along with what the Information reported for Q1 via Reuters (Open AI Q1 2026).

https://preview.redd.it/uzs4sbwqcv7h1.png?width=1208&format=png&auto=webp&s=89d7a6fec58a576a582ba0644618a666035130d9

As has been pointed out, these financials make inference look positive, which is not nothing. I could build a decent marketing case on that (and no doubt, OpenAI has.) For those that don't know, OpenAI shares an auditor with Microsoft (Deloitte), which is important because OpenAI has a material impact on Microsoft's financials due to their ownership and financial commitment. Said another way, these financials are probably decently vetted, even if they are still non-public.

That said there are always categorical gray areas that you can work with your auditor. This is especially true with an edge case like R&D training of AI models. I'm hopeful Ed will release more numbers that show how much R&D was capitalized and what sort of depreciation is being baked in here. Also, I wouldn't be surprised if Deloitte allows the reclassification of some of this costs ahead of the S-1. That's something to watch out for - then you know it's being gamed.

Even if inference is positive (still not a believer), the R&D and Sales and Marketing amounts should raise red flags to savvy investors. For reference, Microsoft has $32B (1.7x Open AI) in R&D and $25B (5x OpenAI) in Sales and Marketing, while earning $193B (39x OpenAI) in gross margin. And Microsoft's margins on revenue are way higher.

Everything points to this being a low margin business where OpenAI is spending like a drunk sailor. If AI is such a killer app, how are they spending $5 BILLION on marketing for $13 billion in revenue? It can basically do anything, right? Shouldn't it sell itself? That's what we're told? I am so tired of reading mainstream business articles that take it as an act of faith that AI is already world-changing and rarely challenge the marketing hype.

Even if OpenAI keeps up the pace leaked for Q1, they are on pace this year to cover the R&D they spent in 2024! Maybe by 2027 they will cover 2025's R&D? And when does this R&D spending actually stop? AGI, I guess?

Also, as Ed noted, of the ~$26B that OpenAI spent in 2025 on R&D and inference, $16B went to Microsoft (Azure). Even if OpenAI actually increases revenue, it means Microsoft can and will raise prices on OpenAI, from what is no doubt currently a sweetheart cloud deal. Why is this low margin business with no moat that is dependent on others for compute worth a trillion dollars?

A note on NCI stuff (below operating income), in 2024 both Microsoft and OpenAI's non-profit owned a large chunk of OpenAI, and that's represented here. When OpenAI restructured in late 2025 it created a lot of accounting noise that's difficult to parse without detailed footnotes, but the main take away is Microsoft is now the remaining major NCI holder at ~27%. The $41B change in fair value (which hurts OpenAIs income here) is actually a help to Microsoft's financials (the portion of that attributable to them is buried in Microsoft's Other Income, while the other roughly half should belong to the OpenAI non-profit entity). This is all largely not important and non-cash, but it's a good way to validate these numbers.

Lastly, the important thing to remember is that whenever OpenAI brags about top-line numbers (whether it's revenue or users) Microsoft owns 27% of that BEFORE any (future public) shareholders. (To be fair, I will point out that Microsoft recently agreed to a revenue sharing "cap" but that cap is $38 billion, which will be relevant once OpenAI is making $140B... Baby steps!)

I'm continually annoyed at how business media has covered AI (breathlessly repeating company press releases with maybe a small disclaimer at the bottom that it might not be exactly what it says!). The SpaceX IPO has been no different with media running a new story on every bank leak like the best news ever. SpaceX is in a "quiet" period where the company is limited in what they can say, but their bankers are allowed to leak information to try and drum up demand, which they are being paid billions to do.

I'm not sure if these reporters don't understand what's happening, but I thought I'd take a stab at unpacking some of the "uniqueness" and "challenging wall street norms" and whatever other positive sounding euphemisms the media is using to describe the abnormalities around Space X's IPO for those who haven't been involved in many IPOs.

1. Setting the Share price at $135/share before the road show.

This is deeply unusual. It's essentially setting a ceiling on the share price. On one hand, this is the banks (and Musk) trying to bully the big investors to pay up and not complain. "Take it or leave it" as some have called it. Then again, SpaceX already lowered the IPO target from a market cap of $2T to $1.8T, which makes this seem like they are trying to bluff their way through a very weak hand.

2. Early Exits for insiders and Governance issues

Basically, this IPO gives insiders the ability to sell shares much sooner than in typical IPOs (but not day one or anything). The governance clauses give Musk control forever, in almost any scenario, even if he sells most of his shares because he has "special" voting shares. This is not typical - even Tesla doesn't have this structure. In other wors, unlike in Tesla where Musk has to hold equity to remain in control, in Space X he is free to sell off much more. Huge red flag.

3. "2X Oversubscribed"

You may have seen this terminology, which in essence means that investors have expressed interest in buying 2X the amount being sold. This isn't a binding commitment, so it's pretty meaningless as a true indication of demand. In reality, it's a marketing dance between banks and large investors that they are serious and let the banks brag at the demand. No one intends or expects to buy at their commitment level.

What's strange about this is that that recent AI-adjacent companies had way higher oversubscription levels, Cerebrus was 20X oversubscribed and Figma was 40x oversubscribed. Now, SpaceX is much much larger and their banks will claim that's holding back interest, but the prior largest IPO (Saudi Aramco) was 5X oversubscribed ,and that was a mature company in a totally different industry with plenty of it's own issues (though, it was at least profitable!)

The only explanation for why banks are bragging about a 2X number is to try and front run any story about 2X being an indication of a demand problem. Another sign of weakness.

4. SpaceX trying to get "quick entry" into various indexes, without meeting the previously long standing requirement.

Shame on NASDAQ for changing their rules, and props to S&P for standing fast, but again this looks like nothing more than SpaceX trying to bully their way through a weak hand to force index funds to buy their stock to create a demand floor for insiders to exit. (Then again, they may just be bullies with a strong hand! But then why do this? And why wasn't the media more aggressive in calling out how deeply wrong this was?)

4.5. A non-SpaceX note on the current market

A slight aside, but last week Google announced plans to raise $85B. It's important to note that they did not in actually raise that much money immediately, they only finalized about $45B, split $10B to Berkshire, $35B to two investment banks. The remaining $40B will be offered in an at-the-market (ATM) program in 3Q.

But this is Google, the most blue of blue chip companies and even they couldn't get the full $85B (oddly close to what SpaceX is trying to raise, when you include the greenshoe option). Having to put in an ATM program is a bit of a defeat for them and says something about weak potential demand for AI plays. (Arguably, it could mean investors wanted to keep their powder dry for SpaceX but being able to buy in on Google at a discount is free money vs a gamble on SpaceX)

Meta is now rushing to copy them (which seems to Meta's general business model: copy other people and hope to sell more ads.)

All of this points to the fact that the demand for AI-related equity may not be the trillions that are needed to be to make the math work. What's bizarre is Goldman led Google's equity offering and is also leading the SpaceX IPO. SpaceX should be pissed at Goldman, but Google is likely a more important client to Goldman.

5. Retail investors being allocated 30% of the IPO.

This is one of the strangest developments to try and understand.

Does this mean there isn't enough big institutional investor interest to cover the full $75B ask? It should! This should be a huge red flag that demand is lacking! These institutional investors hold stock forever. They are the investors every real company wants to own their stock. Why would a company not want to sell them more if the demand is there?

But it's going to be a meme stock, so that's okay, right? I mean, first, retail investors need to pony up ~$22 billion just to get in the IPO. And then what? Buy more? How much more for how much return? To put this in context, the ultimate meme stock, GameStop, was worth ~$30 billion market cap at it's short-lived peak. I do not think there is enough available dumb money (sorry, "retail investor money") to make Space X perform like that.

But TSLA? It's a similarly overpriced meme-adjacent stock. However, they've made real profits and have had years to achieve the valuation they have today where long-term investors have little incentive to sell because of the tax hit (the "buy, borrow, and die" strategy.)

Once again this "upending of wall street's playbook" seems like a sign of weak demand, in this case designed to try to attract enough dumb money for insiders to exit.

Conclusion

There are many signs of weak demand and other red flags around this IPO. Many analysts have pointed issues out (Morningstar being the most notable.) I wouldn't be surprised if the valuation is reduced again. (what difference does it make? $1.4T is just as crazy!)

This is not investment advice! Anything could happen with this IPO! It could go up! It could go down! It could get cancelled and blamed on geopolitics! Day traders will have fun and someone will make a lot of money and someone else will lose a lot of money!

No matter what happens the media will report SpaceX's IPO as a "success," because that's what the press release will say.