SpaceX, Palantir, Anduril & Onodrim | The Return of Conglomerates

Molly O'Shea (0:00)

This year has really been the year of SpaceX.

Christian Garrett (0:02)

It's a company we've invested in for 16 years. It's our largest position, and they grew top line like 160%. They posted $4.4 billion in net income, $8.8 billion, viva da, $2 trillion company that is a dominant provider in multiple critical industries. It's clearly a very exciting company. Just a handful of companies drive all the returns. That's obviously how we built the firm to capitalize on that.

Molly O'Shea (0:21)

Cognition is recently at $48 billion, and Anduril at $90 billion.

Christian Garrett (0:25)

I just like return to the conglomerate sort of thesis right now. The defense plans of China, 68% of the revenue comes from the course sector. Palantir and SpaceX are the only examples of this, but I think we need to return to the dual use conglomerate. General Mills made cereal and weapon systems.

Molly O'Shea (0:49)

Christian Garrett, welcome back to Sourcery.

Christian Garrett (0:51)

It's good to be here.

Molly O'Shea (0:52)

I know we're in this lovely spot, in the secret location as always, but it's great to have you here. We have so much to talk about. I know I've talked with you a bunch over the last year or so, whether it's at Hill and Valley or on the podcast, and we've talked about SpaceX and Anduril and Vertical Integration and all these things, but this year has really been the year of SpaceX, and so I'd love to hear from you how that's evolving and how the business model is forming now that it's a public company.

Christian Garrett (1:23)

Yeah. It's a company we've obviously been invested in for 16 years, and it's our largest position and it was a great win, not just for us, but for many folks from Sequoia, VY, Founders Fund, Valor, go down the list. So a lot of people are very happy in the ecosystem. The business is honestly just getting started.

They obviously just had their Q3 earnings, and as you saw, huge acceleration in the business. They grew top line like 160 percent. They posted $4.4 billion in net income, $8.8 billion of EBITDA.

It's pretty wild given the growth of the business. The core business, yes, is still growing. You look at Starlink, and that's moving way faster, particularly on the DDC side. And then obviously on the compute side and the AI side, whether it's from Cursor or Grokbots, they're showing the ability to productize and monetize their AI products. And then if you go on the compute stack, they've been able to build infrastructure and use it for the capacity for themselves, or obviously sell it. I think that's been most interesting. It's been what's underappreciated is, one, the company is clearly going the route of a hyperscaler. They're building out more software and services around that compute stack infrastructure. They're committed to this business. This is not just a one-off thing. And they are the best in the world at building this capacity and building the fastest. I think that gives one more durability and visibility into this business. The second piece I think is most interesting is the fact that they reiterated continuing earnings calls. They're getting sub 12 month payback periods, right? Which is obviously a signal for demand. It's hard to forecast demand longterm, right? Whether you look, I mean, this is what the markets are struggling with, right? You look to four or five years out. But right now, there clearly is not enough supply to match demand. I think the other piece that's fascinating is if you're going to invest anywhere within this phase, you probably want to own the Vertically Integrated Players, which they are, right? From the ability to monetize at the app layer, the model layer, all the way down to monetize compute. That gives you some bit of a risk-adjusted sort of investment because whether you have a shift towards open source, right? And that changes, right? The economics on inference and compute, or you continue to see the closest models went out, they kind of benefit either way, which I think the hyperscalers have you seen in Google Cloud or AWS have seen huge growth across that, regardless of sort of the shift in volume mix of models. And then the other piece, I think, is you also have the ability to shift capacity towards your own products if demand slows down in the outer years. This demand is not going away, so it's not a deterioration in the core business. It just changes maybe the growth forecast and the capex risk. But I think there's nominal risk if you can use a capacity for yourself. And also if you build these things fast, you can pull back on these things really fast, right? And so your capex investments are in shorter duration cycles, which means you're going to get a payback period on the sort of outlay. And then if the market shift, you can shift quickly. I think they're clearly like running leaps and bounds around the Neo cloud market and stepping into being a true hyperscaler.