SpaceX’s Real Crown Jewel Isn’t Starlink or AI (ft. Julie Zhu)

Zaid Admani (0:00)

Welcome back to The Rundown, interview edition. Today, we are talking to Julie Zhu, research analyst at MoffettNathanson and co-author of a massive 93-page research report on SpaceX. SpaceX is a super interesting company, as you guys know, and also one of the hardest companies to analyze. They have Rockets and Starlink and AI and data centers in space, and of course, there's the Elon factor. So in today's conversation, we talked about it all with Julie, why she believes the launch business is SpaceX's crown jewel, why expectations for Starlink may be too high, and what it's like analyzing a company that has ambitions of going to Mars. This was a great conversation. I think you guys are going to really enjoy it. So let's get into it.

All right, guys, today we are joined by Julie Zhu, a research analyst at MoffettNathanson, and the co-author of a 93-page deep dive on SpaceX. Julie, welcome to The Rundown.

Julie Zhu (0:56)

Thanks, Zaid, happy to be here.

Zaid Admani (0:58)

I'm super excited for today's conversation. I'm a big fan of MoffettNathanson and the research you guys put out. Before we get into everything, I'm just curious from your perspective, you've been covering SpaceX, probably leading up to the IPO. It's probably been a big part of your life for the last few months.

What has that been like, especially with all the hype around it? Were you able to have any conversation outside of SpaceX this summer, or was it all just SpaceX all the time?

Julie Zhu (1:21)

SpaceX has definitely been top of mind. And like you mentioned, I co-cover it with my colleagues, Craig Moffett and Nick DelDio.

I'd say it's kind of been a fire hose of news, both before the IPO and post-IPO. Obviously, it's exciting to be able to talk about all the research and work right about now, but we were lucky to be involved in the process from the get-go, so have insight into the company leading up to this date.

Zaid Admani (1:50)

And I'm really curious to like a company like SpaceX. It's not just like, there's so many mini-companies inside SpaceX, and there's so many unknowns. You got the rocket stuff, you got the Starlink stuff, the AI stuff, there's data centers in space, there's the Elon factor.

So how did you guys approach it as analysts when it comes to such a wide-ranging company with so many unknowns?

Julie Zhu (2:12)

Right.

Love that you use that word, because that's probably how we'd bucket the different segments too. So maybe for those who aren't as aware, SpaceX reports both in kind of in three different segments. The first is the space segment, so that's the rocket stuff. You've got the AI segment, which has both Grok and the space data centers, terrestrial data centers, etc. And then connectivity, which generates a lot of the money today, which is the broadband or internet business. And your discussions about kind of a mobile business that may be on the come.

And then to your point about all of these unknowns, the way we thought about it was really the Rumsfeld matrix. So the known knowns, known unknowns, etc. You've got the stuff that like equity research analysts like ourselves are super excited about. The stuff that you can do kind of price times quantity, math on, project it out, do your DCF, etc. And that would be things like your Starlink business, the number of people who buy the Internet service per month and then multiplied by kind of the price per month. You've got the kind of known unknowns, which is something like an orbital data center. Do we know if the technology is going to come to the fore? Probably. Do we know if the economics are going to be as advantageous continuously into the future? That kind of depends on whether the bottleneck of terrestrial compute continues. And then you've got the stuff that's the unknown unknowns, asteroid mining, going to Mars, colonies, kind of outside of Earth. That stuff is probably something that you can't put your finger on today, but because SpaceX owns the bottleneck to launch, you can imagine that once these opportunities potentially come up in the future, in the space ecosystem, SpaceX is going to be able to kind of hold the moat on those areas too.

Zaid Admani (4:08)

I think I saw in the report, you guys were estimating, what, $750 billion for the known unknowns. Is that just, how did you come up with that? Was that just like, all right, we're just going to take half and then add another half on top?

What was the process there?

Julie Zhu (4:23)

Yeah, and that's for the unknown unknowns.