XOVR SpaceX Investment Gained $183M+ in Q2

[00:00:00]around this one.

[00:00:02]Talk to me about how you view it now.

[00:00:05]>> Well, I mean, I think it's a good entry point at 139, 140. It's up about 1% pre-market. I think it's a good price. I mean, the the the metrics of this company long-term are still very strong.

[00:00:15]We We see this as a 20-year hold. We had Nvidia in our XOVR.

[00:00:21]We in our XOVR currently SpaceX about $330 million position. It's about a two billion, 2.1 billion dollar fund and SpaceX is our top holding. We've got strong conviction in this. We got into Nvidia 21 years ago when it was a $5 stock. We've held it since. We've had to rebalance many times. We see SpaceX is precisely the same type of long-term hold. We have strong conviction in this.

[00:00:45]It's our top weight of the mag sevens.

[00:00:48]Now we believe, you know, it's called elite eight in our opinion. We think it's the strongest and we think long-term this is going to be the biggest. In fact, we think maybe within as little as three to five years this will be the biggest of the now eight largest companies.

[00:01:04]>> Joel, I first first I thought I heard you wrong when you said a 20-year hold.

[00:01:08]What if somebody doesn't have their long-term investment but they don't have that kind of timeline? They're looking for five to 10 years. What's your thought?

[00:01:14]>> We still think it's strong. I mean, again, I think within three to five years this is going to be the dominant dominant company among the mag seven what we call elite eight. We think this is the dominant one. We think we like it better than Apple. We don't own Apple.

[00:01:28]We don't own Microsoft. We don't own Amazon. We don't even own Tesla right now. We have Meta. We have you know, SpaceX and and Google. And so these are the three of the the biggest and SpaceX is by far our dominant position. We think it's the strongest of the biggest companies. So if you've got a three to five-year hold, we like it particularly these levels of 139.

[00:01:49]>> There is some skepticism and there was a fight between Elon which I'm sure I'm sure you saw this Elon Musk and Sam Altman playing out in the social media square public square over the weekend.

[00:02:01]Um but let's get into the I guess the the meat of a criticism is about, you know, how early space commerce is, right?

[00:02:11]Starlink is obviously the profitable, but then when you look at other areas of SpaceX, there's some challenges. What do you say to the criticism and pessimism around that?

[00:02:20]>> Well, so when you think about the three we look as a three engine empire. We see the space exploration clearly the dominant player. They've got 90% of all the satellites in space. Their competitors like Amazon now have to use them to get their rocket their satellites in space. So they clearly dominate and they're bringing costs down. We referred to Elon Musk as a modern-day Rockefeller. He's bringing the costs down. He brought it down from $54,000 per kilogram to $2,000. He's trying to get down lower. We look at the government which he's competing against he's gone up in the last 30-40 years from 54,000 to 58,000. So when you have a great entrepreneur going against a government on cost efficiencies is game over. I mean he's going to dominate that space. Then when you look at Starlink and what they've done there and how they've leapfrogged cellular. I mean it's clearly the cash cow. It's clearly the crown jewel. We're going to see when earnings come out maybe as early as August 6th that this is a also a dominant player. They've grown from like zero to 10 million customers um in a very short period of time. They're going to dominate here uh in like in ways that uh companies haven't done before and we're looking at telecom which is probably the most bureaucratic industry out there. So in private enterprise, they're going against telecom that are invested in legacy systems and they cannot compete against um a Starlink model which has a five pricing tier model. They have domestic rates, they have maritime, they have defense, they have business, and they have aviation. And they charge about 313 times more for aviation than they do for domestic and it's using the same satellite. So when you have a five pricing tier model and you're competing against the bureaucrats, the most bureaucratic companies on the planet and you've got the greatest entrepreneur on the planet competing against them, that also is game over. So there he's competing against government and cost efficiency is not even close. He's competing against bureaucracies globally and it's not even close. And so those two enterprises alone, you know, get a solid valuation metric for SpaceX. You know, certainly north of 1 trillion. We would argue probably closer to a trillion and a half, a trillion and a quarter, a trillion and a half for those two pieces alone. Then you've got the optionality of the data centers in the sky. Now this is where, you know, it's it's a risk return game. It's a low probability, but if he pulls this off, this company's going to be worth more than anything else on the planet by far.

[00:04:44]So if he pulls it off and he gets data centers in the sky, this is going to be an extraordinary company worth many times over other companies. That's the optionality of this.

[00:04:53]>> right, you read my mind. That's exactly what I wanted to ask you about was data centers in space because listen, that's a challenge obviously when you think about both the physics of it, the cost of it, but also at the same time you have here on the ground in the US people saying not in my backyard. So people don't want them here. At the same time there's a challenge.

[00:05:15]You think that SpaceX will be able to overcome that challenge is what it sounds like you're saying.

[00:05:20]>> Well, I look, if anybody's going to pull this off, right? It's not it's a low probability. With most people it'd be a zero probability. With Elon Musk, it's a low probability, but if he pulls it off, then everything in this company is worth it and then some. This is going to be the most dominant company on the planet if he pulls this off. And, you know, people have bet against him historically and they've lost. And so, I think I think, you know, given his track record and what he's been able to accomplish so far with his other enterprises, I think he it's worth at least giving him a chance to pull this off and let's see what he does.

[00:05:53]>> And then Joel, let me ask you this. Are you worried at all about, you know, there's other mega IPOs expected to happen this year and Anthropic, Open AI may or may not happen this year.

[00:06:05]Do you expect that to pull some of the demand away from or potential demand away from SpaceX?

[00:06:10]>> Well, we're in the private markets ourselves. So, our ETF was the first company first ETF to get into private companies.

[00:06:18]We we got into SpaceX in 2024. We were the first ones to do it. Now others are trying to get into it. We just bought our second piece in Kelsi yesterday we announced. And so, we're getting into the private space. We're looking at Anthropic. We're looking at Open AI.

[00:06:31]Open AI the pricing's come down quite a bit from, you know, the frothiness where they were a little bit ago. Anthropic in the private markets is also now starting to get very, you know, very frothy, you know, very high priced. We're seeing a lot of people bidding this up. I think these are unreasonable valuations where people are now pushing it. We're not going to chase private private companies, you know, 60 70% over their last round. This is what some of the brokers are trying to do, you know, for scarcity. And and we think the prices are are running ahead of where they are. We've got to remember these are great companies. We've got competitors in Asia with Deep Seek and other companies that could bring their valuations down. We've got growth markets moving into you potential headwinds. We particularly like this earning season. We know that JP Morgan and the other big banks announced this morning to to record profits. We think what's going to happen in this earning season is we'll continue to see earnings grow at rates we've never seen before.

[00:07:28]Revenue per employee, the the metric that we like to look for productivity, is growing at levels never seen before.

[00:07:36]Going to it's now north of a half a million dollars per employee for the S&P 500. It's multiples of that, you know, a million, 2 million, up to $6 million per employee in some companies like Apple 11. So, we like that metric and we see that going better. But, when we think about Anthropic and OpenAI, there's a lot of growth with these companies. We think they're terrific at the right price. And that's what investors need to know that when they've got people shopping on their behalf, you got a good good value for this growth.

[00:08:07]>> All right. Thank you, Joel. That's Joel Shulman, he's the founder and managing director and chief investment officer of ERC advisors.