WEBVTT - Earnings Special: SpaceX’s AI Splurge Puts a Damper on Debut Earnings After IPO

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio news. This is a breaking

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<v Speaker 1>news update from Bloomberg instant reaction and analysis from our

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<v Speaker 1>three thousand journalists and analysts around the world. The SpaceX

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<v Speaker 1>the company out with its first report as a publicly

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<v Speaker 1>traded company. Revenue exceeded Wall Streets expectations reported seven point

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<v Speaker 1>eight billion dollars. The company reporter and operating loss though

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<v Speaker 1>of one point twenty six billion dollars from its AI business.

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<v Speaker 1>That's better than the consensus expectation. Shares a plunge since

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<v Speaker 1>that IPO raising more than a trillion dollars in market

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<v Speaker 1>value from their peak.

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<v Speaker 2>All right, let's get to it with our team. We've

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<v Speaker 2>got a great team too.

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<v Speaker 3>Mandy Pep Singh is with us right here in studio

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<v Speaker 3>in our Bloomberg Interactive Brokers studio is Bloomberg Intelligence, Global

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<v Speaker 3>head of Technology Research, and out there in our San

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<v Speaker 3>Francisco news bureaus, of course, our own ed Ludlow, host

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<v Speaker 3>of Bloomberg Tech. Let me just kick it off with you.

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<v Speaker 3>What jumps out here? I know you're also on the

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<v Speaker 3>live blog, but you know, investors just kind of reading through.

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<v Speaker 4>Yeah, I mean overall revenue and sales came in above consensus.

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<v Speaker 4>But you go into this saying, this was the first

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<v Speaker 4>quarterly earnings for SpaceX since they became a public company,

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<v Speaker 4>and it will be their first earning school and there

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<v Speaker 4>was a lot of acceptance that the consensus numbers out there.

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<v Speaker 4>There was a bit of skepticism, Right, they're a bit

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<v Speaker 4>squishy because we don't have a whole lot of contemporaneous data.

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<v Speaker 4>But it's really interesting, you know that the status quo

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<v Speaker 4>is still that starlink is the is the driver on

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<v Speaker 4>the top line, and also sort of the cash cow.

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<v Speaker 4>But they really improve the economics of this business in

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<v Speaker 4>the quarter of yes, it's a rocket company, but renting

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<v Speaker 4>compute capacity to other technology companies, you know, that has

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<v Speaker 4>proved to be a strong business for them. There's a

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<v Speaker 4>lot of discussion in that in what's a very limited

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<v Speaker 4>earnings release.

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<v Speaker 1>Mandy, if I want to bring you in here, if

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<v Speaker 1>you were to look at the three different segments the

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<v Speaker 1>reportable segments ed mentioned the cash cow and in terms

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<v Speaker 1>of where the revenue is still coming from in terms

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<v Speaker 1>of growth in your view, which segment is the most important.

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<v Speaker 5>I mean, they reported a backlog number of forty seven

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<v Speaker 5>point five billion that tells you most of the backlog

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<v Speaker 5>is likely coming from AI and what is not captured

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<v Speaker 5>in this print is the Entropic and Google deals.

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<v Speaker 1>Said, yes, okay, that's what I was going to ask you.

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<v Speaker 1>When you say a backlog that means companies like Anthropic

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<v Speaker 1>and Google coming to xai part of SpaceX and renting compute.

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<v Speaker 5>That's right, yes, And in fact we know some of

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<v Speaker 5>the deal terms. Entropic will be paying SpaceX about one

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<v Speaker 5>point two five billion dollars a month. So next quarter

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<v Speaker 5>when they report, there will be at least three point

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<v Speaker 5>seventy five billion dollars from Entropic and another probably two

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<v Speaker 5>billion plus from Google when the report, so six billion

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<v Speaker 5>bump just from these two deals x quarter. That sound

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<v Speaker 5>pretty important, I think. So that's why the backlog number

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<v Speaker 5>is very important because in that forty seven billion dollars

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<v Speaker 5>is that Anthropic deal and the Google deal and there's

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<v Speaker 5>one more company, I think, Reflection.

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<v Speaker 1>And what what can XAI offer these firms that that

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<v Speaker 1>Mandeep mentioned that like a Google Cloud and Microsoft Azure

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<v Speaker 1>and AWS or even a Neo cloud can.

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<v Speaker 4>Offer space that they're not currently using. So it is

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<v Speaker 4>what it's a commodity, a little bit. So like in Tennessee,

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<v Speaker 4>Xai now Space Xai set up a number of data

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<v Speaker 4>centers in very quick order, Colossus one, Colossus two, and

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<v Speaker 4>Colossus three. And what was explained to me in great

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<v Speaker 4>detail by sources is that once they had built all

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<v Speaker 4>of them, they were like, Okay, how do we use

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<v Speaker 4>this ourselves? And they realized that in Colossus one, which

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<v Speaker 4>is a big tin Can data center, they had multiple

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<v Speaker 4>generations of Nvidia GPUs all mixed together. Some were Hopper generation,

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<v Speaker 4>some were Black Well, some were even as old as

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<v Speaker 4>the A one hundred generation, and so they decided the

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<v Speaker 4>best use of that capacity was to rent it out

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<v Speaker 4>with attractive economics for those renting it at a premium.

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<v Speaker 4>Many would say, I think Mandy has been over that

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<v Speaker 4>really well in the past, and for them, like they

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<v Speaker 4>run it really operationally efficiently, it can be a high

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<v Speaker 4>margin business. But it was all born out of the

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<v Speaker 4>fact that for their own models and running them, not

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<v Speaker 4>just training later generation models, they couldn't work out how

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<v Speaker 4>to use that capacity for themselves to best effect.

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<v Speaker 2>Yeah, I mean.

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<v Speaker 3>The worries that we've had man deep about this company

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<v Speaker 3>and feeling like we didn't know some things should investors.

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<v Speaker 3>I know, we never give investment advice, but feel all right,

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<v Speaker 3>we're getting more information about the business that we can

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<v Speaker 3>kind of figure out and cross with kind of where

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<v Speaker 3>this company's going. The valuation means the valuation is still

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<v Speaker 3>a little crazy.

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<v Speaker 5>Right, it is crazy. But what I think may work

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<v Speaker 5>in their favor is this is a company that will

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<v Speaker 5>likely have accelerating top line growth at least for the

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<v Speaker 5>next three or four quarters with margin improvement, and that

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<v Speaker 5>is a type of story that investors typically like. I mean,

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<v Speaker 5>we just saw what Pealantier did today, you know, with

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<v Speaker 5>their quarter partly because of that accelerating top line growth,

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<v Speaker 5>and there is no doubt in my mind, given that

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<v Speaker 5>forty seven point five billion dollar backlog number, SpaceX will

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<v Speaker 5>have accelerating top line growth at least for the next

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<v Speaker 5>three quarters.

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<v Speaker 1>We're speaking with Man deep saying our Bloomberg Intelligence global

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<v Speaker 1>head of Technology Research. Also with us Ed Lovelow out

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<v Speaker 1>there in San Francisco. He's the host of Bloomberg Tech.

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<v Speaker 1>I want to remind everybody, if you have questions about

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<v Speaker 1>SpaceX's earnings, the company's report, send us a question Bloomberg

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<v Speaker 1>dot com, slash Ask Radio. That's bloomberg dot Com slash

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<v Speaker 1>Ask Radio. It's only for Bloomberg dot Com subscribers. You

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<v Speaker 1>can submit questions for us or for any of our

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<v Speaker 1>guests this afternoon.

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<v Speaker 3>You know, I'm just looking at you know, you pull

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<v Speaker 3>up the SpaceX, do the ticker. Do you know cnbn

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<v Speaker 3>spacexa's business growing across all three segments. SpaceX exceeds revenue

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<v Speaker 3>estimates in the first quarter, first earning since IPO. You know,

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<v Speaker 3>SpaceX's first earnings offer a chance to reverse the stocks

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<v Speaker 3>plunge that was earlier in the day, top of mind

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<v Speaker 3>and come on back in because.

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<v Speaker 2>I'm just thinking, how much of what we we didn't know?

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<v Speaker 3>So this is kind of our first real picture of

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<v Speaker 3>a lot of what the business is about. There were speculations,

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<v Speaker 3>certainly coming off the IPO, and there was numbers and

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<v Speaker 3>there were estimates, but how much of this is.

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<v Speaker 2>Like, oh, okay, so this is the business at least now.

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<v Speaker 4>Yeah, yeah, So what you can do is you can

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<v Speaker 4>compare with the backward looking data we have from the

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<v Speaker 4>IPO perspectus, the S one and the amended versions of it,

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<v Speaker 4>just the two Aikey points because I think it's really

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<v Speaker 4>interesting to get Mandiv's take on this is AI is

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<v Speaker 4>probably inflecting a little bit faster than the street expected.

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<v Speaker 4>So the AI revenue are two point five six billion dollars, right.

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<v Speaker 4>Compare that to the first quarter, which is data we

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<v Speaker 4>got in the perspectives about eight hundred million, so it's

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<v Speaker 4>quite a jump sequentially quartered a quarter and then on

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<v Speaker 4>an adjusted ebit DAR basis, which you know, let man

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<v Speaker 4>deep into this one because I know how the street

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<v Speaker 4>feels on adjustedy a bit DAR, but AI adjusted ebit

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<v Speaker 4>DAR did term positive AI specifically, and so like right now,

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<v Speaker 4>with the knowledge that all of these other business lines

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<v Speaker 4>are futuristic, orbital data center, the space economy, and enterprise AI,

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<v Speaker 4>what they have done is move pretty quickly on their

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<v Speaker 4>AI instructure business. And you know, Mandiep's outlined the deals

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<v Speaker 4>that they did to get there.

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<v Speaker 1>Okay, let's just reset here a little bit, because we're

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<v Speaker 1>seeing shares of SpaceX down about six and a half

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<v Speaker 1>percent after the company reported results. Starlink growth continues to

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<v Speaker 1>be a revenue driver. Shares are slumping though as investors

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<v Speaker 1>digest this. Mandy, what's the sort of I don't know,

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<v Speaker 1>from a guidance perspective, the expectations about what we'll hear

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<v Speaker 1>on the call that's different from what's in the press release. Again,

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<v Speaker 1>first time we've had a call for this company, so

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<v Speaker 1>we can kind of only go with what Tesla has

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<v Speaker 1>done in the past. But what do we expect in

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<v Speaker 1>terms of guidance.

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<v Speaker 5>I mean, when I look at this Starlink number, to me,

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<v Speaker 5>that's slightly misconsensus in terms of number of subscribers. And

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<v Speaker 5>given we talk about how that's the cash cow that's

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<v Speaker 5>funding you know, the other businesses, that is probably the

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<v Speaker 5>number one question that I feel they're going to get

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<v Speaker 5>on the earnings call, but along with that backlog, which

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<v Speaker 5>I think will help them in the quarters upcoming quarters,

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<v Speaker 5>but clearly that Starlink business was slightly below consensus.

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<v Speaker 3>All right, we're going to continue watching shares the SpaceX,

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<v Speaker 3>as we mentioned, definitely down right now about eight and

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<v Speaker 3>a half percent, so giving kind of everything back that

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<v Speaker 3>they got in the regular trading session. In the meantime,

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<v Speaker 3>I want to since we've got Elon, we have Elon here. Hey, Elon,

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<v Speaker 3>thanks for calling it. We've ed here, and of course,

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<v Speaker 3>man Deep, let's also bring in AMD into the mix.

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<v Speaker 2>Hey, it could happen. You don't ever know right, I

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<v Speaker 2>could see him probably careful what you wish for.

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<v Speaker 3>I know, let's take a look at shairs of AMD,

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<v Speaker 3>because we've seen them under pressure as well, down about

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<v Speaker 3>eight percent as we speak. And this is after let's

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<v Speaker 3>just go to the red headline here on the Bloomberg.

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<v Speaker 3>The company sees third quarter revenue of twelve point seven

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<v Speaker 3>billion to thirteen point three Street estimate was twelve point

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<v Speaker 3>fifty one. Says data center sales to accelerate in the

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<v Speaker 3>second half of twenty twenty six. Cees third quarter justin

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<v Speaker 3>griss margin of about fifty six percent. Street estimate was

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<v Speaker 3>just a hair higher at fifty six point two percent,

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<v Speaker 3>And if you look back at the quarter that was actually,

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<v Speaker 3>let me give you one more on the third quarter,

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<v Speaker 3>so the outlooks he's third quarter revenue actually I said

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<v Speaker 3>this twelve point seven to thirteen point three billion. Street

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<v Speaker 3>estimate was twelve point fifty one billion. But looking backwards,

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<v Speaker 3>second quarter just at EPs was four cents better than

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<v Speaker 3>the street was expecting. Second quarter justed operating margin was

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<v Speaker 3>twenty seven percent, slightly above the twenty six point nine

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<v Speaker 3>percent the street was expecting, and second quarter revenue it

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<v Speaker 3>was eleven point five to four billion. That two was

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<v Speaker 3>above street estimate of eleven point thirty one. But again

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<v Speaker 3>that stocks down within seven percent here, yeah.

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<v Speaker 1>Down at this point eight percent as we speak. You

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<v Speaker 1>mentioned the numbers. I want to bring in, Man Deep

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<v Speaker 1>in ed who are watching this closely, Man Deep, your

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<v Speaker 1>first reaction to AMD's report.

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<v Speaker 5>I mean, it seems to be an in line print.

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<v Speaker 5>And you know, with all these stocks, the visper number

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<v Speaker 5>is much higher than what you see in consensus. So

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<v Speaker 5>to my mind, the fact that data center number is

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<v Speaker 5>mostly inline is or slightly two percent above consensus is

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<v Speaker 5>not enough. And you know Nvidia is going to post

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<v Speaker 5>a quarter that will be you know, eleven twelve times

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<v Speaker 5>bigger than AMD's number when it comes to data centers.

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<v Speaker 5>So clearly they're not kind of catching up to Nvidia

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<v Speaker 5>in anywhere right now.

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<v Speaker 1>And what's that jumps out to you about AMD's reports.

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<v Speaker 1>Shares am down about nine percent.

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<v Speaker 4>You know, there's there's no massive out performance in the print.

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<v Speaker 4>I just note that going into today's close, AMD's are

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<v Speaker 4>one hundred and forty percent year to date, and they're

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<v Speaker 4>telling the story to investors that in the second half

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<v Speaker 4>of this year, data center sales are going to accelerate,

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<v Speaker 4>but there's nothing sort of outstanding in the sales outlook

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<v Speaker 4>for the third quarter that kind of is additive to

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<v Speaker 4>that sort of commentary, and that the last bit, the

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<v Speaker 4>only bit I see really is that they see gross

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<v Speaker 4>margins of fifty six percent in three Q and consensus

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<v Speaker 4>was a touch higher fifty six point two. That you know,

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<v Speaker 4>doesn't account necessarily for the drop in after hours.

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<v Speaker 2>It's also up what one hundred and forty percent year

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<v Speaker 2>to date.

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<v Speaker 1>Yeah, I get that's kind of what I'm thinking, right Yeah, Hey,

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<v Speaker 1>I want to get back to SpaceX. We're still watching

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<v Speaker 1>what's happening with all of these companies, and we're lucky

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<v Speaker 1>to have both of you guys with us who can

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<v Speaker 1>speak to AMD and SpaceX shares a SpaceX down about

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<v Speaker 1>six percent in the after hours. I mentioned that we

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<v Speaker 1>have Bloomberg dot com slash Ask Radio as a way

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<v Speaker 1>for our subscribers to get in touch with us and

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<v Speaker 1>ask questions not just to us, but to add and

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<v Speaker 1>man deep in all of our guests. SpaceX's a question

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<v Speaker 1>about SpaceX coming in right now, guys. Sanjay out in Irvine,

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<v Speaker 1>California writes that the fact that SpaceX is valuation is

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<v Speaker 1>already high. Does that make today's earnings more or less

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<v Speaker 1>in line with the high expectations? I want to send

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<v Speaker 1>that one over to man Deep first valuations question. We

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<v Speaker 1>talked with Max Chafkin earlier about the so called Elon

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<v Speaker 1>premium and the idea that Tesla is valued more than

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<v Speaker 1>any other carmaker despite the fact that you know, in

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<v Speaker 1>terms of revenue it doesn't even crack the top ten.

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<v Speaker 1>Valuation question about SpaceX, what do you make of it?

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<v Speaker 5>Yeah, I mean at one point five trillion, you know,

0:12:39.920 --> 0:12:44.120
<v Speaker 5>for a company of SpaceX size, there is a lot

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<v Speaker 5>embedded in that number in terms of, you know, growth

0:12:48.080 --> 0:12:54.720
<v Speaker 5>expectations and how investors see margins improving. So that's why,

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<v Speaker 5>you know, even though I feel like they will do

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<v Speaker 5>very well over the next three quarters and in terms

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<v Speaker 5>of top line driven by AI, but at this valuation,

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<v Speaker 5>and you know, it hypeered at even a higher valuation,

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<v Speaker 5>So it's always hard to keep up with the expectations.

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<v Speaker 5>And unless you come out and show positive surprises the

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<v Speaker 5>way Nvidia has done that constant consistently, I think it

0:13:22.760 --> 0:13:25.920
<v Speaker 5>will be hard for SpaceX just to kind of keep

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<v Speaker 5>this multiple. So they really have to grow into that multiple,

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<v Speaker 5>which I think they should be able to given the

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<v Speaker 5>backlog number we are seeing. I mean, all the cloud

0:13:34.880 --> 0:13:38.760
<v Speaker 5>companies had backlogs of four hundred billion dollars plus you

0:13:38.760 --> 0:13:42.120
<v Speaker 5>know when they reported, and they had an excellent quarter,

0:13:42.240 --> 0:13:44.600
<v Speaker 5>all of them, you know, Google, Amazon, and Microsoft. So

0:13:44.920 --> 0:13:48.360
<v Speaker 5>from that perspective, SpaceX reporting a forty seven point five

0:13:48.360 --> 0:13:51.320
<v Speaker 5>billion dollar backlog. If they keep growing that I think

0:13:51.320 --> 0:13:53.319
<v Speaker 5>will be positive for that SpaceX story.

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<v Speaker 3>I also want to mention we're getting some additional headline

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<v Speaker 3>SpaceX second quarter AI segment cap x a fifteen point

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<v Speaker 3>eighty three billion versus an estimate on the street of

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<v Speaker 3>thirteen point zero nine billion. I know ed you were

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<v Speaker 3>on a live blog like looking for more insight when

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<v Speaker 3>it comes to Capex.

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<v Speaker 2>Yeah.

0:14:11.440 --> 0:14:15.760
<v Speaker 4>No, I think they have positioned this in the CFO

0:14:15.800 --> 0:14:20.120
<v Speaker 4>commentary about having a really strong liquidity position. Right, they

0:14:20.560 --> 0:14:23.400
<v Speaker 4>have the proceeds of the IPO and then they immediately

0:14:23.440 --> 0:14:26.840
<v Speaker 4>went to the corporate debt market and so they have

0:14:26.840 --> 0:14:30.280
<v Speaker 4>one hundred billion dollars to play with. But you again

0:14:30.400 --> 0:14:33.320
<v Speaker 4>can go back to the prospectus on how capital expenditures

0:14:33.360 --> 0:14:36.160
<v Speaker 4>were tracking in the first half of this year. The

0:14:36.160 --> 0:14:38.760
<v Speaker 4>consensus number, again there's a note of caution on all

0:14:38.800 --> 0:14:41.920
<v Speaker 4>the consensus numbers because this is their first ever quarterly

0:14:41.960 --> 0:14:45.000
<v Speaker 4>earnings as a public company. The expectation was they'd spend

0:14:45.000 --> 0:14:49.480
<v Speaker 4>about forty five forty six billion dollars this year. A

0:14:49.480 --> 0:14:51.440
<v Speaker 4>lot of that's still to come right this, you know,

0:14:51.480 --> 0:14:57.480
<v Speaker 4>it's really key information because across those nascent business lines

0:14:57.880 --> 0:15:02.280
<v Speaker 4>Starship as a launch sister, orbital data center, and then

0:15:02.320 --> 0:15:06.360
<v Speaker 4>the business of like actually selling ais the software at scale.

0:15:06.680 --> 0:15:08.280
<v Speaker 4>It's still going to take a lot of spending.

0:15:09.600 --> 0:15:13.920
<v Speaker 1>And is this is this report? Are we getting the information?

0:15:14.080 --> 0:15:15.960
<v Speaker 1>It's sort of an inside baseball question, but is the

0:15:16.000 --> 0:15:18.480
<v Speaker 1>information coming at a cadence that's on par with what

0:15:18.520 --> 0:15:19.320
<v Speaker 1>we get from Tesla?

0:15:20.200 --> 0:15:20.400
<v Speaker 2>No?

0:15:21.040 --> 0:15:23.880
<v Speaker 4>So this I find this really interesting. So, you know,

0:15:23.960 --> 0:15:29.800
<v Speaker 4>Tesla presents a pretty detailed shareholder deck each quarter, and

0:15:31.040 --> 0:15:35.360
<v Speaker 4>it is multiple pages long. It has a lot of information,

0:15:35.680 --> 0:15:38.920
<v Speaker 4>for example, the headwinds and tailwinds to the top and

0:15:38.920 --> 0:15:43.479
<v Speaker 4>bottom line, the macro impacts they felt, any political impacts.

0:15:44.520 --> 0:15:47.000
<v Speaker 4>They're sort of forward looking strategy as it relates to

0:15:47.080 --> 0:15:49.960
<v Speaker 4>software in different markets, et cetera. This is a very

0:15:49.960 --> 0:15:53.640
<v Speaker 4>modest release where there's zero commentary from Elon Musk, who's

0:15:53.640 --> 0:15:56.840
<v Speaker 4>the CEO of space X. There's zero commentary from Gwyn Shotwell,

0:15:56.840 --> 0:15:59.760
<v Speaker 4>who's the president and COO and de facto runs the company,

0:16:00.480 --> 0:16:03.840
<v Speaker 4>just the CFO commentary from Brett Johnson, and it's you know,

0:16:03.880 --> 0:16:06.920
<v Speaker 4>it's very modest, so there's a lot still to learn.

0:16:07.080 --> 0:16:09.400
<v Speaker 4>You know, there's not the same level of detail. There

0:16:09.400 --> 0:16:12.200
<v Speaker 4>are fair questions like will Elon must be on the

0:16:12.200 --> 0:16:15.120
<v Speaker 4>Earning School? You know, we just we have no definitive

0:16:15.160 --> 0:16:17.920
<v Speaker 4>answer in that one assumes. So what kind of role

0:16:17.920 --> 0:16:19.560
<v Speaker 4>to Gwyn shot Well and Brett Johnson play on the

0:16:19.560 --> 0:16:21.280
<v Speaker 4>Earning School? Are like are they the stars of the

0:16:21.280 --> 0:16:24.320
<v Speaker 4>show or is it like Tesla where Elon's still the

0:16:24.360 --> 0:16:26.680
<v Speaker 4>star of the show. We just don't know, and that's

0:16:26.720 --> 0:16:27.160
<v Speaker 4>kind of fun.

0:16:27.480 --> 0:16:30.080
<v Speaker 2>So do we have an idea man deep of how

0:16:30.160 --> 0:16:31.640
<v Speaker 2>much cash they're burning through?

0:16:32.920 --> 0:16:37.239
<v Speaker 5>I mean, they are investing fifteen billion plus in capex

0:16:37.320 --> 0:16:43.240
<v Speaker 5>every quarter and they're not generating any free cash flow

0:16:43.840 --> 0:16:47.800
<v Speaker 5>as of now. I mean, the startling business is the

0:16:48.040 --> 0:16:51.000
<v Speaker 5>only one that seems to be generating free cash flow

0:16:51.440 --> 0:16:55.640
<v Speaker 5>and that seems to have misconsensus. So from that perspective,

0:16:55.800 --> 0:17:00.040
<v Speaker 5>I mean, they have this challenge in terms of meeting

0:17:00.120 --> 0:17:04.840
<v Speaker 5>expectations around free cash flow, unlike the hyperscalers that clearly

0:17:05.240 --> 0:17:10.480
<v Speaker 5>have strong balance sheets to invest in, you know, capex.

0:17:10.480 --> 0:17:13.120
<v Speaker 5>So from that perspective, I feel there is a ceiling

0:17:13.160 --> 0:17:15.919
<v Speaker 5>to how much higher they can go in terms of

0:17:15.920 --> 0:17:19.119
<v Speaker 5>capex increases. I do think they will raise the capex,

0:17:20.040 --> 0:17:22.920
<v Speaker 5>but even at sixty billion dollars rund rate, how high

0:17:23.000 --> 0:17:28.080
<v Speaker 5>can they go given they don't have the balance sheet

0:17:28.119 --> 0:17:31.320
<v Speaker 5>and the free cash flow that the other hyperscalers.

0:17:30.560 --> 0:17:35.160
<v Speaker 4>Have ed Come on in, you have a question, Yeah,

0:17:35.200 --> 0:17:37.080
<v Speaker 4>so I have a question with it. I rely on

0:17:37.119 --> 0:17:41.720
<v Speaker 4>man Deep's expertise and he's modeling. So in the first

0:17:41.720 --> 0:17:45.400
<v Speaker 4>half of the year, SpaceX had about three point five

0:17:45.400 --> 0:17:49.520
<v Speaker 4>billion dollars operating cash flow, but the capital expenditures for

0:17:49.560 --> 0:17:51.040
<v Speaker 4>the first half of the year were like twenty nine

0:17:51.040 --> 0:17:54.160
<v Speaker 4>billion dollars. So you just do the operating cash flow

0:17:54.240 --> 0:17:57.000
<v Speaker 4>minus the capex and that gives you a sort of

0:17:57.040 --> 0:18:00.800
<v Speaker 4>an approximation on the negative free cash flow overall? Am

0:18:00.800 --> 0:18:02.240
<v Speaker 4>I doing the maths right on that?

0:18:02.240 --> 0:18:03.040
<v Speaker 5>That's right? Yeah?

0:18:03.400 --> 0:18:06.480
<v Speaker 4>So I see again like this is me doing math

0:18:06.520 --> 0:18:08.920
<v Speaker 4>in my head and though in my high school teachers

0:18:08.960 --> 0:18:12.200
<v Speaker 4>it wonn't my strong point, but I see, let's say,

0:18:12.520 --> 0:18:15.200
<v Speaker 4>let's say twenty five billion dollars of negative free cash

0:18:15.200 --> 0:18:18.240
<v Speaker 4>flow and aggregate across those businesses in the first half.

0:18:19.080 --> 0:18:23.360
<v Speaker 5>Yeah, Look, I think what you will see is the

0:18:23.840 --> 0:18:27.560
<v Speaker 5>cloud rental business is going to be a lot better margins.

0:18:27.960 --> 0:18:31.360
<v Speaker 5>So that's the part that you know, when you do

0:18:31.400 --> 0:18:36.879
<v Speaker 5>the first half calculations and analyze it, you you're expecting,

0:18:37.119 --> 0:18:39.800
<v Speaker 5>maybe you know there will be negative fifty billion dollars

0:18:39.960 --> 0:18:43.520
<v Speaker 5>for the full year, But my guess is that cloud

0:18:43.520 --> 0:18:46.880
<v Speaker 5>rental business is going to be positive in terms of

0:18:46.920 --> 0:18:49.200
<v Speaker 5>the margin profile. Now, it's not going to be as

0:18:49.359 --> 0:18:53.320
<v Speaker 5>high as the hyperscalers. So Hyperscalers, as we have seen

0:18:53.400 --> 0:18:56.679
<v Speaker 5>this quarter, they have mid thirty percent margins when it

0:18:56.680 --> 0:18:59.760
<v Speaker 5>comes to their cloud businesses. In the case of space.

0:19:00.840 --> 0:19:03.919
<v Speaker 5>Even in a best case scenario, that AI segment would have,

0:19:04.440 --> 0:19:07.359
<v Speaker 5>you know, low to mid teens margins, but at least

0:19:07.359 --> 0:19:11.760
<v Speaker 5>it's positive. So from that perspective, if you see AI

0:19:11.920 --> 0:19:14.520
<v Speaker 5>business at the end of the year around a twenty

0:19:14.560 --> 0:19:18.160
<v Speaker 5>five billion dollar run rate with low to midteens margins,

0:19:18.600 --> 0:19:21.560
<v Speaker 5>then it will offset some of that negative twenty five

0:19:21.600 --> 0:19:25.439
<v Speaker 5>billion dollar you know, burned that you've seen for the

0:19:25.480 --> 0:19:28.240
<v Speaker 5>first half. And that's where I think there's a good

0:19:28.320 --> 0:19:31.120
<v Speaker 5>story to tell in terms of margin improvement driven by

0:19:31.119 --> 0:19:32.360
<v Speaker 5>that cloud rental business.