[trading places]

Elon Musk $1.25T SpaceX + xAI merger, How to Get DPI in 2026 w/ David Zhou | Ep23

February 11, 2026

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  • The reported $1.25 trillion SpaceX + xAI merger combines the two largest TAMs (Space and AI) but draws parallels to the Time Warner/AOL merger, raising concerns about AI multiples absorbing existing asset value. 
  • SaaS multiples have collapsed significantly, with the overall index dropping to about 4x revenue and forward cash flow multiples falling from 40x to 17x, forcing CFOs to prioritize profitability and free cash flow over pure growth. 
  • Venture Capital funds often fail to return principal by year 7 (median DPI below 0.7x for 2017 vintage), necessitating proactive strategies like using SPVs to manage structured liquidity by selling portions of winners at Series A/B stages to generate predictable DPI for LPs. 
  • Structuring secondary sales via SPVs requires careful consideration of tax implications, particularly regarding QSBS treatment, and the investment size must justify the associated costs (ideally keeping SPV costs under 2-5% of the investment). 
  • The merger of SpaceX and xAI values the combined entity at $1.25 trillion, shifting the investment narrative from a straightforward IPO path to a grander, East India Company-like vision focused on colonizing Mars and building space infrastructure, including AI data centers. 
  • Elon Musk's strategy appears to be consolidating capabilities across his companies (SpaceX for rocketry/infrastructure, xAI for AI/LLMs, Tesla for robotics/AI-powered transport, and The Boring Company for drilling) to realize the Mars colonization vision, potentially through joint ventures rather than a full merger between all entities. 

Segments

SpaceX/xAI Merger Analysis
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(00:00:00)
  • Key Takeaway: The SpaceX/xAI merger is the biggest in history, combining the largest TAMs (Space and AI), with SpaceX contributing 80-87% of the combined revenue and profit.
  • Summary: The merger is valued at $1.25 trillion, with SpaceX valued around $1 trillion, bringing together space and AI capabilities. SpaceX generates about $8 billion in profit from Starlink, while XAI is currently burning cash. The structure mirrors the Time Warner/AOL merger, where the established asset (SpaceX) is merged with the high-growth narrative (xAI).
Market Recap and SaaS Collapse
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(00:05:33)
  • Key Takeaway: SaaS multiples have experienced a severe contraction, with the median multiple dropping to 4x revenue, the lowest seen in a decade.
  • Summary: The overall market was mixed, but software was hit hard, with SaaS multiples down approximately 25%. The median forward cash flow multiple for software has compressed from 40x a year ago to 17x now. SaaS CFOs must now focus on profitability and free cash flow, and clearly articulate how AI accelerates their core business to maintain valuation.
Hyperscaler CapEx Surprise
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(00:09:10)
  • Key Takeaway: The Big Four hyperscalers (Alphabet, Amazon, Microsoft, Meta) collectively guided CapEx spending over $650 billion for the next year, significantly exceeding analyst expectations.
  • Summary: This massive CapEx guidance, nearly double the previous year’s spending, negatively impacted the stocks of all four companies last week. Alphabet, despite strong cloud acceleration and profit margin growth (30%), is dedicating nearly all its free cash flow ($164B last year) to AI CapEx. Microsoft and Amazon saw the steepest declines relative to the group.
Figma Valuation Correction
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(00:13:46)
  • Key Takeaway: Figma’s valuation has corrected sharply from a peak of 90x revenue down to about 10x revenue, reflecting market skepticism about its ability to absorb AI infrastructure spending compared to giants like Adobe and Microsoft.
  • Summary: Figma priced its IPO at $33 per share ($12B valuation, 16x revenue) but peaked much higher before falling back to Earth. The company needs to demonstrate in upcoming quarters that AI will accelerate its business rather than compress its moat against larger competitors. Lockup expiration around the IPO date may also contribute to selling pressure.
Tether Valuation Setback
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(00:17:34)
  • Key Takeaway: Tether is walking back ambitious fundraising plans, suggesting that its reserve policy, heavily reliant on digital coins and corporate bonds, is under stress due to crypto market volatility.
  • Summary: Tether had reportedly been attempting to raise $20 billion at a $500 billion valuation, but this is likely on hold until the crypto market recovers. Its reserve policy is less transparent than competitors like Circle, relying on assets that decline in value during market downturns. The market is now less receptive to such large fundraising efforts for the stablecoin issuer.
Hot AI Funding Rounds
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(00:19:34)
  • Key Takeaway: Despite market turbulence, AI startups like ElevenLabs ($11B valuation) and Cerebras ($23B valuation) are securing massive funding rounds, demonstrating continued enthusiasm for AI infrastructure.
  • Summary: Voice AI startup ElevenLabs raised $500 million at an $11 billion valuation, tripling revenue to $330 million AR, with 41% of Fortune 500 companies using its platform. AI chip company Cerebras tripled its valuation in six months to $23 billion, landing OpenAI and Meta as key customers, prompting Benchmark to raise a $225 million SPV solely for Cerebras.
VC Liquidity Management via SPVs
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(00:37:18)
  • Key Takeaway: GPs can manage liquidity and improve fund IRR by proactively using SPVs as simplified continuity vehicles to sell portions of winning positions to existing or new LPs between years 3 and 10.
  • Summary: Selling 20% of Series A and B winners allows a fund to generate 0.5x DPI by year 4-6, avoiding the typical 11.5-year median time to exit. This structure bypasses the need for company consent required in traditional secondary sales and allows the GP to maintain record ownership on the cap table. LPs most interested in this model are fund-of-funds and later-stage investors who seek co-investment opportunities or structured liquidity.
Identifying ‘Secret Stallions’
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(00:56:37)
  • Key Takeaway: The ‘secret stallion’ sweet spot involves companies valued between $0.5 billion and $5 billion, generating $50M to $250M in revenue, where buyers can secure shares at a discount due to lower retail awareness.
  • Summary: These companies are large enough to exit but not as highly demanded as the top 30 private tech firms, meaning sellers often have more inventory than buyers, allowing for favorable pricing. Investors should check if the valuation is recent (post-2022) or if a quality VC led a recent round, while being wary of high pref stacks (over 30-50%) that could prevent common shareholders from realizing returns.
SPV Costs and Investment Size
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(01:02:37)
  • Key Takeaway: SPV costs are typically between $8K and $25K, making them economically viable only for investment checks above $500K to keep costs under 2-5% of the investment.
  • Summary: For smaller checks, the SPV cost can consume a significant portion of the initial investment, suggesting investors might need to wait for positions to grow through subsequent funding rounds before utilizing an SPV. Initial investing documents should grant the right to transfer assets into related family entities like SPVs. Various platforms like Carta, Sidecar, and Angel List offer services for setting up these vehicles.
LP Concerns on SPV Fees
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(01:07:36)
  • Key Takeaway: LPs expect fee schedules and carry to step down when assets move from a fund structure into an SPV, preferring one-time fees over renewed annual fees.
  • Summary: If fees are ongoing for SPVs, they should not exceed 1% annually, though one-time fees between 1% and 5% are more common. Carry can also be adjusted lower for these more mature assets, or a hurdle rate can be implemented before charging carry.
SpaceX/xAI Merger Valuation
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(01:09:31)
  • Key Takeaway: The SpaceX/xAI merger creates a $1.25 trillion entity where SpaceX shareholders receive 80% of the market cap despite contributing 83-89% of the projected 2026 revenue.
  • Summary: SpaceX is highly profitable, projecting $8 billion in profit for 2025/Q1 2026, while xAI is currently a significant money-burning engine, potentially losing $5-6 billion annually. SpaceX shareholders are taking on this cash burn while being diluted on a revenue basis by accepting a smaller equity share.
SpaceX East India Company Analogy
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(01:12:28)
  • Key Takeaway: SpaceX’s strategy mirrors the historical East India Company, aiming to colonize a new world (Mars) and establish infrastructure for resource extraction and internal commerce.
  • Summary: The goal involves mining valuable assets on Mars, requiring capabilities like spacesuits, mining technology, and AI-powered robotics for movement, as there will be no roads. This colonization effort necessitates infrastructure like data centers in space, which offer energy and cooling advantages.
Missing Infrastructure Components
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(01:15:12)
  • Key Takeaway: To achieve the Mars vision, SpaceX needs AI/LLM capabilities (from xAI), AI-powered robotics and flying cars (from Tesla), and drilling technology (from The Boring Company).
  • Summary: AI simplifies complex tasks like navigation and refueling planning for space travel, a capability SpaceX currently lacks. The merger with xAI addresses the AI gap, while collaboration or integration with Tesla and The Boring Company addresses robotics and subsurface exploration needs.
IPO Story Complications
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(01:17:05)
  • Key Takeaway: The merger complicates the previously straightforward SpaceX IPO story by introducing questions about AI necessity, XAI’s cash burn, and the role of the media business (X.com).
  • Summary: To justify a potential $1.5 to $2 trillion IPO valuation on $30 billion in revenue (50x-70x multiple), the story must shift dramatically to the future potential of space and AI infrastructure, rather than just current launch and Starlink fundamentals. Twitter/X.com provides proprietary data for training AI models like Grok.
Conglomerate vs. Standalone Value
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(01:20:42)
  • Key Takeaway: Elon Musk favors a consolidated company structure to tell a grand vision story, contrasting with historical market trends where the sum of parts (like PayPal spun out of eBay) often exceeds the conglomerate value.
  • Summary: A merger with Tesla would be difficult due to the need for shareholder approval and fairness opinions from an independent board, unlike the SpaceX/xAI deal. A simpler path forward might involve joint ventures or licensing agreements between the separate public entities.
SpaceX IPO Timeline Speculation
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(01:25:03)
  • Key Takeaway: Despite ambitious internal targets, a Q4 2026 IPO for SpaceX, potentially valued around $50 billion, is considered more realistic than a June target due to the complexity of executing the merger and managing the massive underwriting process.
  • Summary: The planned IPO size would be twice that of the previous largest IPOs (Alibaba or Saudi Aramco). The process will require extensive coordination among 35 to 40 underwriting banks. Market stability by mid-year is a key prerequisite for execution.