Contrarian Codex — Merlin Labs, a potential 35x AI-autonomy play
"An AI autonomy play that by my modeling has a 35-bagger bull case attached to it… I have taken a position at a $6 price point." — the first non-commodity name in the Codex portfolio.
One-line take: Merlin Labs (MRLN) builds the Merlin Pilot — an aircraft-agnostic, DO-178C Level A AI flight-control system whose unique NLP-to-ATC capability lets it talk to air traffic control like a human pilot. A $105m USSOCOM C-130J IDIQ (PDR complete), a thin ~5% float, Baillie Gifford backing and full insider lock-up sit against a real burn rate and a fierce field (Reliable Robotics, Shield AI, Anduril). Mart models bear ~$16 / base ~$77 / bull ~$216 (35x), weighted 35/45/20, with the true bear case $0. Written report — no video; the eli5 below carries the thesis.
1. Stocks & names mentioned
| Ticker | Name | Research | View | What he said | At |
|---|
| MRLN | Merlin Labs | QT · SA · STK · FA | Positive | New position at $6 — an aircraft-agnostic AI pilot with a moat-in-formation (NLP-to-ATC, cross-platform data, DO-178C cert) on a $105m C-130J IDIQ; bear ~$16 / base ~$77 / bull ~$216, sized for the volatility. | read ↗ |
| Reliable Robotics | Reliable Robotics (private) | — | Neutral | The serious competitor — fully-uncrewed (remote-pilot) approach, SpaceX/Tesla pedigree, $160m raised at ~$1bn, 200+ commitments, the only FAA-accepted full-automation cert plan; a likelier single winner on the pure cert track. | read ↗ |
| Shield AI | Shield AI (private) | — | Neutral | ~$12.7bn private; Hivemind tactical-combat autonomy — a different (mission-autonomy) layer than Merlin's safety-critical flight control, designed to coexist via A-GRA rather than compete head-on. | read ↗ |
| Anduril | Anduril (private) | — | Neutral | ~$30.5bn private; vertically-integrated by instinct — a potential threat if it decides to build its own certified DO-178C safety layer, though that's a multi-year, hundreds-of-millions grind Merlin started in 2018. | read ↗ |
Legacy primes Honeywell, GE Aerospace and Northrop Grumman are framed as partners (not competitors) who chose to integrate Merlin rather than build the autonomy layer in-house. Citron Research (a career short-seller) went publicly long the pre-merger ticker — cited as a conviction signal.
2. Talking points
What the Merlin Pilot actually is
- An aircraft-agnostic software platform retrofitted into existing planes (military + civil), flying takeoff-to-touchdown with reduced or eventually no crew; flown on 7 airframes from the Long-EZ up to the C-130J and KC-135.
- The differentiator: natural-language processing that listens and responds to ATC over the radio "just like a human pilot," parsing accents and congestion — foundational, not bolted-on.
- Certified under DO-178C Level A, the most stringent aviation-software class — full requirement-to-code-to-test traceability, a multi-year grind.
The competitive field & the moat-in-formation
- Reliable Robotics (fully-uncrewed, ground remote pilot) is the real rival on the pure-cert track; Shield AI and Anduril operate adjacent layers.
- Three moats: the proprietary NLP/ATC dataset that compounds per flight, cross-platform integration knowledge, and a certification pedigree that hardens once the first Supplemental Type Certificate is issued (2027–28).
- Pursuing NZ CAA certification first (SOI-1/2 done) to leverage bilateral recognition with the FAA, Australia, Canada and the UK.
Demand — the "Silver Tsunami"
- ~4,300 senior captains retiring a year through 2042 (peaking 2026–28); a projected 24,000-pilot shortfall in 2026; crew cost overtook fuel as airlines' #1 line item.
- Military: a chronic ~2,000-pilot Air Force deficit; large flight operations already outsourced to contractor pilots — the seat Merlin targets. FY2026 carved out $13bn for autonomy.
Contracts & the precision Mart insists on
- $105m USSOCOM C-130J IDIQ is a ceiling, not cash — only ~$15.9m task-ordered; PDR complete, CDR next. The 300 C-130J / 376 KC-135 fleet figures are the addressable, not the contracted, market.
- Condor product family (large cargo) + a World Star Aviation P2F MOU; a UAE teaming agreement; a seat on the MDA Golden Dome SHIELD vehicle (additive, not $150bn of contracts).
The cap table
- Baillie Gifford wrote four checks at escalating prices; every legacy holder rolled 100% into public stock under lock-up (founder George absorbing all downside); 90.3% redemption collapsed the float to ~5% — which is why $6→$17→$6 happened in six weeks.
The three Bs & the bear risks
- Bear ~$16 (~$275m rev at 7x), base ~$77 (~$750–800m at 12x), bull ~$216 (~$1.5–1.8bn at 15x ≈ 35x); weighted 35% bear / 45% base / 20% bull — deliberately conservative.
- Real risks: ~$93m annualized burn vs $183m cash (~2yr runway), minimal revenue, NZ cert is no automatic FAA shortcut, SBIR size-eligibility could lapse on success, Reliable is a credible single-winner, and the de-SPAC stigma weighs on the stock.
3. In plain English
MRLN — Merlin Labs Positive
Merlin sells the "brain" that flies a plane. It's a software box you bolt into a normal aircraft so it can take off, fly and land with fewer human pilots — or none. The clever part is that it can talk to air traffic control over the radio the way a person does, understanding accents and instructions, which almost no rival can do; every flight it makes adds to a private dataset that makes that skill harder to copy.
Why now: airlines and the military are running out of pilots (thousands retiring every year, pilot pay now bigger than fuel), so anything that cuts a two-pilot crew to one is valuable. Merlin has a real US special-operations contract on the C-130J military transport — but Mart is careful that it's a spending ceiling ($105m), not cash in hand, and the company is still burning ~$90m a year against ~$183m of cash, so it's a 2–3-year bet, not a this-quarter story.
The maths: if it just keeps executing, his "bear" case is ~$16 (≈3x the $6 entry); the middle case ~$77; the dream case ~$216 — about 35 times. The honest catch is the real bear case is $0 if the demo fails and the cash runs out, so he sized the position small. It earned a spot because the downside still pays ~3x while the upside is enormous — the kind of asymmetry he wants, with conviction backers (Baillie Gifford) and full insider lock-up behind it.
Analysis distilled from the Contrarian Codex written deep dive (PDF linked above). For personal study — not investment advice. Source material © Contrarian Codex / "Mart".