SpaceX, the space exploration company led by entrepreneur Elon Musk, is poised for a listing on the Nasdaq on June 12 under the ticker SPCX. The initial public offering will see 555.6 million shares issued at a price of $135 each, raising a foundational sum of approximately $75 billion and valuing the company at around $1.8 trillion. This figure surpasses the previous global IPO fundraising record of $29.4 billion set by Saudi Aramco in 2019, positioning the SpaceX debut as the largest in history. Despite this milestone, significant market skepticism has emerged regarding the company's lofty valuation.
Valuation Concerns Prompt Market Skepticism
Doubts about potential overvaluation of SpaceX are widespread, with prominent voices including Morningstar, valuation expert Aswath Damodaran, and the Danish pension fund AkademikerPension expressing caution. According to a Bloomberg report, SpaceX adjusted its target valuation downward from over $2 trillion to $1.8 trillion following discussions with advisors and investors. However, the market widely believes the current valuation still exceeds its fair value by a considerable margin.
Governance Structure Raises Red Flags
A research report from Morningstar suggests a fair value for SpaceX of only about $780 billion. Analyst Neil Mackintosh noted the company appears significantly overvalued, suggesting investors might find more attractive entry points post-IPO. He acknowledged SpaceX's cost advantage in commercial satellite launches as a competitive moat for its space business. However, he highlighted the extreme uncertainty and potential for substantial value destruction from its subsidiary xAI's artificial intelligence operations, pointing out that its AI assistant Grok is not a leading large language model and lags noticeably behind products from market leader OpenAI.
Furthermore, projects like the Starship and space-based computing centers require massive R&D investments with long payoff horizons. Elon Musk's super-voting rights, exceeding 80%, also raise concerns about inadequate protection for minority shareholders, potentially warranting an additional valuation discount. The market broadly worries about Musk's use of a dual-class share structure, which allows him to maintain absolute control of the company with a relatively low equity stake. This governance model is seen as a key risk factor for its IPO valuation.
Consequently, AkademikerPension has placed SpaceX on its investment blacklist. Its Chief Investment Officer, Anders Schelde, described SpaceX's governance structure as "disastrous," stating a reasonable valuation should not exceed $1 trillion.
Financial Performance Highlights AI Losses
The Wall Street Journal cited New York University Stern School of Business finance professor Aswath Damodaran, who estimated SpaceX's equity value at approximately $1.3 trillion, or about $99 per share. He questioned the claim in SpaceX's prospectus that its AI business addresses a potential $26 trillion market, deeming it unreasonable.
The prospectus reveals SpaceX generated full-year revenue of $18.674 billion last year, a year-on-year increase of about 33%. However, it reported a net loss of $4.937 billion, primarily attributed to xAI's annual operating loss of approximately $6.4 billion. The commercial rocket launch business also recorded a $660 million loss due to high R&D spending. The sole profitable segment, Starlink, served as the company's "cash cow," generating over $11.4 billion in revenue last year with a profit margin nearing 40%.
In its pre-IPO filings, SpaceX painted an enticing vision of launching AI data centers into space to give xAI an edge over competitors. However, it provided no details on the required timeline or capital investment. JPMorgan Chase senior market analyst Li Shengde noted that market acceptance ultimately hinges on SpaceX's ability to translate its narrative of "space + communications + AI" into actual profits, warning that otherwise, "this could become the largest valuation bubble in the history of global capital markets."
Deep Ties to U.S. Defense Apparatus Revealed
According to disclosures by The Wall Street Journal, SpaceX has long courted U.S. national security agencies, successfully making the U.S. government its largest single customer. Last year, SpaceX's revenue from the government totaled about $4 billion, with expectations for significant growth in the coming years.
Securing High-Value Defense Contracts
During a visit to SpaceX's Texas facility in January, U.S. Defense Secretary Kathleen Hicks stated that the Pentagon has long been plagued by Congressional inefficiency and "programs that take too long," a vulnerability that aligns perfectly with SpaceX's "we move fast" sales pitch. SpaceX primarily offers technologies based on existing products and services, even if they don't perfectly fit existing project or contract frameworks. Leveraging its capabilities for mass-producing satellites and rapid rocket launches, SpaceX has secured multiple high-value agreements with the U.S. Department of Defense, making it a core player in military and intelligence space programs.
Rapid Development Aligns with Military Needs
In a project for a satellite-based "Airborne Moving Target Indicator" to track aircraft, the U.S. military initially estimated a usable system could not be deployed until 2030. However, after SpaceX proposed launching a radar system on a much faster timeline, the government's request for proposals issued in February closely matched SpaceX's capabilities. Last month, the U.S. Space Force also awarded SpaceX two contracts worth a combined $6.5 billion through the Defense Department's "Other Transaction Authority," bypassing many processes that typically slow procurement.
The Defense Department has since held up SpaceX as a model of efficient cooperation, demonstrating how companies can help the military cut through red tape and deploy weapons and other combat capabilities more rapidly.
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