Elon Musk's SpaceX, which is likely to get a $1.8 trillion price tag when it debuts on the Nasdaq next week, carries a host of superlatives. The one markets aren't talking about, however, could be its legacy. It's likely to be a value destroyer.
Part of the problem is SpaceX itself. The company combines Musk's space, satellite, social media, and artificial intelligence divisions, and is expected to float 555 million shares next week with a share price of around $135. Early indications suggest retail investors might take it even higher on the opening day of trading, slated for June 12.
But at its core, SpaceX is built on dreams, not fundamentals.
Its stated goal is to "build the systems and technologies necessary to make life multiplanetary, to understand the true nature of the universe, and to extend the light of consciousness to the stars," according to its regulatory filings. Musk and SpaceX see "the largest total addressable market in human history," which they peg at $28.5 trillion, with the vast majority coming from AI infrastructure, advertising, and "enterprise applications."
In layman's terms, that means lowering the cost of space access, bypassing the power bottlenecks holding back AI development, and using its satellite expertise to manage the entire project.
Valuing a company that hasn't made money at $1.8 trillion seems aggressive at best, foolhardy at worst. SpaceX lost $5 billion last year, but its listing will price it at about 95 times last year's revenue of around $19 billion.
"Aiming to achieve something that has never been done on a scale never seen by leveraging technology that does not currently exist, comes with some risks," said Thomas Shipp, head of equity research at LPL Financial. "All of this adds up to a future-focused company with no shortage of opportunities and risks whose size, profitability, and ambitious timelines set it up for a potentially volatile introduction to public markets."
The risks, however, aren't only to those who decide to buy SpaceX stock. Its IPO is so big that its fast-track inclusion into the Nasdaq 100 has some worried that it will also siphon capital from a host of big-ticket stocks -- and may already be doing so. An index of the Magnificent Seven tech giants has gained just 2% over the past month, less than half the advance of the S&P 500 and well shy of the 7.2% gain for the Nasdaq Composite.
Aerospace sector peers, including Boeing, Lockheed Martin, and RTX, have also been suffering in the run-up to the IPO. While SpaceX might not be the proximate cause, Boeing shares have lost nearly 3.5% over the past month, while RTX and Lockheed have notably underperformed the 5% gain for the S&P 500 over the same time frame.
"Maybe that's active investors trimming on the margins to raise cash for the SpaceX IPO, but something's going on, and we might be just seeing the beginning of what's about to happen," said Blake Anderson, director of portfolio management at Carson Group.
Even Bitcoin, which has fallen more than 17% over the past month, even as inflation, Iran war and domestic deficit pressures continue to escalate, is seeing investors flee to the warm embrace of Musk's staggering market listing.
But the largest value destruction may occur in the Telecom sectors. Starlink, which commands the lion's share of SpaceX revenue will likely take capital from companies -- and business -- from companies such as AT&T, Verizon, and T-Mobile, according to Oppenheimer analyst Timothy Horan. All three stocks are down between 2% and 7% over the past month.
"Starlink will have the ability to dominate internet/cloud/AI traffic and could potentially charge for interconnection and other unique services, posing a threat to the legacy communications industry," he said in a note published Wednesday. "As the SpaceX scale levers start kicking in, we expect Starlink to become the dominant provider in the space, and eventually carry the majority of internet traffic."
For most investors, though, what matters is whether the SpaceX IPO ultimately signals a top in the market. The S&P 500, after all, has soared past the 7600 point mark, while the Nasdaq is now north of 27,000. Against the bullish backdrop, the IPO could turn out to be fortuitous, or an omen.
Here is SpaceX, destroyer of worlds?
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