Depending on who investors read, the SpaceX IPO will either end Western civilization while ruining working-class retirement funds or usher in an AI-enabled global utopia, generating trillions in profits.
The truth almost assuredly lies in the middle. Still, investors need to know both sides of the argument so they can decide what to do as Elon Musk’s rocket company looks to complete its record-setting IPO later this week.
Bulls
For bullish investors, including Baron Capital and ARK Invest, the projected $1.8 trillion valuation for SpaceX feels like a bargain for three main reasons.
For starters, there is Starlink —SpaceX’s space-based broadband product with more than 10 million subscribers and 60%-plus Ebitda profit margins.
Baron Capital’s Ron Baron projects 15 million customers by the end of 2026 and 300 million by 2036. That could easily mean $500 billion in annual revenue and $300 billion in Ebitda, by the middle of the next decade. That alone could be worth $1.8 trillion—if those projections are accurate.
Then there is AI. SpaceX recently agreed with Anthropic and Alphabet to rent computing capacity for about$26 billion a year. ARK Invest believes the $26 billion cost for Anthropic and Alphabet generates roughly $52 billion in revenue. An AI industry revenue and margin structure is starting to emerge.
Musk’s plan is essentially to scale SpaceX AI compute by 100 times. That’s $2.6 trillion in AI compute rental revenue alone at today’s pricing—even if SpaceX AI models can’t compete with the leaders.
All this potential is underpinned by SpaceX’s massive lead in space launch and the promise of its huge, fully reusable, Starship rocket to bring the cost of reaching orbit down from thousands of dollars per kilogram to hundreds.
Bears
Legitimate bear arguments start by pointing out that all of those are long-term projections and that Starship isn’t operational yet. It would be nice to see the rocket work, and an AI data center satellite constellation compete successfully with terrestrial data centers.
What’s more, banking on 2036 sales and earnings projections will inevitably lead to incredible stock volatility if timelines get stretched out, competition emerges, or just about anything else happens to key assumptions.
Red Herrings
Less compelling bear arguments start by nitpicking things such as Starlink’s average revenue per subscriber, which is falling. That is not a big deal. There are countless examples of falling prices in new technology driving profitable growth. It would be a problem if Starlink margins were falling, growth was slowing, and pricing was weak. That isn’t the case yet.
Indexation, lockups, and governance are also interesting topics, but aren’t all that important for valuing the AI-space conglomerate.
For starters, the much-talked-about Nasdaq indexation rule changes apply to all the mega-IPOs coming. To be sure, index inclusion represents passive buying, and buying drives up stock prices, but passive buying, at best, creates short-term distortions in price, not long-term distortions in value. (Earnings and earnings growth always win in the end.)
Index managers are likely trying to deal with the phenomenon of huge companies that have stayed private for a long time, which have become very valuable.
That situation describes the SpaceX lockup situation, too. Instead of a typical 180-day lockup expiration for early investors, there are rolling lockup expirations with some tied to stock performance. Frankly, it’s far superior to a 180-day cliff.
What isn’t superior with SpaceX is governance. It’s unprecedentedly bad, according to Yumi Narita, Executive Director of Corporate Governance for the Office of the New York City Comptroller. Musk is in full control of the voting stock and the board. It isn’t ideal by any stretch, but SpaceX is Musk’s company, and an investment in SpaceX is an investment in Musk.
Tesla investors and analysts have long said that Musk is Tesla and Tesla is Musk. The same goes for SpaceX. It’s a risk investors have to accept if they want to invest in his rocket company.
What To Do
Barron’s recently suggested that SpaceX, which is expected to price shares at $135, is a better buy at $90. (We will update our thinking as facts change.)
Just because we see value at $90 doesn’t mean investors will get that price soon. The stock is likely to pop on day one. Investors should remember they don’t have to buy all the stock they want at any price on day one. They can use volatility to their advantage.
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