$$$paceX
$1.8T FOR A DECADE OF PROMISES, BUT INVESTORS WON’T LIVE TO SEE ROI
MOONSHOT
The following is not financial advice. We don’t know your specific situation, we don’t know your risk tolerance, and we don’t know your goals. What we can do is try to fairly evaluate things and give you that view, and we will try to do that, but even in that, nobody is perfect.
It seems improbable that SpaceX will be able to fulfill the variety of “moonshot” ambitions it outlines in its S-1 filing for an imminent Initial Public Offering within a time frame relevant to current investors at the current valuation.
These include the extremely WeWork-coded declaration that Elon Musk’s firm will "extend the light of consciousness to the stars", a business ambition whose return on investment seems hard to measure. The S-1 has been described by one analyst as “hallucinatory,” and includes at least one proposal that will only become plausible if the laws that are broken are those of thermodynamics.
This is not to say the goal of bringing humanity to the stars is wrong; it is to say that dumping that goal as a for-profit enterprise on the backs of mom & pop retail investors reeks of pure avarice rather than radiating high-minded morality.
THE MUSK FACTOR
Elon Musk has a far stronger cult of personality than WeWork’s Adam Neumann was able to gin up in his few short years as the Human Embodiment of We-Ness. In fairness to Mr. Musk, he has also delivered significantly more than WeWork has: we do have electric cars, we do have internet coming from space, and we do have reusable rockets for orbital launches. These are not small feats, and people will be excited about them.
Therefore, we strongly caution against any attempt to short or otherwise bet against this offering. And SpaceX (unlike WeWork) does have a rational valuation that would be significant, it’s just somewhere short of the $1.8 trillion enterprise value Musk is seeking.
Put simply, we like the MacBook Neo, but we would not advise you to buy one for $20,000. The issue is not the product; it is the price.
THE MEGACAP IPO PATTERN
In broad terms, recent megacap IPOs sold into peak hype have not gone great. Many have reached a 50% drawdown during the first year post-IPO, including RIVN, HOOD, and COIN. Each of them, like SpaceX, is more focused on a long-run macronarrative than on the grit of execution, with initial valuations driven, as is often the case in tech, by the idea that the future is right around the corner, instead of a decade of hard work away.
SpaceX is shaping up to be the biggest of them all, and its valuation target is based on, at best, the kind of long-shot ambition measured in decades. Some of the pillars of its thesis, in particular, the goal of putting data centers in space, seem to intentionally target public pop-science confusion about basic physics (hint: the vacuum of space isn’t “cold”).
And even if you think SpaceX is Robinhood rather than Rivian, destined for eventual success, we expect a similar sharp near-term drawdown that will offer better entry points than the IPO itself.
MEAN NUMBERS
Of the many reasons to be cautious of SpaceX’s IPO, the most glaring exist in two categories. The first can be boiled down to pure numbers.
SpaceX has sweated for 23 years to lose a cumulative $41.3 billion.
Even given a transition to actual profitability in near-term quarters, at IPO price, SpaceX would trade at a hyperinflated P/E ratio some distance north of ~50. The P/E of the most-hyped stock in the market right now, Nvidia, is ~30. Without a clear forward revenue path, this sort of multiple for a company already at a top-of-market valuation is almost always a negative sign for future returns.
The SpaceX float, shares available for sale, is a minuscule 4-5%. This parallels “Low Float, High Fully Diluted Value” offerings in cryptocurrency. One of those was FTX’s FTT token, whose falsely inflated value was used to collateralize fraudulently obtained loans. This is also a tactic used by outright scammers, who control a tiny amount of supply to push futures prices to fantastical levels, or by insider cartels who hold most of a token and don’t allow the majority of the float to trade freely to obscure what a true market-clearing price would be, a fact pattern that looks more like Canton Coin or Audiera. In no circumstance have these patterns historically been good for long-term returns, even if they can lead to short-term squeezes (often engineered by informed market participants).
Retail is getting a 30% IPO allocation instead of the usual ~5%. Not only does this show that SpaceX is looking for liquidity in unusual places, implying a lack of serious institutional demand, but it also creates the motive for widespread hype by retail punters on social media, systematically distorting the information environment around the offering. Proponents have framed this retail offering as some sort of generosity. That’s plausible if institutions had oversubscribed and are being cut back. That is not what appears to be happening; instead, the interest is entirely driven by retail, and institutions seem to have passed at these valuations.
MARKET MOVERS
The need to target retail may partly be an artifact of SpaceX’s uniquely anti-shareholder governance structure, which gives Elon Musk total power. That has led to pushback from the kind of institutions, like CalPERS, that actually move markets. Notably, this sort of concentrated power has already led to massive misallocations of capital at companies like Meta, thanks to Zuckerberg’s control, and the market appears increasingly skeptical of this structure.
Morningstar, ProfG, and Motley Fool have so far had the guts to make short calls.
Cathie Wood likes it - an absolute kiss of death from a woman whose “innovation fund” has lagged the S&P 500 by close to ninety percent over the past half-decade.
Insiders will get to sell earlier than usual – just after the Q2 earnings report. Ask yourself - what are they giving themselves permission to do?
SpaceX’s core growth narrative is AI, but the xAI unit’s revenue is from leasing compute to more successful AI developers.
Special permission to enter the S&P 500 early has been denied. Rules changes to other indices remain risk flags, while the S&P “seasoning period” means SpaceX will have far fewer early programmatically committed buyers.
MAKE IT MAKE SENSE
The second category of countersignal is behavioral, given the rush to buy based on retail market interest, which itself is usually a top signal. There have been advertisements for the SpaceX IPO in retail brokerage accounts, and the venues with the traders who often have the weakest performance (e.g., the Robinhoods of the world) are those who are experiencing the strongest interest in the IPO. It also raises a simple question: at this valuation, if you are beginning with the buyers who are usually the last resort, who is left to push the price?
After all, SpaceX is not currently profitable. It is one thing for a company like Nvidia or Amazon, which is raking in unfathomable billions, to have a run based on expectations of increasing profitability. But here, the expectations have not even materialized; this is not product-market fit for more demand. Fundamentally, the question is simple: are you buying into a growth stock that will double to a $3.6T valuation, or are you buying into a cloud computing company at the height of the 2000 bubble, long before any revenue materializes?
There may be risks even to non-buyers: Massive IPO issuance was one of the drivers of the 2000 tech bubble bursting, as more and more equity competed for dollars and attention. SpaceX may be particularly dangerous in this systemic sense because of index inclusion rules (including NASDAQ and MSCI) being changed to allow them in despite their lack of profitability. It’s also not hard to foresee SpaceX sucking up (and then incinerating) a lot of capital that would have gone into future OpenAI or Anthropic IPOs.
Verdict: The numbers don’t support the valuation, but that’s not going to stop people. Maybe it should? Even so, if you want to own it, it’s likely to be available later on at a discount based on the performance of large-cap IPOs in recent years.