As SpaceX’s highly anticipated IPO reshapes the intersection of space, AI, and public markets, we take a closer look at its valuation, governance, and what it means for investors. We’re joined now by Lou Whiteman, contributing aerospace analyst at The Motley Fool. Thank you so much for being here, Lou. We really appreciate it.
It’s a pleasure. Happy to be here.
Of course. Now, we have so much to get to here. This is such a big deal that’s really rocking every part of industry, every part of Wall Street right now. SpaceX’s IPO is being called one of the most groundbreaking market debuts in history. What makes this offering so significant compared to past tech and aerospace IPOs other than the fact that we know obviously it is the largest, but what is it really doing that’s kind of throwing people off so much as people try to figure out what to do with this potential investment?
Well, as you say, we all know about the size, but we shouldn’t sleep on the size. We should say that yes, this is huge by any IPO standard, but definitely by aerospace standards. We just don’t talk in trillions with IPOs normally, and yet here we are. The other thing too is though, and kind of related, this is it for a relatively boring industry. This is an early stage company. With the defense contractors in particular, you know what you’re going to get. You have the appeal is the steadiness of it. It isn’t really the growth potential. This is turning this all on its head. We are all about the potential not the present here today. You throw in kind of the mix of AI, space, all of these things that understandably have fascinated us. This is a lot of fun but it’s new territory for us.
Yeah, it definitely is. And you know you mentioned potential there. How do you assess SpaceX’s current valuation? And does the market’s enthusiasm appear justified based on a company’s financials and growth outlook or is it really a lot more of that potential that you mentioned?
It’s definitely the potential but look I mean this isn’t abnormal, right? Valuation, we very rarely value companies based on what their business is today, right? We are always, we don’t, the old analogy is if we go buy an apple for 50 cents, it’s to eat the apple. But you may value that apple at $100 if you’re going to use it to plant an apple tree. You can get more apples, right? That is very much the case here. SpaceX, the current business, is not worth $3 trillion. It’s not worth half of that. Look, Rocket Lab probably isn’t worth $60 billion or whatever it is based on today. We see, or at least the market sees a potential for a lot more here with Rocket Lab and with SpaceX. To me, you have to really squint to see it with SpaceX. If I’m honest, I’m not buying in right now based on this valuation. But I do think, look, you could have said that about Tesla in 2010. There’s a long history here of Elon Musk creating value. I think as much of anything, the people buying in today are buying into we believe in Elon. We believe that over time he can create value and we want to be part of that.
Yes, I mean so many people here are definitely taking that bet on Elon Musk who obviously is inseparable from SpaceX. Can’t mention that without talking about him and the fact that now he is reportedly the world’s first trillionaire. So following this IPO first trillionaire, what does this milestone really say about investor sentiment towards SpaceX and then also the broader innovation economy right now?
Yeah, again, I mean, I would go so far as to say that most of this investment is more investing in Elon’s brain. We thought that there’s a lot of talk, are they going to buy Tesla, merge with Tesla? My best argument for that is that why should there be two competing securities out there that are basically investments in Elon’s vision of the future? I think what we’ve learned here though about the market is that yes, and especially coming up with maybe Anthropic and OpenAI, there is still a lot of excitement about the future. We’re always just a battle between excitement and worry with valuations and right now excitement is winning. There is a story to be told here and people are embracing that story. I think Elon is the perfect conduit for that. So I do think that maybe Anthropic arguably has a better AI business to put on display but maybe not. I don’t know if anyone is the spokesman or the kind of visionary that Elon is. So these companies have competing strengths but looking at this market I think what it tells you is that the market is still very much more excited than it is scared.
Yeah. I mean that excitement encapsulating so much of the feeling that people are having these days about this company and so many others like it out there. Now Musk is controlling 85.1% of SpaceX’s voting power through super voting shares. So, should public investors be comfortable with this level of concentrated control or do you think they maybe should have that hesitation that says, “Hey, you know, I am excited about this, but let me think about what I’m doing before I invest here.”
They certainly should be aware. Look, we’ve we’re kind of, I don’t know if we’re numb to this, but look, to some extent, Alphabet, Meta, Snap, DoorDash, Shopify, even arguably like Berkshire Hathaway or Ford are family controlled or individual controlled. We sort of are used to it. This is an extreme case. Elon, as you say, what, like 85% of the voting power. You cannot replace the CEO at SpaceX unless 95% of the class B shares agree. And Elon or wait, I think it’s half of the class B shares and Elon owns 95% of those. So, he literally has control in ways we haven’t seen. I think the market again if you think of this as sort of an investment in Elon Musk I think that’s why the market is accepting this and again we do see this elsewhere but yeah I think that part of the investing decision for an individual here is that you need to be aware of this and either decide if you accept it or not. It kind of does give me some pause but again if you believe that Elon is creating value you want him to be in control and I do think that it’s a hurdle that a lot of investors are able to get.
Yeah, it seems like a lot of people have been able to get over that, but for retail investors who are out there who maybe aren’t sure, who are looking at SpaceX for the first time, what do you think are the most important factors that they should consider before buying the stock? Because again, everyone does have so much excitement, but there are these potential red flags that some people might find worrisome.
So, I’m a space guy and the space company I think was a pretty compelling investment before the AI merger. I have a lot of questions about the AI merger. They gave a huge total addressable market in AI almost US GDP. That seemed vague to me and I think it seemed vague for a reason. They want to try and flush it out. But I think we actually need to know what AI wants to do and I don’t think that was in the S1. So I would really like them hopefully at the first earnings call to give a more concrete definition of AI. Is this just going to be that Grok is going to beat Claude? Because if so, I don’t know if I want to bet on that. If it’s data centers in space, that’s possible, but that’s a long ways out. And there’s a lot of physics that has to be solved there. So, I at least need to know that okay, the a lot of this bull case, we’re talking borderline a decade and not next quarter. Is it going to be some sort of mismatch of we can rent out capacity and build things with people? Whatever it is, I think investors deserve some sort of clarity on what the vision is there. There’s also, you have to acknowledge here that look, they just raised 75 billion. About 20 billion of that goes out the door almost immediately because they have to pay off a bridge loan tied to that xAI deal. I think they have six months to do that. So, you’re talking maybe after fees, $50 billion. That’s a lot for you and me. But if you think of the expenses that this company has looking out into the future, the Terra factory, I think that was $50 billion that they’re sharing with Tesla. Starship, which used to be the big expense, I think they’re maybe $15 billion so far and they still need to get out the door. All of the AI spending, God, we don’t know how much that is. There is going to have to be more money raised. I don’t know if that’s all going to come from equity, but I think one of the reasons to go public is you free yourself up to sell more shares. I think again whether or not that’s a deal breaker for investor, I think you at least need to be aware there’s going to be a lot of probably dilution from here. There’s going to be a lot of financing. There’s going to be a lot of moving parts. Whether it’s a dealbreaker for you, that comes down to the individual. But you really need to understand going in that this is going to be a messy, complicated story for at least the next few years. And I don’t see that changing. So I think you better be comfortable before you buy in.
Yeah, that’s such good advice to people sitting there saying, “It sounds good if I just look at it on face value, but wait a second. I probably should dive deeper and learn about some of these other factors that are going into this here before I invest.” Lastly, tell us a little bit more. You mentioned this before, Anthropic, OpenAI, tell us a little bit more about what the SpaceX IPO really signals for these other really highly anticipated offerings that might be coming just around the corner. So what do you think this kind of signals in the market and what do you think is going to happen with those companies?
So I think it’s telling if you look at the S1, the document you have to file to go public, it is largely a marketing document, right? You are trying it’s almost like your social media profile you’re putting your best picture of yourself out there for the markets to accept and I think it’s very interesting how much the bankers, the people who wrote the S1, leaned into the AI opportunity versus the space opportunity. Space is still huge, 300 billion or whatever they said is still a big market, but so much of the attention was on AI. I think that reflects what the bankers saw as the interest and I think that speaks well for other AI companies trying to come online. Anthropic to me just as a user has a better story to tell. We’ll see what their valuation is, but I think it speaks very well to definitely Anthropic getting out the door and even OpenAI. I mean, we’ll see what their timeline is. I kind of feel like for OpenAI the best time to go public would have been, I don’t know, six months ago or something like that. But I do think that at least for Anthropic there is a clear appetite for this and I do think you can see that halo effect extend to OpenAI. This is again still a market that is more excited than scared and so this is the time we should be seeing big IPOs. This is the time to come out.
Well, you’ve given us so much to think about today Lou Whiteman, contributing aerospace analyst at the Motley Fool. Thank you so much for being here.
