In just over a week, SpaceX is set to debut as one of the biggest IPOs in history with an eye-popping valuation of $1.75 trillion. One top analyst says it may actually be worth half of that, and investors may get a better deal by biding their time.
Despite the hype surrounding the IPO, partly fueled by the star power of SpaceX’s CEO and controlling shareholder, Elon Musk, Morningstar analyst Nicholas Owens wrote in a note that SpaceX’s actual value is $780 billion—about 55% below its target IPO valuation of $1.75 trillion.
While the company dominates in several areas thanks to its strong launch business and its growing Starlink satellite internet operation, Owens noted that SpaceX faces potential headwinds stemming from its AI business and the uncertainty surrounding some of its longshot projects, such as orbital data centers.
SpaceX is not currently profitable. While its Starlink business, which makes up the majority of its revenue, increased 50% year-over-year, the company still recorded a net loss of $4.95 billion last year partly due to heavy AI-related expenditures. Based on its giant valuation alone, SpaceX would be the seventh-biggest company in the U.S., the Financial Times reported. Yet, by revenue, it would be the 200th biggest. Analysts have warned the company’s valuation is being derived from the future expectations of its ambitious projects like orbital data centers and Musk’s reputation for building innovative companies like Tesla.
Several factors will inflate the stock price after its scheduled June 12 IPO date, including outsized interest from investment banks who are underwriting it, as well as a small float resulting from the company’s decision to offer only 3% of its shares to public investors, and finally due to a rule change that will allow SpaceX to quickly join the Nasdaq 100 and force index funds to buy its shares automatically.
With SpaceX reportedly targeting an initial price of $135 per share—a metric that is surely set to skyrocket almost immediately—Owens labeled its shares “overvalued in almost any scenario, at least in the near term.”
Smart investors, he wrote, may be better off waiting to buy in the coming months, when existing shareholders and company insiders have had the chance to offload their shares. Musk, for his part, has agreed not to sell his more than 40% stake for a year after the IPO.
Existing shareholders are usually prevented from offloading their shares for 180 days post-IPO to prevent them from tanking the stock before it establishes a stable price. Yet, SpaceX’s prospectus shows the firm is taking a novel approach to the lockup period.
Instead of the single 180-day lockup that is common for IPOs, these shareholders will be allowed to sell 20% of their shares just weeks after the public offering, when the company files its first quarterly earnings report covering the second quarter. These investors can then sell another 10% if the stock exceeds its IPO price by 30% for at least five of the 10 trading days after the first quarterly report is published.
This mechanism will likely flood the market with shares from early investors desperate to take some profits after accumulating large holdings over years. One early investor, Chad Anderson, founder of the VC firm Space Capital, lent credibility to this theory last month when a CNBC reporter asked him whether his firm would sell shares at the first lockup expiration.
“We’ve been invested for almost ten years,” he said, before adding, “it’s our business to return capital to investors.”
At 70, 90, 105, 120, and 135 days post-IPO, these same investors will also have the chance to sell 7% of their holdings. By the end of the usual 180-day lockup period, which should be in early December based on the June 12 IPO, many insiders will have sold, creating an opportunity for patient investors to capitalize, Owens claimed.
“We think long-term investors eager to participate in SpaceX’s future endeavors and potential success will have opportunities to do so with more margin of safety than the initial offering is likely to provide,” he wrote.
Setting aside the hype, caused in part because SpaceX is the first Musk-controlled company to go public in more than a decade, the company has some advantages.
Owens noted the company has a “narrow moat,” or a durable advantage, in the industries it participates in. SpaceX alone is responsible for just over half of all rockets launched last year. It also accounts for 83% of the total mass sent to orbit from Earth, almost 10 times more than the runner-up, the Chinese State Space Agency, the CNSA. The company’s next-generation Starship V3, which can carry a payload of 100 metric tons, compared to the 35 metric tons carried by the V2, will only widen this gap, and potentially enable the company’s ambition to build orbital data centers, which Musk has said will help meet the insatiable demand for AI. Its reusable booster technology will also help it reduce launch costs.
Yet, this advantage may not last forever.
“SpaceX is the undisputed global market leader in launch economics and satellite-based connectivity, but the market could become more competitive if the technological capabilities of players such as Blue Origin, Rocket Lab, or Chinese startups improve meaningfully,” wrote Owens.
SpaceX may also be weighed down by its AI business and by the uncertainty surrounding some of its longshot projects, such as orbital data centers.
In February, the company merged with xAI, placing assets such as the LLM Grok, the X social media website, and the massive data center operation Colossus under its purview. Yet, the AI acquisition may be more harmful than helpful, he claimed, and “poses a material threat of value destruction to the company.”
For one, “Grok has not demonstrated significant performance advantages over leading peers,” which has prevented it from gaining meaningful market share, wrote Owens. At the same time, the company has put at least $20 billion toward building up Grok and establishing its Memphis-based Colossus data center over the past five quarters. The company’s prospectus indicates its AI-related investments are set to grow, with no guarantee of a solid return.
To be sure, the company announced last month it would lease computing resources from its Memphis data center facility, Colossus, to Anthropic for $1.25 billion per month.
Musk’s X is another potential source of value destruction, with revenue declining by an estimated 50% since the world’s richest man bought the social media platform in 2022.
“We are skeptical of X’s long-term ability to generate returns on invested capital in excess of its cost of capital,” he wrote.
