The SpaceX IPO Is a Trap
I haven't seen everyday folks this excited about a stock in years.
That's not a good thing.
The SpaceX initial public offering ("IPO") has folks scrambling to get in on the action... even if they've never touched a single stock before.
I understand the excitement.
You look at the long-term returns on Tesla (TSLA)... You picture the romance of rockets and space exploration... It looks like the birth of a new industry.
But the drama of storytelling can only fight financials for so long. When you dig in, SpaceX may become a disastrous investment.
The company is set to go public on the Nasdaq next month, under the ticker SPCX, at a wild valuation... $1.75 trillion. The IPO is looking to raise roughly $75 billion, making it the largest ever. For reference, that would outpace the current largest – Saudi Aramco's 2019 IPO – nearly three times over.
Elon Musk needs to make unprecedented technical and financial progress to justify that share price, let alone have shares rise from there.
If he can't pull it off, this SpaceX IPO will be nothing but a cash-out for early investors... at the expense of everyone who buys next month.
To figure out the risks and opportunities, I sat down with our in-house space expert and editor of Stansberry Venture Technology, Dave Lashmet.
Dave is a scientist with multiple U.S. tech patents to his name. He has lectured around the world and at top universities. And he has covered aerospace at Stansberry Research for years... including capturing multiple three-, five-, and 10-baggers on space stocks for our subscribers.
As you'll see, there's a reason he's not jumping on the SpaceX trend...
Three Big Ideas About SpaceX
Only One Business Makes Money
Again, SpaceX is targeting a valuation of around $1.75 trillion. That's more than 100 times sales. Looking at just the fundamentals, the company brought in about $18.7 billion in revenue last year – and lost nearly $5 billion.
The most profitable piece of SpaceX is Starlink, its satellite-communications network. Starlink has more than 10 million subscribers and roughly $4 billion in operating income. It's a real business. But it runs into a hard limit for growth thanks to physics.
For highly populated cities like New York City or Los Angeles, only a handful of satellites pass overhead at any given time. Each one can serve roughly 1,000 people.
So over a major metro area, Starlink can handle maybe 4,000 users at once. That's nothing compared with Verizon Communications (VZ) or AT&T (T), which have thousands of towers on the ground.
And keep in mind, everything Starlink puts into orbit also has to come back down.
Low-earth-orbit ("LEO") satellites burn fuel to stay in place, degrade fast, and need replacing every few years. The economics of operating a satellite network are... OK. But they don't justify 100 times sales.
Data Centers in Space Are Science Fiction
SpaceX's S-1 filing (linked below) claims a total addressable market ("TAM") of $28.5 trillion. (TAM is an estimate of maximum revenue or the total customer base a business has in the world.)
Of that, $22.7 trillion is for enterprise AI applications.
But SpaceX is spreading its bet between providing an AI model (Grok) and running AI-specific data centers like a "neocloud." And part of the pitch is that the data centers will be in space.
Physics says otherwise.
The first problem, as Dave explains, is getting data on and off the satellite fast enough to be useful.
The second problem is thermal. Space is cold in the Earth's shadow, which gives you free cooling. But on the sun-facing side, with no atmosphere to buffer you, the heat has nowhere to go. It doesn't radiate away the way it does in a building on the ground with air circulation.
The third problem is the most brutal. As noted earlier, anything you put in LEO is coming back down within a few years. A ground-based data center lasts a decade or more. You can upgrade the chips, resell the old ones, and maintain the facility. A data center in space will burn up in the atmosphere or need costly refueling.
Musk needs AI and these data centers to help justify the valuation... but the technical risks are enormous.
The IPO Is a Trade, Not an Investment
Let's look at how the SpaceX IPO will work...
The company plans to sell about 4% to 5% of its shares to the public and raise roughly $75 billion. Everyone else – the insiders, the early investors, Musk himself – holds on to their shares. Then, in a series of "unlocks" ending at one year, those insiders can start selling into the market.
But the real game is what happens 15 days after the IPO.
Under new rules, SpaceX will be added to the major indexes more quickly than other companies have in the past. Every S&P 500 index fund in America, unless it's equal weighted, will be forced to buy SpaceX shares.
That's billions of retirement dollars heading into the stock.
So there's a case for a short-term trade. Buy at IPO... and ride the hype and index buying if shares pop.
However, as an investment – something you hold for years and compound wealth on – the picture is grim. The company has $30 billion in debt already, and the $75 billion won't last long before the company ends up diluting shareholders.
Put simply, if SpaceX goes public at nearly $2 trillion, it'll have a hard time keeping that valuation justified for long.
Watch to Learn More
To learn more, check out my discussion with Venture Value's Dave Lashmet. We sit down in this week's Top Stocks episode to further discuss Starlink, data centers in space, and the real question facing investors looking at SpaceX...
You can watch the entire episode on our YouTube page by clicking the image above. Be sure to like and subscribe to get more of our videos.
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Straight to the Source
- SpaceX's S-1 filing – a wild read
- "The 7 Most Outlandish Things in the SpaceX Prospectus," by our parent company MarketWise's James Royal
- Dave Lashmet's upcoming presentation on the opportunities in space (reserve your spot here)
Until next week,
Matt Weinschenk
Publisher and Director of Research
What do you think about Top Stocks? Send any and all feedback to thisweek@stansberryresearch.com. We read every e-mail you send in.