Every few years there’s an IPO that gets people who don’t normally think about stocks asking me if they should buy it. Back in the day it was Google. Then Facebook. Then a parade of names I’ve already forgotten. This year it’s SpaceX, which is expected to start trading on the Nasdaq under the ticker […] The post Avoid the SpaceX IPO appeared first on Lazy Man and Money.
Every few years there’s an IPO that gets people who don’t normally think about stocks asking me if they should buy it. Back in the day it was Google. Then Facebook. Then a parade of names I’ve already forgotten. This year it’s SpaceX, which is expected to start trading on the Nasdaq under the ticker SPCX next Friday.
Elon Musk’s hype machine is in full effect. Instead of cars driving themselves, it’s about creating a colony of a million people on Mars*. It’s Starlink beaming internet down from space. And it’s reportedly going to be the largest IPO in history, targeting a $1.77 trillion valuation.
That number is exactly why I’m going to pass. Actually, it’s only part of the reason. Let me walk through the rest.
I’ll get my bias out of the way first. I’m not a fan of Musk, and I’ve been less of one since his DOGE adventure in government. You’re free to disagree, but I think even he’d admit that he failed miserably at delivering what he promised.
Here’s the bigger problem, though. To buy SpaceX, you kind of have to buy the whole Musk story, and that story has a habit of moving the goalposts.
Look at Tesla. Its valuation has always seemed out of control to me compared to other car companies. Tesla makes great cars, but it’s still a car company, and it’s priced like something else entirely. Meanwhile, Musk seems less interested in cars these days and more interested in humanoid robots. Ten years ago, he sold us on full self-driving being right around the corner. It wasn’t. Today, Tesla is playing catch-up to Google’s Waymo and a Chinese company or two who are actually putting driverless cars on the road. So, having not delivered on that promise, the pitch has shifted to robots that are probably another decade away.
Now, what exactly are you buying with SpaceX? It’s a bundle. It includes Twitter (sorry, “X”), which Musk bought for $44 billion and quickly lost about 80% of its value. It includes xAI, his artificial intelligence company. xAI isn’t nothing, but let’s be honest about where it sits. It’s behind OpenAI’s ChatGPT, behind Anthropic’s Claude, and behind Google’s Gemini. I’d put it in fourth place at best, with Meta breathing down its neck. And every one of these AI companies is spending absolutely staggering amounts of money on data centers right now. That’s a scary business to be in, even if you’re winning. Being in fourth place and spending like you’re in first is scarier still.
Then there are the actual rockets, which are supposedly the whole point. The core launch business does real, impressive work. But the revenue is small for a $1.77 trillion price tag. SpaceX did somewhere around $19 billion in revenue last year and still lost nearly $5 billion.
Let me put that $1.77 trillion in context, because numbers this big stop meaning anything. Here’s what other trillion-dollar-ish companies actually bring in:
Alphabet (Google): over $400 billion in revenue last year
Microsoft: north of $245 billion
Meta: around $165 billion
Nvidia: $130 billion last fiscal year, and running far higher now
These are wildly profitable companies. In fairness, Alphabet (4.3B), Microsoft (3.2B), and Nvidia (5.2B) are still much bigger than SpaceX. However, Musk seems to think that SpaceX is equal to Meta without the revenue or profits. I’m not a Wall Street analyst, but I can do the revenue/market cap division, and it doesn’t add up for me.
I’m not the only skeptic. Morningstar just pegged SpaceX’s fair value at $780 billion, less than half the IPO target, and flatly said investors will get better prices after the IPO. The Motley Fool agreed, saying there’s no rush and a wait-and-see approach lowers your risk. When the pros are this lukewarm, why buy into the hype?
So would I ever buy? Sure, at the right price. IPOs have lock-up periods, and when early investors are finally free to sell, the price often drops. For me, I’d start to get interested after about a 70% drop from the IPO price. It’s the gap between the hype and what the business actually earns, factoring in the failures to deliver that I’ve watched for years. I can’t even begin to imagine what Warren Buffett thinks of this.
Am I being too cynical here? Are you planning to buy into the SpaceX IPO, or sitting it out like me? Let me know in the comments.
* Yes, Musk’s compensation package includes an incentive for creating a colony of a million people on Mars.
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