Should You Buy Space X? | IPO Special

SpaceX is pricing its IPO at 135 dollars per share across 555 million shares, implying a valuation of nearly 1.8 trillion dollars and expected gross proceeds above 75 billion dollars. The offering is approximately two times oversubscribed as of June 8, with listing expected June 12. Only four to four and a half percent of shares are being floated. Twenty billion dollars of proceeds are earmarked for debt repayment, with the remainder directed toward Starship development, AI compute infrastructure, and data centers in space.

The company operates across three segments: space, connectivity, and AI. The launch business built on Falcon 9 and Falcon Heavy is now the smallest segment by revenue despite being the company's foundation. Starlink, with more than 10 million subscribers and roughly 10,000 satellites in orbit, is the current profit engine and free cash flow driver, actively taking share from fiber and terrestrial telecom. SpaceX reported 18 billion dollars in revenue last year, implying a price-to-revenue multiple of approximately 100 times at the IPO valuation, compared to the S&P 500 currently trading at three times, itself described as the top of its historical range.

The AI segment, encompassing xAI, Grok, and the X platform, is the smallest revenue contributor today but is cited in the prospectus as the largest predicted future revenue source. SpaceX's S1 lists a total addressable market of 28.5 trillion dollars, with approximately 26 trillion attributed to AI. Dan Ives argues this framing makes SpaceX more an AI company than a space company by that metric, though he acknowledges xAI currently trails Anthropic and OpenAI in model capability. The AI segment is also burning the most cash and carries the highest risk within the portfolio.

Morningstar uses a discounted cash flow methodology and assigns a weighted average fair value of approximately 63 dollars per share, roughly half the IPO price. Morningstar values the Starlink and rockets business consistently at around 611 billion dollars in enterprise value. The gap between that figure and the 1.8 trillion dollar IPO valuation reflects execution risk on space-based AI data centers. Morningstar assigns a 43 percent probability to a scenario where space-based data centers fail and capital is written off, a 50 percent probability to a base case where they achieve cost parity with terrestrial alternatives but are not highly competitive, and only a 7 percent probability to the scenario where Starship is reusable and scalable and space-based data centers become commercially viable. Even Morningstar's most optimistic scenario yields only 154 dollars per share, still close to the IPO price rather than above it.

Capital raised is expected to go largely toward placing GPUs on modified Starlink satellites and testing whether they can operate below approximately 65 degrees Celsius. Potential cost advantages include free solar power and free cooling, but these depend on capex and launch amortization costs falling substantially. Continued Starlink growth itself depends on Starship being viable and reusable, considered highly likely but not yet proven. Ives predicts space-based data centers become realistic around 2029 to 2030, and assigns an 80 percent or greater probability that SpaceX and Tesla merge by 2027 to consolidate data assets and AI capabilities.

Elon Musk holds between 80 and 85 percent of all voting rights under a dual class share structure while simultaneously serving as chairman, CEO, and chief technology officer. Institutional investors have described this governance structure as egregious. Larry McDonald noted it was nearly impossible to find a major Wall Street firm with a bearish rating, attributing this to the structural conflict where investment banks must produce maximally bullish assumptions to secure Musk's business.

SpaceX will enter the Nasdaq 100 two weeks after listing, creating forced passive fund buying into a very small float and likely pushing the stock higher near term. The S&P 500 did not change its inclusion rules, so SpaceX faces a 12-month wait and profitability requirements before S&P inclusion. McDonald's central concern is that SpaceX's bull case depends on continued heavy capital spending by its primary customers, specifically the Mag Seven plus Oracle, and that this spending trajectory pushes those companies toward near-zero or negative free cash flow, meaning SpaceX's growth is built on the financial deterioration of its own customer base. Tech and AI already represent roughly 50 percent of S&P 500 composition, and McDonald's only portfolio advice was to rotate from market-cap-weighted S&P 500 exposure into equal weight or globally diversified equity, warning that the current concentration of large capital raises makes a serious market dislocation highly probable.