- SpaceX is expected to join the US stock market in the coming months
- What are the three main engines of the business?
- The key growth opportunities to watch
- The competition and what they are doing
- Potential valuation and how that compares to other big names
- What are the key risks to consider?
Dan Coatsworth, head of markets at AJ Bell, comments:
“Investors are itching to snap up SpaceX shares in what could be the biggest stock market debut in history, based on the amount of money raised.
“The IPO (initial public offering) is rumoured to be happening in the coming months, and SpaceX looks set to displace Nvidia as the hot stock everyone is talking about. If it goes ahead, it will be the public’s first chance to directly own a slice of Elon Musk’s business that is reaching for the stars.
“SpaceX is set to become the poster child for the modern space economy, and that is the type of narrative that investors love. It is already bringing down the cost of space activity and generating revenue, meaning it is not just another pie in the sky business.
“Investors often latch onto a story where the potential growth is vast, and certain people might believe SpaceX has what it takes to go to infinity and beyond. While there is certainly a buzz around the company, there are also risks.
“It is imperative that investors do not get carried away, and that they weigh up the pros and cons when considering any investments, even ones that sound so exciting.
Why is everyone excited about a potential SpaceX IPO?
“SpaceX is a next-generation infrastructure and services provider redefining the space economy. Its business model is focused on reducing the cost of getting satellites, cargo, and humans into space, and then utilising its own fleet of satellites to provide communication services and potentially data centres in the future.
“There is no other company doing what SpaceX does on the same scale, meaning it could justify a scarcity premium.
“Space excites people because it is the great unknown – and SpaceX is now making the space dream a reality. NASA’s successful Artemis II mission has also driven renewed interest in space among the public.
“SpaceX boss Elon Musk is a visionary and despite polarised views towards him, the CEO does seem to get things done. The Starlink satellite services arm makes SpaceX much more exciting because it provides recurring revenue, meaning there is a constant flow of money coming into the business to keep the lights on while it works on big picture ideas like colonising Mars.
What does SpaceX do?
“SpaceX’s interests cover three areas – launch services, satellite services, and AI.
“It has reusable rockets to transport goods and people into orbit. Historically, trips into space have been sporadic, yet SpaceX has ambitions to make space travel routine.
“Starlink is a satellite network provider enabling internet access for people in remote places on Earth such as rural locations, underserved places where internet connection is unreliable, or those at sea or in the air. While SpaceX could theoretically position Starlink into a mainstream internet provider, it might be better off focusing on its current niche than trying to compete with well-established providers with cheaper fibre and cable services.
“The third leg to the story is xAI, the owner of chatbot Grok and social media network X (formerly Twitter). Certain people might have scratched their heads at the logic of SpaceX recently buying xAI, thinking it was Musk starting the journey to put all his interests under one umbrella. However, the deal makes sense when you look at the bigger picture for SpaceX.
“Elon Musk implies AI is the future and SpaceX is the solution to facilitate that. Running AI requires immense power for storage and processing, and Musk reckons the only way to scale up is to tap into solar power from space. SpaceX plans to use its satellite network to operate as orbital data centres, while at the same time Musk wants xAI to become a leading AI provider. Therefore, parking the two companies together means SpaceX can power AI in multiple ways.
What are the key growth opportunities?
“Aside from continuing to build scale with its own satellites and third-party transportation, there are two key opportunities for SpaceX to keep investors on their toes.
“Test flights are under way for Starship, a reusable launch system on a gigantic scale that is the equivalent of SpaceX going full-on Popeye mode – gulping down cans of spinach to give it superpowers. SpaceX describes Starship as ‘the world’s most powerful launch vehicle ever developed’, designed to undertake large satellite deployments and carry cargo and crew to the Moon and Mars.
“Making Starship fully operational could be significant for SpaceX both strategically and commercially as it would increase its cargo carrying and long-distance travel capabilities.
“The other big opportunity is work for the US government on defence initiatives. The so-called ‘Golden Dome’ is Donald Trump’s proposed $175 billion US missile defence system designed to detect and intercept ballistic and cruise missiles and hypersonic glide vehicles using space-based sensors and ground-based interceptors, as well as possible space-based interceptors.
“SpaceX has won a $2 billion contract to develop a satellite constellation as part of preparatory work ahead of Golden Dome becoming an official project. It has a foot in the door alongside various defence contractors, which might position it well should Golden Dome move from concept to reality.
Who is SpaceX’s competition?
“There are various companies trying to capitalise on satellite or rocket-linked opportunities in space, but four to watch are Blue Origin, Amazon, ArianeGroup and Rocket Lab.
“Blue Origin, owned by Amazon founder Jeff Bezos, has reusable rockets and is building a low Earth orbit satellite communication constellation to offer fast data speeds, aimed at supporting data centres, governments and businesses.
“Amazon has just announced the acquisition of Globalstar, which operates satellites and has radio frequency spectrum. Amazon Leo – its satellite venture – will be able to provide connectivity for people in remote places on Earth or in areas with unreliable connection.
“ArianeGroup is a joint venture between Airbus and Safran. The French launch services specialist owns Arianespace and is carrying Amazon Leo’s satellites into space.
“Rocket Lab is active in launch services, spacecraft, satellite components, and space software. Think of it as a mini version of SpaceX. Rocket Lab’s shares trade on the US stock market and have delivered stellar gains for investors, up 245% over one year and 1,845% over two years.
Why is SpaceX’s IPO already controversial before it has even happened?
“There is speculation SpaceX is seeking to raise $75 billion and targeting a $1.75 trillion valuation. In the Nasdaq 100 index, only six other companies have a higher market valuation: Nvidia, Alphabet, Apple, Microsoft, Amazon and Broadcom.
“Little is known about SpaceX’s financials, but reports have cited KeyBanc analysts as estimating Elon Musk’s business made $21 billion in revenue last year. A $1.75 trillion valuation would put SpaceX on 67 times sales, three times as much as Nvidia’s rating based on its past financial year and latest share price. It implies SpaceX’s valuation could be richer than a plate of dauphinoise potatoes.
“Bulls might argue that SpaceX’s earnings growth potential is so great that valuing it using 2027 or 2028 forecast earnings might make the equity rating look less outrageous. Bears could respond by saying that SpaceX is too immature or too high-risk a business to warrant a sky-high valuation.
“Retail investors might already be salivating at the prospect of buying stock, and there is a queue of index tracker funds waiting to invest following ‘fast entry’ changes to index qualification rules. However, there is also a large group of venture capital funds, asset managers and staff who may already be sitting on significant gains if the IPO goes well, and who might want to cash out quickly.
“It will be important to look at the rules around lock-up periods that prevent pre-IPO investors from selling out soon after listing, and whether these rules will be relaxed.
What are the key risks?
“Areas that could go wrong for SpaceX include launch failures, regulatory changes, competitors playing catch-up, and Elon Musk making controversial statements that tarnish the company’s reputation.
“xAI is a second-tier AI player compared to Anthropic and OpenAI and there is a risk it gets left further behind.
“Building data centres in space is not straightforward and cooling the equipment will not be easy. There is the danger that space weather damages the electronics, and growing volumes of space debris are a key risk. Fixing kit in space could take time and considerable amounts of money.
“Companies list their shares for public trading as a way of reaching a broader pool of investors for growth funding. SpaceX has bold plans that require vast sums of cash, so there is the risk of constant fundraising which would dilute existing shareholders’ positions.”
