SpaceX is currently preparing for what's expected to be the
largest IPO in history, with a target valuation as high as
$1.75 trillion. To put that in perspective,
that's larger than Meta or Tesla, and it would comfortably
unseat Saudi Aramco for the title of the biggest stock
market debut of all time. The offering is expected to see
massive demand from retail investors who have up until now
been unable to invest as the company's private.
Now, in the aerospace world, there's a very important
distinction between astronomy and astrology.
Astronomy is the branch of science that uses math to
calculate orbital mechanics so your multibillion dollar rocket
doesn't turn into a very expensive firework.
Astrology, on the other hand, is the belief that you should stay
home from work next week because Jupiter's feeling a bit spicy.
Usually, the people building rockets and the people casting
horoscopes don't have very much in common.
Elon Musk obviously cares about astronomy, the science.
He has, after all, spent decades talking about the importance of
going to Mars and building rockets.
We know that he also loves a bit of numerology, too.
No one finds the numbers for 20 and 69 funnier than Elon Musk
does with the IPO enhancement. We've learned that he loves a
bit of astrology, too, as SpaceX has reportedly set its sights on
IPO in this June because Jupiter, Venus, and Mercury will
be forming a rare conjunction in the sky.
And I suppose that's auspicious. On top of that, June also
happens to be the month of Mosque's 55th birthday.
And to top it all off, there are rumors that the date being
targeted is June the 9th. Yep, that's right, June the 9th
or 69. If Musk was a bit younger it
would be on 6-7, but he's not. He's a 55 year old man, so 69 it
is. Well, the planetary alignment
makes for a great headline. The timing is possibly driven by
a much more terrestrial concern, the race for limited capital.
As of early 2026, the private markets are starting to look
tapped out. Venture capital funds that have
spent the last few years aggressively funding the AI boom
are now facing a liquidity plateau and are under pressure
to finally return some cash to their own investors.
At the same time, Musk is in a high stakes race to reach the
public markets before his rivals Open AI and Anthropic soak up
all of the available demand. Bankers are quietly warning that
there might not be enough spare change in the public markets to
support three massive capital intensive AI listings at the
same time. And the first mover might get
the biggest slice of the pie, with XAI burning through a
billion dollars a month and massive data center projects
requiring billions more in infrastructure.
Musk may not be just watching the stars, he might be watching
the exits too. The planetary alignment might be
a nice bit of branding, but it's possibly the fear of being
second in line at the ATM that's really fueling the countdown.
This rush to the public markets represents a significant change
of heart for Musk. For over a decade, he's insisted
that SpaceX would not go public until his Mars transport system
was fully in place. He argued that the short term
pressures of being a public company where investors obsess
over quarterly performance and short sellers hit you with large
stakes would be a distraction from the long term goal of
making life multiplanetary. But as we head towards the June
2026 listing, the Mars transport system is still very much a work
in progress, and Musk has recently started sweeping those
Red Planet ambitions under the rug like an embarrassing teenage
phase. The new mission and the core of
the IPO pitch is focused on the Moon, a destination that Musk
once dismissed as a waste of time.
He now describes the Moon as a stepping stone and the
overriding priority for securing the future of civilization.
It turns out that the shift of focus is a lot easier when
you've been foreshadowing it for years, even if accidentally.
Elon Musk has been wearing his famous Occupy Mars T-shirts
since 2019, which a number of people have pointed out actually
features a red tinted picture of the Moon during the lunar
eclipse. It's possible that he hasn't
abandoned his Mars mission. Maybe he just took a close look
at his own chest and realize that he's been accidentally
advertising for the moon all along.
The transition from a high flying rocketry and satellite
firm into what we might now call the Triple X conglomerate,
SpaceX XAI&X has been described by supporters as an act of
genius and by critics as a massive bailout.
This is because just as the SpaceX IPO was being finalized,
Musk decided to fold XAI into SpaceX at a $250 billion price
tag. Merging a rocket company with an
AI start up is strange enough, but XAI comes with some
particularly heavy social media baggage.
Last year, XAI, the AI company, used it's shares to buy Elon
Musk's Everything Up X, the platform formerly and in truth
still known as Twitter. This means SpaceX investors are
now, by extension, the proud owners of the number 17 ranked
social media website, a business that's been struggling with a
persistent exodus of both users and advertisers since Musk
bought it for $44 billion in 2022.
To justify the $250 billion price tag, you have to believe
that XAI is a top tier player in AI.
Currently, ChatGPT and Google's Gemini dominate the field,
holding over 85% of the market between them.
Grok, by comparison, sits at a distant 3.4% market share.
One problem is that Grok is effectively an island.
While xai recently launched a stand alone Grok app, the vast
majority of its usage remains trapped inside Twitter.
Most of Grok's use is just fact checking tweets or generating
the kind of unfiltered memes that have landed the company in
regulatory hot water in Spain, France and the UK.
Well, SpaceX is said to be profitable, generating about $8
billion in Ebeta last year. XAI is a money furnace, burning
through a billion dollars in cash every single month.
In a world where AI could be a winner take all market, much
like Internet search was, being a lower ranked player like XAI
is possibly a dangerous place to be.
That danger is exacerbated by a growing talent drain.
Since the start of the year, a significant number of key staff
have left XAI, including six of the original founders who were
poached from Google and DeepMind.
It's hard to justify a frontier AI premium when the very people
who have built the model have left the building.
Musk's explanation for the merger, delivered in a press
release that reads like the script of a low budget sci-fi
ethic, is that we need to build orbital data centers to extend
the light of consciousness to the stars.
He argued argues that space based AI is the only way to
scale because space is called space for a reason.
It's a move that mirrors the Solar City merger from 2016,
where Musk used Tesla's balance sheet to bail out a struggling
solar company he also happened to own.
As Bloomberg's Matt Levine pointed out, the innovation
engine here isn't just about rockets, it's about a
fundraising ability that allows Musk to negotiate with himself
and set his own value valuations without the nuisance of
independent board oversight. Amusingly, right before I filmed
this video, Elon Musk tweeted that XAI was not built right the
first time around, so it's being rebuilt from the foundations up.
Which might lead SpaceX investors to ask, if this was
the case, why did they just pay $250 billion for it?
For the banks and venture capital firms who were stuck in
the underwater Twitter deal, the merger is fantastic news.
It effectively swaps their struggling social media equity
for shiny new SpaceX stock right before a massive IPO.
And while SpaceX investors might be wondering why they're
suddenly subsidizing an anime girlfriend chatbot, most are
unlikely to complain. In the world of investing
alongside Elon Musk, loyalty is the primary currency.
If you complain too loudly about the corporate governance, you
risk being cut out of the next auspicious planetary alignment
to justify merging a rocket company with a money furnace
chatbot. The IPO narrative relies on a
very specific vision of the future based around the
importance of moving the world's AI computing power off planet.
Musk's argument is the terrestrial data centers are
hitting a wall because of land power and cooling constraint.
His solution is to launch a constellation of a million
satellites to act as orbital data centers, directly
harnessing near constant solar power in the vacuum of space.
At first glance, the pitch might seem to have a certain logic.
It's always sunny in space, and there are no neighbors to
complain about the noise. But in practice, the engineering
hurdles are huge. Take cooling, for example.
On Earth, we keep surface from overheating by blowing cold air
or water over them, a process called convection.
In the vacuum of space, there's no air to move heat away.
The only option is to use massive radiators that eject
heat as infrared radiation. We've already seen a test of
this concept. A start up launched an AI
satellite a few months ago. It was about the size of a small
refrigerator carrying an NVIDIA H-100 chip.
While the chip was able to successfully train a tiny AI
model on the works of Shakespeare, it couldn't run
around the clock because it had to shut down frequently when it
got too hot to function. The company's next version is
scheduled to launch later this year.
And they say that it will carry the second largest cooling
radiator array in space, the only larger one being the
cooling array on the International Space Station.
So to run just a handful of AI chips in orbit, you need
hardware that rivals the most expensive structure ever built
by humanity, the International Space Station.
And then you have to scale that up to the 1,000,000 satellites
mentioned in the SpaceX press release.
To reach the GW scale capacity Musk is talking about, you would
need solar arrays and radiators measuring roughly 4 kilometers
in length. Getting something that size
roughly the size of 40 football fields into orbit and
maintaining it would be a logistical nightmare.
It would be a giant, fragile sail vulnerable to every piece
of space debris in low Earth orbit.
Then there's the issue of Starship.
The entire sentient Sun business model relies on SpaceX reaching
an insane flight rate. We're talking about launches
every hour, carrying 200 tons per flight, according to
Spacex's own press release. Currently, Starship is still in
the frequent explosion phase of development.
While the engineering team has achieved the incredible feat of
catching a 70m booster with giant robot arms, the rocket is
yet to perform a full orbital mission or prove that it can
reliably deploy payloads without what SpaceX calls a Rapid
Unscheduled Disassembly. To round out the sci-fi sales
pitch, Musk has even proposed building factories on the moon.
I'm not making this up. According to the press release,
the plan is to manufacture satellites taking advantage of
lunar resources and then fire them into deep space using an
electromagnetic mass driver. Basically a giant space railgun,
a technology that the US Navy spent over $500 million on over
a 16 year period with no success.
Apparently the railgun prototypes suffered from extreme
heat and physical stresses, the types of problems which would be
only more of an issue in space. It's not clear to me why a
factory on the moon would be more efficient than the factory
in even the most remote places on Earth, or what moon resources
Musk is planning on taking advantage of.
I would imagine some sort of supply chain still needs to be
developed there. It is a bold vision and it
represents a massive U-turn for a man who spent decades calling
lunar missions a distraction from going to Mars.
If you remember, in 2017, he claimed that he would be sending
at least two cargo missions to Mars in 2022 to find water
sources and establish power, mining and life support
infrastructure so that the first crude missions could follow in
2024. He later reaffirmed this target
in 2018 and and again in 2020 before the timeline was delayed.
Ultimately, building a data center in a desert or a
specialized warehouse on Earth will always be cheaper and
easier than trying to build them in space or manufacture and
launch them from the moon. Andrew Mcalep, an engineer who
works for a space startup, has built a web-based calculator
that allows the cost of an orbital data center to be
compared with the cost of an equivalent terrestrial 1.
It estimates that building A1 GW data center and running it for
five years on Earth costs around $16 billion, excluding chips,
and an orbital equivalent would cost over $50 billion, some more
than three times as much. The thing is that building a few
data centers in Texas won't justify a $1.75 trillion
valuation. For that, you need a sentient
sun and a moon catapult. Now, this is possibly a
recurring theme for Elon Musk, the idea that the hardest way of
doing something is actually the most efficient.
This is, after all, the same man who once claimed that digging
miles of tunnels underground would somehow be orders of
magnitude cheaper and faster than just building a road on the
surface. Apparently, if you can convince
investors that the laws of physics and basic accounting are
just optional suggestions, you can put almost any price tag
like on the results. If you can ignore the sentient
Suns and the lunar catapults for a moment, you're still left with
the daunting task of justifying a $1.75 trillion sticker price
for SpaceX. To be clear, that doesn't mean
that Elon Musk won't get that price.
It just means there will be extremely difficult to explain
based on what's being reported. This isn't just a regular IPO,
it's a carefully managed liquidity event for a company
that simply outgrown its capacity to source new funding
in the private markets. For more than 20 years, SpaceX
has existed in a private market bubble where valuations are set
by small, isolated capital raises rather than the cold
reality of daily public trading. But as former head of equity
capital markets from Bank of America America Craig Cobbin
points out in the Financial Times, the laws of financial
gravity are a lot harder to bend than space-time.
The primary metric for any high growth tech company is the
enterprise value to sales ratio. It's particularly favored for
rapidly growing firms that are either not yet profitable or
have inconsistent earnings. This is because sales figures
are often more stable and less susceptible to accounting
portions. The net income, or EBITDA, the
ratio tells you how much are you paying for every dollar of
revenue the company brings. In Facebook, Cobbin points out
when public at 11 times forward sales, this was considered
extremely expensive at the time and it pushed the boundaries of
what public markets were willing to tolerate.
To add more context, most high growth tech companies back then
were trading at much lower multiples.
Google, for instance, was trading around 5 to 6 times
sales. SpaceX is looking to list at
roughly 94 times it's 2025 revenue.
Even if we use the most optimistic projections for 2026,
the ratio still sits at over 60 times sales.
For context, that's significantly higher than
Palantir, which currently has the highest multiple in the S&P
500. Not everyone thinks that that
price is crazy, however. The analysts at Pitch Book
recently made the case that a $1.75 trillion valuation is
expensive but justifiable if you assume that Starlink will reach
1.2 billion users by 2040. The deep flaw in that math is a
concept called the Total Addressable Market.
Based on Hans Rosling's research in the book Factfulness, there
are only about 1 billion people on the planet who earn more than
$32 a day. Most of those people live in the
United States and Western Europe, and most people in those
parts of the world already have access to wired broadband, which
is both faster and cheaper than Starling.
A total addressable market of 1.2 billion users being able to
spend over $100 a month solely on Internet connectivity is next
to impossible. Starlink is a brilliant tool for
people in remote areas, gold miners in Sudan or the military
in Ukraine. But it's I'll suited for cities
where the dish needs a clearview of the sky and because
satellites suffer from network congestion when too many people
connect to the same one all at once.
Realistically, there are only about 32,000,000 households in
the world who can afford the service and don't already have
wired Internet access. Most of that group already have
access to the Internet using mobile phone networks, and less
than half of them might feel that cellular speed and
connectivity is not good enough and are willing to pay up for
Starlink access. Expecting Starling to jump from
its current 10 million subscribers to 1.2 billion is
like expecting everyone on the planet to start drinking Fiji
bottled water even when they already have access to clean
drinking water. We're already seeing the limits
of this growth in the financial data.
Elizabeth Lopato at The Verge recently pointed out that a 2024
Morgan Stanley report projected that Starlink revenue would
reach $19 billion the next year on the strength of 6,000,000
subscribers. SpaceX then managed to reach 9.2
million subscribers that year, more than 50% better than
expected, but its revenue was only $16 billion.
This implies that as Starlink grows it's customer base, it's
margins are falling. Let's talk about the company's
questionable profitability next. SpaceX recently touted $8
billion in EBITDA, but as a number of analysts have noted,
EBITDA, earnings before interest, taxes, depreciation
and amortization is a very generous lens through which to
view a company like SpaceX, which has very high research and
development costs and very high depreciation.
EBITDA is often used to help investors compare very similar
businesses that have made different investment in
accounting decisions over time, but companies that essentially
run the same business. And you're just stripping out
leverage choices, the jurisdictions they're taxed in
and their accounting choices over the timelines they've
chosen to spread out their costs.
This can make sense. It's a great way to make a clean
comparison of the cash flow generation power and business
operations of two very similar widget manufacturing companies.
In the case of high CapEx businesses with enormous cash
burn on early stage research and development operations, EBITDA
becomes very questionable. SpaceX satellites have a useful
life of around 5 years. This means that when you
capitalize the build cost of these satellites and send them
up to space as investments on your balance sheet initially,
you later incurred depreciation expenses where you spread out
the cost of those satellite bills over their five year
useful lifespans. Excluding significant expenses
like this that are core to the business's ongoing operations
and capacity to generate future cash flow is particularly
distorted for a business like SpaceX.
They simply couldn't continue to run their proposed operations
without continuing to replace these satellites.
Excluding the cost of the satellites and the cost of
getting them into low Earth orbit to claim profitability is
somewhat ridiculous if you then account for the billions in cash
used to build Starship. In terms of research and
development, the thing Mask is alluding to as profit starts to
look quite difficult to ever capture.
Very large research and development spend to go to Mars
or to go to the Moon can only be recouped with high volume future
deployments or high payload usage of the tools that they
design and build. In practice, the launch market
of delivering cargo into space has exhibited very little growth
outside of SpaceX delivering its own Starling satellites into
space, leading to the question of whether this is a growth
business at all. When you move away from EBITDA
and start analyzing the actual profitability, the picture is
not nearly as pretty. It's essentially the picture of
Dorian Gray of financial statements.
The IPO pitch looks young and flawless, but the balance sheet
in the attic is looking increasingly gnarled.
Well, SpaceX is a $16 billion revenue business.
Leaked documents show that XAI generated just $120 million in
revenue during the first nine months of 2025.
To put that in perspective, XAI is currently burning through $1
billion a month to build it's data centres.
That means that XAI spends it's entire annual revenue every six
days. By merging the two businesses,
Musk is using the Moat of the rocket business to subsidize the
astronomical costs of the AI business, all while asking the
public to pay a massive premium for the privilege of owning
shares. Ultimately, SpaceX might be an
extraordinary engineering success, but as a public
investment, the price you pay for the expected growth will
matter. If the valuation is based on
comic book heroic assumptions about capturing a billion
customers that either already have better Internet access or
can't afford to pay for the service, the final frontier for
investors might be a very long way down.
This all leads us to the question of how Elon Musk
actually expects to get that $1.75 trillion price tag.
The answer isn't found in the physics of rockets, but instead
in the physics of the stock market.
The most important thing to understand about this IPO is
that SpaceX isn't selling the whole company to the public.
They're likely only releasing a tiny float.
The financial press is suggesting that just five to 10%
of the total shares might be issued by keeping the supply of
stock artificially low while marketing it to every retail
investor on the planet. This could create a supply
squeeze before the opening bell even rings.
When everyone wants a piece of the future but there are only a
few shares to go around, the price has only one way to go,
and that's up. Craig Cobburn wrote about this
low float strategy a few years ago in the Financial Times,
where he pointed out that a lot of recent tech IPOs had floated
only a tiny number of shares, often between 7 and 10%,
compared to the historical average of 20%.
He used the example of Instacart, where only 8 percent
of the shares were floated, and of those, 60% went to
cornerstone investors and 5% to friends and family.
This left a tiny supply of shares to be traded, presumably
to cultivate a sense of scarcity.
The real magic for SpaceX might happen with the index inclusion
trap. This isn't just a lucky break
for Elon Musk, it's reported to be driven by a specific demand
from him. According to Reuters, SpaceX
made early inclusion in the NASDAQ 100 index a necessary
condition for agreeing to list on the exchange.
In response, the exchange is consulting on a new rule that
would allow SpaceX to join the NASDAQ 100 after just 15 trading
days, bypassing the year of price discovery required for
every other company. And it isn't just the NASDAQ,
either. Bloomberg reports that S&P Dow
Jones Indices is also considering historic rule
changes to fast track SpaceX into the S&P 500.
This is significant because there are roughly $24 trillion
tied to that index. Maybe Elon can get on the phone
to the people at Russell to see if he can get SpaceX classified
as a value stock too. If SpaceX is added to the S&P
500 and the NASDAQ 100, every passive investor will find
themselves buying the stock at whatever price the supply
squeeze has manufactured. As veteran fund manager George
Noble points out, the proposed five times float multiplier used
to determine it's NASDAQ index weighting is shameless
structural manipulation. It effectively turns every
pension fund into exit liquidity for SpaceX inside, where your
retirement account is being forced to buy into a bubble
designed by the seller. As Noble argues, the rules are
being rewritten to benefit IPO issuers and early stage
insiders, and your capital is the tool being used to enrich
them. We've seen this movie before.
In December 2020, Tesla was added to the S&P 500 after a
massive run up in price. Since the day of inclusion,
Tesla has underperformed the broader index by more than 20%.
The passive investors who were forced to buy in at a huge
valuation right before sales started drying up became the bag
holders while the early insiders took their victory laps.
SpaceX may be an extraordinary engineering company, but it's
been sold to the public as a financial miracle at a price
that is, to me, very difficult to explain.
That doesn't mean that the IPO will fail or the stock price
will fall, but a lot of things will have to go right for SpaceX
for it to be a good long term investment.
Thanks for tuning into this week's podcast.
The podcast is entirely supported by viewers like you on
Patreon, where you can contribute as little as you feel
like to keep the podcast going. If you'd like to support it,
I'll give a link in the show notes.
Have a great week and talk to you again soon.
Bye.