Star Bores?
SpaceX IS NOT The Golden Boy We Thought It Was
SpaceX may be stronger than I thought, but it’s not nearly as good as everyone says it is.
I promised you another fight this week, and I am coming out SWINGING. I’m going straight for the throat and going after the largest IPO in history, SpaceX.
Last week one of the three 800-lb gorilla IPOs hit the public market for the first time, and it was just as dramatic as you’d expect.
Musk turned on his private banker in favor of other investment bankers
The company made less than 5% of it's stock available to the public (floated), very low compared to most Nasdaq-100 companies.
Musk was announced as the world’s first trillionaire by Forbes.
On top of that, the IPO led to a further explosion in finfluencer content across the internet universe, talking about why SpaceX was going to the moon (pun intended) or why it’s not.
For the last week, I have been nose down, consuming everything I can find on SpaceX news as well as crunching some financial ratios and reading through the S-1. After this week’s journey I’ve been on, I’ve come up with my opinion on SpaceX, and it’s not something (I think) most people will agree with. SpaceX may be stronger than I thought, but it’s not nearly as good as everyone says it is. Over the rest of the article, I will explain what I mean, starting with the bad.
Bursting the Bubble.
Over my weeks’ journey, I learned some things that made me stop and pause in a big way. Here is what I found.
A Nonexistent TAM
One of the first things that made me stop was a video by professor of finance at Kings College and former hedge fund manager Patrick Boyle. In his video, titled How SpaceX Humiliated Wall Street, he mentioned a moon-sized problem with SpaceX’s Total Addressable Market (TAM). For those who don’t know, the TAM is the maximum potential demand a specific market has. For SpaceX, in their S1, the companies stated TAM is a mind-boggling $28.5 trillion. For comparison, according to the Satellite Industry Association, the total size of the current space economy is $429 billion, meaning SpaceX’s prediction for their company is 65x the total current space economy. That’s insane, but Boyle’s analysis makes it even more insane.
Patrick Boyle took that sky-high $28.5 trillion and divided it by all the people on earth who contribute to the global economy (defined as everyone who makes more than $12,000 annually, roughly a billion people) and discovered that, for this TAM to be realistic, everyone on earth who contributes to the economy is signing up to pay roughly $28,000 per year to SpaceX, forever. Sounds crazy, right? Well, it gets worse. According to everything I’ve seen, SpaceX says AI makes up $26.5 trillion of that TAM (roughly 93% of the total TAM). Part of the drive behind this valuation has been the promise of data centers in space, a Star Wars-sounding innovation that really made investors’ mouths water.
The problem is, the idea that we can shoot data centers into space, lowering cooling costs, saving water, and other niceties, runs into a big problem: physics.
Not So Radiant Cooling
I am not a physicist, a chemist, or an engineer. But even from my layman’s perspective, the idea of space-fairing data centers seemed wrong. So I went to find some expert help. I asked someone I know who I consider a genius, but they also got their bachelor’s degree in chemical engineering; one of their areas of study was heat transfer, the science of cooling things off. When I asked him about the idea of space data centers, his answer was clear. From a cooling perspective, radiant heating (heat escaping into space as particles radiate off the server racks) doesn’t work.
In simple terms (as far as I understand), in order for heat to leave something, you need particles to pass whatever is hot, pulling the heat away with them. There are simply not enough particles in space to do that. What that means is you have to bring cooling with you into space; it’s why the ISS has large external radiators to keep it cool. Without that radiating heating, you need to send up more equipment, which means more fuel and more costs. When you add that to the 212% capex-to-revenue ratio found by Big Short legend Steve Eisman, the future for SpaceX looks MUCH smaller than first anticipated. So we have a TAM that doesn’t work, a stop sign made by physics, but there was one more issue I found while reading through the S-1’s audit opinion that really bothered me.
Space-Fairing Humans or First Trillionaire
Although it’s not necessarily gospel, there were some odd inclusions in the S-1 notes, which the audit mentioned, that provide some pretty damning evidence that Musk’s own motivations are not what they seem. To summarize:
In a note on material-related transactions, SpaceX purchased $697 million from Tesla, including superpacks and Cybertrucks.
They also had a “failed sale leaseback” with Valor Equity Partners, worth roughly $4507, and paid $66 million in interest expense on that equipment lease agreement. The CEO of Valor is also a board member of SpaceX.
Shortly before the S-1, Musk also bought $1.4 billion in common shares from former and current employees, growing his holdings.
When I asked AI about this, none of this behavior violates the law, but it makes me question Musk’s intentions. He says he doesn’t care about money, and he wants to advance humanity, but my studying this week suggests he doesn’t care about that nearly as much as he says he does. These data points, plus his habit of dirtying balance sheets of leverage companies (X and SolarCity, for example), suggest the idea of being the world’s first and only trillionaire is a larger part of his motivation than he’s willing to admit.
To be clear, I don’t care that he has his wealth. He took insane risks and deserves to be compensated for those risks; however, it makes me ask a question: If SpaceX rises in value enough to push him over that trillionaire mark, what happens to motivations? If I am right, and he does care about the money, does that make him slow down? Does he partially exit? What does that do to the company?
I hope I am wrong, but my gut tells me there’s an issue here. I have two more issues I could add here, but this is getting long, so I think I’ll save those for another day…maybe after SpaceX files its first quarterly report. Also, I didn’t want to spend this article bashing on something I am genuinely interested in, so I wanted to take the last half of this article to share three positives about the SpaceX IPO, starting with the most important one.
No More Shrinking Stock Markets
For those who have read my writing for a while now, or for those who watch IPOs, they’ll know that the number of public companies available to buy has been steadily falling for decades. A combination of high regulatory burden, big tech M&A, private equity, and other factors has caused enterprising founders to stay private longer and/or sell their creations to private equity rather than take them public. On paper, this sounds like a win for founders; companies don’t have to pay the federal government millions, and they have to worry less about compliance and governance, and the ultimate result, a fat payout, happens in either situation.
To me, it seems like the recent mega-IPO trend will bring this recent reality to a trend. As SpaceX shareholders cash out, new companies will be built, which will helpfully keep the trend rolling. Especially if SpaceX continues to become more valuable, which, despite the dubious current valuation, it will because of the insane future SpaceX offers to us.
Leading the Way for a Prosperous Future
For me, the biggest reason why SpaceX has a rich and valuable future is because of how it propels us into a MUCH MORE valuable future. One thing that the SpaceX maxis get right is the fact that SpaceX is leading the way for some of the most valuable innovations that will ever exist. Regular, robust space commerce leads the way to innovations like asteroid mining, Dyson swarms, and autonomous robots. We think that the internet, Excel, and video calling led to massive benefits; we haven’t seen anything compared to what SpaceX’s growth will drive. On top of that, SpaceX has put their money on the table to show it.
SpaceX spends three to thirty times more on research and development than all of their competitors, which paints a clear picture: SpaceX is focused on the future. Unfortunately for SpaceX, for some of those innovations we are decades to centuries away, but that hasn’t stopped them. Just like his previous companies, Musk has shown again that he is a master of lean operations.
Musk Does It Again
One of the hallmarks of Musk’s career has been bringing businesses under his wing and making them leaner and more efficient. SpaceX is no different. Based on the competitors I pulled, SpaceX has a lower SG&A to revenue ratio than everyone but defense. For a high-growth company, that is insane. If SpaceX can become profitable, that focus on those lean operations will throw off an insane level of free cash flow. That alone could justify a high valuation. I don’t know if that’s a $2 trillion valuation, but a high one for sure.
Where Does That Leave Us?
After a week of digging, arguing with myself, and trying to separate the signal from the noise, I’ve landed somewhere I didn’t expect: SpaceX is both overhyped and still wildly important. It’s messy, brilliant, overvalued, and underappreciated. It’s also a fresh stock on the block riddled with issues.
It doesn’t just have to be bear or bull; like everything I’ve run into in my life, both the good and bad can be true. You can admire the ambition and still call out the cracks. You can root for the future without pretending the present is perfect. If anything, this deep dive reminded me why I do this every week, not to worship companies, but to understand them and help others understand the financial world. And SpaceX, for all its flaws, is still one hell of a story.
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Tyler Kreiling, WealthNWisdom, Founder and Head Editor
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