Wednesday Morning Rant

Late last week, Elon Musk's SpaceX dominated headlines with its IPO. The company went public and raised $75 billion at $135 per share, valuing the company at $1.77 trillion. Not to be outdone, SpaceX has continue to run up, closing at $192.50 yesterday, with a market cap of an eye-watering $2.642 trillion, becoming the fourth most valuable company in the world. Elon Musk, at least on paper, is now a trillionaire.

What I find most interesting about this is not the preposterous valuation or the caterwauling the usual suspects, but the stated basis for that valuation. In the company's SEC filing is one of the biggest pieces of, let's call it "optimism" ever put into a prospectus. That valuation on SpaceX has little to do with space as such, and rather a lot to do with computers and networking. That is not a surprise, given that SpaceX as a space development company is not profitable. Developing rockets is extremely expensive and getting Starship over the line is capital-intensive. There is also tremendous opportunity there, as ultra-heavy launch capacity comes online.

But neither SpaceX as a space development company nor SpaceX as a networking company are the basis of its IPO valuation. Starlink is profitable, but it isn't driving the share price. Per its own S-1, SpaceX sees both as minority components in the total enterprise value. From page 11:

We believe we have identified the largest actionable total addressable market ("TAM") in human history. We estimate that our quantifiable TAM is $28.5 trillion, consisting of $370 billion in Space from space-enabled solutions; $1.6 trillion in Connectivity across $870 billion in Starlink Broadband and $740 billion in Starlink Mobile as well as additional opportunities in enterprise and government; $26.5 trillion in AI across $2.4 trillion in AI infrastructure, $760 billion in consumer subscriptions, $600 billion in digital advertising, and $22.7 trillion in enterprise applications. For illustrative purposes of sizing our addressable market opportunity, we exclude China and Russia from our global estimates.

It's outlandish. Per the company's S-1, they put their total addressable market across all three business areas at very nearly a quarter of gross global product - and they don't even include Red China in the figure! Of course, that entire addressable market - even if real - wouldn't belong entirely to SpaceX, but the figure itself is absurd on its face. That market size estimate for AI - $26.5 trillion - is larger than the annual production of every country except one. If you're wondering what a mania looks like, this is it. A reasonable reaction to that estimated market size would be laughter. The actual reaction was, "shut up and take my money."

Unlike many AI firms, SpaceX is a real company with real products. It has a profitable division (that division has some headwinds, but also additional potential in mobility) and a capital-intensive development arm that will continue to open new capabilities and markets. I could see betting - even betting a lot - on SpaceX. But that is not what this IPO was about. This IPO was about xAI and Musk has managed to capitalize on the mania in a very big way. I have no idea if he nailed the top of this thing or not (that old saw about irrationality and solvency remains as true as ever), but he may have come close.

When the air comes out of the AI bubble - whether because eventually people start blinking as in the Dot-Com Bubble, or because the liability and market compression because of weaponization potential, or something else altogether - Musk is unlikely to still be a trillionaire. But he will still hold the dominant position in space development, orbital communications and will have used the mania to raise a stupendous amount of new capital.

Every bubble has winners and losers. The odds are good that Musk walks away from this one as a winner.

posted by Joe Mannix at 11:00 AM

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