If the initial public offering for Elon Musk’s SpaceX goes as planned in June, it will be the largest IPO in history.BRENDAN SMIALOWSKI/AFP/Getty Images
One sign that this massive bull market is entering its final stages is the sheer outrageousness of what Elon Musk is now peddling to investors.
The world’s richest man is pitching the chance to put your money into an effort “to make life multiplanetary, to understand the true nature of the universe, and to extend the light of consciousness to the stars.”
Um, right. And that grandiose declaration of intent is just part of the mission statement that kicks off the 300-page-plus prospectus that Mr. Musk filed last week for the initial public offering of SpaceX.
According to the prospectus, Space Exploration Technologies Corp. (as SpaceX is formally known) aims “to harness the Sun to power a truth-seeking artificial intelligence that advances scientific discovery, and ultimately to build a base on the Moon and cities on other planets.”
This is inspiring stuff, for sure. It is also where prudent investors may want to remind themselves that the word “lunacy” derives from luna, the Latin word for moon. Mr. Musk’s vision of colonies scattered throughout the solar system has more than a trace of lunacy about it, at least from a financial perspective.
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This is made clear further along in the prospectus, when you discover that SpaceX lost US$4.9-billion last year on revenue of US$18.7-billion. However you analyze the numbers, the company’s money-losing performance does not seem like an obvious launching pad to the stars.
Yet it may be enough to make Mr. Musk the world’s first trillionaire. If SpaceX’s initial public offering goes as planned in June, it will be the largest IPO in history, raise US$75-billion and value the entire company at roughly US$1.8-trillion. It will also grant Mr. Musk total control over the company’s direction, thanks to a special class of supervoting shares that he will control.
The more you think about this, the more absurd the proposition becomes. Mr. Musk is essentially asking investors to hand him tens of billions of dollars in exchange for a sliver of a profitless company with a prospectus that reads like A Boy’s Own Guide to Space Travel.
Let’s not sneer, though. The sheer implausibility of the deal is useful. It allows us to gauge just how gullible investors have become. If the IPO is as successful as Mr. Musk hopes it will be, it will demonstrate that markets have lost all discernment.
The numbers simply don’t make sense. A market cap of US$1.8-trillion would value SpaceX at roughly 100 times sales – not earnings, mind you, but sales. To put that into perspective, most companies in the S&P 500 Index sell for only about three times sales.
The stratospheric valuation assumes that SpaceX can massively grow its revenue and turn a profit in reasonably short order despite the enormous investments required to achieve its sprawling ambitions. That, in turn, assumes that the company will overcome technical hurdles, surmount fierce competition, and convince governments to stand by and watch as Mr. Musk conquers the solar system.
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To give the man his due, he does include a list of the various risks involved. It runs to 37 pages and includes a stark, honest warning: “We have a history of net losses and may not achieve profitability in the future.”
What is less clear is why SpaceX exists. It is a grab bag of only tangentially related enterprises – the Starlink satellite network, a space launch business, the X social media network and the chatbot Grok. So, is SpaceX a telecom operator, a space business, a social media network or an artificial intelligence developer? At the moment, it’s all of them, which suggests a certain lack of focus.
The financial picture is also blurry. Starlink makes money. At least for now, the space launch business dominates the market for putting commercial satellites in orbit. But social media is a disaster and Grok is still playing catch-up to offerings from artificial intelligence’s heavy hitters, Anthropic and OpenAI.
Investing in SpaceX is essentially a bet on Mr. Musk’s ability to turn this multiringed circus into a coherent enterprise.
His many fans will point to the success of his other main venture, Tesla Inc., as proof that anything is possible. After all, the electric-vehicle maker lost money for years, but eventually turned the corner and became a giant.
Could SpaceX follow the same trajectory? Maybe, but the parallel isn’t as obvious as you might think. For most of its existence, Tesla focused on a single business – building cars.
Its fortunes began to falter when competition emerged, notably from China. Its revenue has flatlined since 2023, and its profit has slipped below 2021 levels. Many of the Tesla projects that Mr. Musk has been crowing about for years – self-driving taxis, hovering roadsters and humanoid robots – have failed to arrive.
It is no great surprise that Mr. Musk has now turned his attention to SpaceX. Investors, though, should remind themselves that a rush to issue stock has historically been a sign that bull markets are nearing their peak.
In coming months, the market will be asked to digest not just SpaceX’s huge offering, but also two more trillion-dollar-or-so IPOs from Anthropic and OpenAI. Even in today’s exuberant market, that is a lot for investors to swallow. Don’t be surprised if indigestion follows.