The biggest IPO in history is here
In just a short while, SpaceX is set to go public at a valuation of nearly $1.8 trillion.
Yesterday, we kicked off our three-part series on SpaceX with a detailed look at each of its businesses.
Today, we’re taking our analysis a step further, as we will look at each segment’s future prospects and what they should be worth.
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SpaceX is a widely known company at this point.
Its Starlink service launched satellites into space to bring Wi-Fi to previously underserved areas. And then there’s the Blue Origin NS-31 flight, which sent celebrities like singer Katy Perry into suborbital space.
That said, everything known about SpaceX prior to today was based only on what Elon Musk has revealed publicly.
That has changed, though.
SpaceX is set to go public via an initial public offering (“IPO”) today. It will trade as Space Exploration Technologies under the ticker SPCX. In preparation, the company published its investor prospectus (S-1 form) at the end of May.
We kicked off our two-part series on SpaceX yesterday with an overview of each business unit— space, AI, and connectivity.
Today, we’ll take our analysis a step further, looking at each segment’s future prospects and what they should be worth.
The company’s Space segment services over 80% of all space-bound launches in the U.S. It works with government agencies for trips to the International Space Station. And it helps other companies get their satellites into space.
As a “toll collector,” SpaceX benefits from more space launches. That said, this is a pretty asset-heavy business. It has to operate complex rockets and keep its launchpads ready for takeoff.
This means it needs to fund significant, ongoing research and development (“R&D”) and capital expenditures just to stay competitive.
Recall that the company’s space segment reached a respectable 12% Uniform return on assets (“ROA”) last year, which puts it at the corporate average.
As volumes increase, profitability should notch a slight improvement. Based on what we’ve seen from the S-1 and analyst research, Uniform ROA should rise to 17% this year.
At the same time, the global space-launch market is set to double or triple by 2030. For SpaceX to keep its market share, it’ll have to grow its asset base by about 30% per year.
Put together, those numbers will look like the ones provided in the chart below.
Based on our calculations, the space segment is worth $125 billion.
Next up is the AI segment (xAI) which is losing money.
This segment’s first step toward profitability is already in the works. SpaceX just agreed to lease data-center capacity to AI competitor Anthropic for $15 billion per year.
That’s expected to help SpaceX cut its losses significantly by 2027, but it’s a big question mark from there.
The AI unit will keep growing. Its asset base was already up a staggering 95% last year. And since data center capacity is short enough already, companies will pay basically any price.
Anthropic already did, and we know SpaceX is still investing in new data centers. We expect roughly 35% annual asset growth in the future.
It all comes down to its profitability.
Considering SpaceX owns huge data centers, runs a social media network, and is developing a large language model, the business is clearly trying to be a hyperscaler like Meta Platforms (META), Alphabet (GOOGL), and Microsoft (MSFT).
Those companies averaged a 29% Uniform ROA last year. So that’s what we’re giving SpaceX credit for.
If it does become a hyperscaler that can compete with today’s biggest players, the AI business could be worth as much as $600 billion.
Take a look…
That seems like a best-case scenario for this segment. It will come down to how fast the company can keep growing and signing more customers for its data centers.
Then there’s Starlink.
The more customers it signs up, the more valuable it becomes.
This business brings in about $11.4 billion in revenue today. But the investor prospectus notes that it has a $1.6 trillion addressable market.
That’s basically the value of the entire telecom industry. We’d pump the brakes on that number, though.
In the developed world, telecom companies already provide high-speed broadband at competitive prices. Starlink isn’t going to displace the Comcasts of the world anytime soon.
Where Starlink wins is everywhere else. Rural areas and developing markets are underserved because it’s expensive to lay fiber-optic cables, not to mention a logistical challenge. Satellites don’t have that issue.
And with Starlink servicing more than 160 countries, it has a unique opportunity to capture market share around the world.
Right now, the company has 90% market share in satellite Internet, and that market is expected to reach $50 billion over the next five years. The cellular market is expected to be around the same, at $46 billion.
If we assume it keeps that share, it’ll end up with nearly $90 billion of the telecom market. That’s enough for the business to grow at 34% annually, lifting Uniform ROA to 60%.
At those levels of profitability and growth, this segment would also be worth $600 billion. The connectivity business is already well on its way to justifying that valuation.
Combined together, SpaceX’s segments should be worth $1.3 trillion.
SpaceX has a monopoly in U.S. space launches. Connectivity is breaking into a $1.6 trillion market in a way no competitor can easily replicate today. And both segments are helping fund the AI business through its unprofitable phase.
That’s not the full story, though.
On Monday next week, we will conclude our three-part series by valuing SpaceX as a complete business using Uniform Accounting tools.
Best regards,
Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research