Key Points
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I own Baron Partners Fund, which owned pre-IPO SpaceX for many years prior to its IPO.
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Ron Baron believes SpaceX could be worth $30 trillion by 2040.
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The opportunity he sees centers on Elon Musk’s vision.
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Ron Baron believes Elon Musk is the most important person he has ever met. Baron is betting heavily on Musk’s success, with Tesla (NASDAQ: TSLA) and soon-to-be-public SpaceX together making up roughly 40% of Baron Partners Fund (BPTRX). With the SpaceX initial public offering on tap, Ron Baron has stated that he believes the company could be worth $30 tillion in the future. I’m skeptical, and here’s why.
Ron Baron is making a huge bet
Ron Baron’s belief in SpaceX’s future is rooted in his admiration for Elon Musk, whom he describes as the most important person he has ever met. That admiration started with getting to know the CEO of Tesla and SpaceX. It only grew after Baron invested in Tesla. Essentially, Baron believes Musk is a visionary. That said, Baron is quick to point out that Musk isn’t doing this alone; he has thousands of highly motivated and intelligent employees who actually turn his vision into reality.
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Still, Baron’s belief in SpaceX’s ability to grow into a $30 billion business is fundamentally driven by his faith in Musk. That doesn’t mean Baron is ignoring the actual business; he highlights Starlink (space-based broadband), Grok (an artificial intelligence platform), and the ability to build data centers in space, among other things, as huge growth engines. He’s even realistic about the IPO, since he says there’s no way to know what will happen to the stock in the near term once it is publicly traded. Baron’s focus is long-term, as it is with all his investments.
Too much investment in one man?
I have benefited from Ron Baron’s investment in Tesla and SpaceX, as I own shares in Baron Partners Fund. However, I sold half my position in the Baron Partners Fund because Tesla had grown to roughly 50% of the portfolio (before SpaceX was even in the mix). That was too much exposure to one stock for my taste, but I’ve reduced my Baron Partners Fund position and have no plans to sell any more at this point. I’m going along for the ride, even though I’m not convinced SpaceX can grow as large as Baron believes.
Elon Musk is brilliant, but he’s not the only very smart person in the world. His aggressive investment has given him a head start in many things, but other companies will eventually catch up. Tesla is the perfect example, with other pure-play EV companies and every major automaker also in the space at this point. Notably, BYD (OTC: BYDDY) recently overtook Tesla to become the world’s largest EV seller.
Regarding SpaceX, Jeff Bezos is also working on building a space business. AST SpaceMobile (NASDAQ: ASTS) is already operating a service similar to Starlink. Musk doesn’t have a lock on technology, and over time, competition will erode SpaceX’s lead.
SpaceX could still be a huge opportunity
That said, SpaceX could still grow to be a very large company with industry-leading positions. Even if it doesn’t grow to be a $30 trillion business, it is still highly likely to become a very large and important one over time. And that is likely to make it a valuable company, over the long term. Which is why I’m not selling my shares in Baron Partners Fund. And it is why you probably shouldn’t buy SpaceX thinking you’ll make a quick buck, noting that Baron Capital clearly states it believes SpaceX is a “lifetime” investment. Maybe that’s a bit extreme, but the stock is, at the very least, best viewed as a long-term investment.
While I believe Ron Baron’s optimism is perhaps a bit too strong, it is important to understand that I own Baron Partners Fund because Ron Baron invests in a way I can’t. As a dividend investor with a value bias, I am quite literally outsourcing my growth investing to Ron Baron. I don’t always understand his optimism, but it adds important diversification to my portfolio. And, so far, Ron Baron’s belief in Elon Musk has been financially rewarding for me. That is unlikely to change even if SpaceX falls short of Ron Baron’s lofty expectations. Indeed, even getting just part of the way to $30 trillion would be a nice outcome.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. Reuben Gregg Brewer owns Baron Partners Fund. The Motley Fool has positions in and recommends AST SpaceMobile and Tesla. The Motley Fool recommends BYD Company. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
