Key Points
The SpaceX initial public offering (IPO) is nearly upon us. If you’re interested in participating, or even just following along, it’s critical that you read the company’s IPO prospectus.
By reading the prospectus, you’ll encounter many surprising claims. SpaceX, for example, wants to pioneer a “multiplanetary” civilization, powered by orbital data centers, artificial superintelligence, and a permanent human base on the moon. Putting everything together, SpaceX believes that its bold vision provides the largest investment opportunity in history.
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“We believe we have identified the largest actionable total addressable market in human history,” the SpaceX prospectus reads. “We estimate that our quantifiable TAM is $28.5 trillion.”
With a targeted valuation of $1.77 trillion, a potential total addressable market (TAM) of $28.5 trillion looks attractive on paper. But here’s the thing: Nearly all of that potential growth is reserved exclusively for one business segment. That segment isn’t rockets or satellites — the areas SpaceX is most known for. Instead, SpaceX believes its most promising growth opportunity is artificial intelligence (AI), to which it attributes $26.5 trillion of its $28.5 trillion TAM.
SpaceX admits that its AI business is still “relatively early stage.” And yet much of the company’s IPO valuation hinges on its success. Can there really be $26.5 trillion in growth opportunities for the AI division alone? The answer might surprise you.
Elon Musk is going all-in on artificial intelligence
SpaceX isn’t the only Elon Musk company going all in on AI. Much of Tesla‘s (NASDAQ: TSLA) $1.2 trillion valuation is arguably tied up in AI potential as well. That company invested $2 billion in xAI — Musk’s AI start-up, which merged with SpaceX earlier this year — and much of its $20 billion capital expenditure plan this year focused on AI and autonomous driving.
Tesla’s current AI investments, however, pale in comparison to what SpaceX is expected to spend scaling up its AI business. Last year, SpaceX’s capital expenditure budget was also around $20 billion. Nearly $13 billion of that sum was directed exclusively to AI — three times as much as it spent on rockets.
Much of SpaceX’s AI spending has been dedicated to building data centers, which, in turn, are used to train and advance the company’s AI models. And the spending spree won’t abate anytime soon. In fact, AI capital expenditures may soon reach epic proportions.
Image source: Getty Images.
Evercore ISI, the research arm of an investment bank, believes SpaceX’s capital expenditures will increase from $20 billion last year to $360 billion by 2030. In 2031, it sees spending doubling to an astounding $732 billion — $666 billion of which exclusively relates to the company’s AI division. All of this spending will result in heavy financial demands. Goldman Sachs, for example, sees SpaceX generating free cash flow of negative $105 billion in 2029.
Justifying a $26.5 trillion total addressable market for SpaceX’s AI division isn’t hard. Morgan Stanley projects a $25 trillion market for AI-powered robots alone by 2050, and SpaceX will be involved in far more than robotics. The challenge is projecting SpaceX’s ability to execute financially. It will compete against big tech companies with equally deep pockets, many of which are already profitable and cash flow positive.
I’m not concerned with SpaceX’s rosy TAM estimates. I’m mostly concerned with the company’s ability to take a meaningful slice of those markets, especially given a rich IPO valuation target of $1.77 trillion. Simply funding these related efforts will be challenging, requiring the market’s patience to underwrite a money-losing business at massive scale for years to come.
SpaceX undeniably has a bright future. The company’s rocket technology and track record are well ahead of the competition, as is its existing satellite network. But AI will be the company’s key value driver over the long term. Investors can’t just be excited about AI’s potential. They must also be bullish on SpaceX’s ability to execute and fund itself until it can realize positive free cash flow.
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Tesla. 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.
