Key Points
The SpaceX IPO is here. Even after shares are made publicly available, investors should review the company’s IPO prospectus more closely. This 370-page document covers everything you need to know about SpaceX’s plans.
There are many surprises in SpaceX’s IPO prospectus. Right off the bat, the company makes a bold claim.
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“We believe we have identified the largest actionable total addressable market in human history,” the SpaceX prospectus declares. “We estimate that our quantifiable TAM is $28.5 trillion.”
With an initial valuation target of $1.77 trillion, SpaceX shares look somewhat reasonable, given the total opportunity is estimated at $28.5 trillion. Digging deeper, however, reveals something every SpaceX investor should understand. A single opportunity, it turns out, is responsible for $26.5 trillion of SpaceX’s $28.5 trillion total growth potential. If the company fails to execute on this single growth catalyst, the viability of its $1.77 trillion IPO valuation is called into question.
SpaceX is betting big on this one growth catalyst
SpaceX CEO Elon Musk is known for his daring bets. Just take a look at Tesla, another Musk-led business. Most people understand Tesla as an EV stock. Most of the company’s current $1.2 trillion valuation, however, is arguably tied up in things like AI and autonomous driving, not vehicle manufacturing. If Tesla fails to execute on critical growth opportunities, such as robotaxis and self-driving cars, its lofty valuation could be called into question.
The same is true for SpaceX today. Many people think of the company as a rocket stock. Many others associate the company with its Starlink internet service. Both things are true. But in reality, SpaceX really should be thought of as an AI stock.
Of SpaceX’s forecasted TAM of $28.5 trillion, only $370 billion in value is tied up in rockets and space transport solutions. The Starlink opportunity is even bigger at $1.6 trillion. But combined, rockets and Starlink only have a total addressable market of around $2 trillion. That hardly justifies a $1.77 trillion valuation in an IPO.
Image source: Getty Images.
Where does the rest of SpaceX’s gargantuan $28.5 trillion total addressable market come from? A single business segment: artificial intelligence. SpaceX forecasts AI to be a $26.5 trillion opportunity. That value is split across several initiatives: $2.4 trillion for AI infrastructure, $760 billion for consumer subscriptions, $600 billion for digital advertising, and $22.7 trillion for enterprise applications.
Investors should understand that SpaceX’s AI business is relatively early stage. Even SpaceX acknowledges this in its IPO prospectus:
Our AI business is in a relatively early stage, it is being integrated into our organization, its business strategy is still developing, and it will require significant capital expenditures to fund compute, infrastructure and power generation, model training, and product development. Additionally, our AI business is subject to challenges inherent in a nascent, highly competitive, capital intensive and rapidly changing industry.
Critically, to capture as much of its total addressable market as possible, SpaceX will need to spend more aggressively than nearly any other business in human history. Investment bank Evercore, for example, sees SpaceX’s capital spending reaching $360 billion in 2030, rising to $732 billion by 2031. Accordingly, Goldman Sachs sees companywide free cash flow hitting a negative $105 billion in 2029.
It’s difficult to predict how successful SpaceX’s AI business will be over the long term. There’s simply so much we don’t know yet about how the AI economy will take shape. “In short, the outlook is very uncertain,” concludes a recent report from Morningstar analyzing the potential of SpaceX’s AI division.
What we do know, however, is that a vast majority of SpaceX’s IPO proceeds will be spent scaling its AI business. This single division will very likely see massive spending in the years to come, potentially keeping SpaceX’s cash flow negative over that time period, forcing it to rely on capital markets to continue raising fresh cash. Optimism about SpaceX’s ability to keep raising new capital this decade is critical to evaluating it as an investment.
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Evercore, 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.
