Key Points
Renowned investor George Noble didn’t mince words when it came to Space Exploration Technologies (NASDAQ: SPCX), saying that its initial public offering (IPO) was “built to separate retail investors from their money.” Noble, who ran Fidelity’s first international fund, estimates the stock has a fair value of about $30; that would mean about 80% downside as of this writing. Although I don’t think the stock will fall to those levels, I do agree that SpaceX is extremely overvalued, and I would stay away from its shares.
Noble noted that SpaceX’s early gains were largely a “manufactured squeeze,” made possible by the company selling less than 5% of its shares and then getting the popular Nasdaq-100 index to rewrite its rules to include it early, without meeting normal requirements. He added that the IPO was one of the largest wealth transfers ever packaged into a fanciful story, and that the impending lock-ups, letting early investors sell shares, would be a catalyst to drive down the stock price.
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Calling Starlink a “wonderful business” worth hundreds of billions of dollars, Noble said that it was the only part of SpaceX’s story that wasn’t science fiction, but that it was worth much less than $2 trillion, roughly SpaceX’s current market value. He finished up by saying, “This is the most grossly overpriced stock at scale that I have ever seen.”
A stock valued on hopes, dreams, and unrealistic expectations
SpaceX’s satellite internet business, Starlink, is currently the company’s only profitable operation. I agree with Noble that Starlink is a nice business, but worth nowhere near $2 trillion. It can offer internet services to airlines, and provide gap coverage to mobile providers in remote areas. However, Starlink is unlikely to become a full-fledged mobile operator without actually buying one.
There are technical and regulatory hurdles; one of the biggest is that satellite internet doesn’t work well in modern office buildings, because of their construction. The service would also be overwhelmed in large cities and suburban areas. That means that Starlink is a nice business, but not one that will take over the world by any stretch.
One of SpaceX’s big ambitions is to build data centers in space, which Elon Musk recently said could happen next year. It won’t. Once again, the technology is not there for this to happen within the next year. Chips need to be developed that will not be compromised by cosmic radiation, and systems need to be developed that could handle cooling artificial intelligence (AI) infrastructure in the vacuum of space.
Other proposed businesses, like asteroid mining and terrestrial cargo transportation, also face obstacles. The extraction tools for mass asteroid mining still need to be developed, and the economics are uncertain, as bringing mass quantities of a raw material to Earth could crash those markets. Meanwhile, one-hour cargo journeys here on Earth would face safety, regulatory, and infrastructure hurdles — and would likely require cooperation between the U.S. and China to make them feasible, a prospect that seems unlikely anytime soon.
Many of SpaceX’s ambitions also center around the Starship initiative, the company’s huge next-generation reusable rocket platform. Starship’s 13th test flight is scheduled for July 16, but the rocket is not planned to reach full Earth orbit, and whether the company can recover both stages remains unclear.
Image source: The Motley Fool.
If Elon Musk had a history of underpromising and overdelivering, it would be easy to see why investors would be excited about SpaceX stock, but the opposite is true. Musk’s stated deadlines for projects such as colonizing Mars, a hyperloop connecting Los Angeles to San Francisco, Tesla‘s Optimus robots, and Tesla’s autonomous-driving and robotaxi services have all been badly missed. In fact, an analysis by The New York Times tracking over 600 of his public predictions and commitments found that fewer than 20% were delivered on schedule.
For a growth stock whose price is solely based on the future, that’s not the track record I’d want to see. Investors will likely keep the stock price higher than it should be, but I still wouldn’t want to buy into it right now.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends 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.
