by Bruce R. Elbert
I’ve been receiving spam emails for some time indicating that SpaceX would be the biggest IPO in history when it goes public – soon. It appears that the time has come! According to Motley Fool:
A Feb. 2 blog post from Elon Musk announced a private markets merger between SpaceX and xAI, Musk's AI company, along with Musk's description of his intention to launch AI data centers in space. The merger was reportedly made at a valuation of US$ 1.25 trillion, with SpaceX valued at US$ 1 trillion and xAI valued at US$ 250 billion. Meanwhile, news reports claim the company is aiming for a $1.5 trillion valuation for its upcoming IPO.
An IPO valuation in excess of one trillion dollars? Who could imagine this, but on a financial basis, it makes sense. Is there value at this level and where can this company be in, say, five years?
I can’t predict the future but I’ve been around long enough to have seen how the space industry has developed and what it means to have a solid telecommunications foundation for a business, and a value proposition that looks pretty good into the future. In a previous article, I described how tech entrepreneurs like Bell and Marconi created incredible value and changed the world, and I included Elon Musk in that category. This time, we have what could be a big opportunity both in a financial sense and as a new infrastructure akin to national railroads and the long-distance network.
I’ve also talked about something called critical mass in networks wherein a technology starts out as a useful approach but gains acceptance as more people adopt it. The original work on this effect was published in 1988 by David Allen of MIT who described it as network externalities. It blossoms because people can use it to connect to resources and, importantly, to each other so that eventually it becomes pervasive and self-fulfilling. Today, it’s hard to build a network infrastructure that can do this because the big money has been found in applications that run over networks. Think Facebook and Netflix. But, SpaceX could be different because they own the global satellite infrastructure, which they created with their efficient rockets, and they offer a low cost but very effective user antenna. They are on their way to offering service in all of the good markets and even in places where services like this cannot be sold. Right now, it lacks critical mass because its value is for reaching the unconnected, including users in remote areas and in motion. But, with an AI element and what that can provide, it takes on new dimensions that no one can anticipate.
I could get very excited about this possibility. There is a lot of money out there looking for something like this. The stock market is huge and has potential for more expansion. But right now, we are limited to what I’ll call traditional investments based on current financial performance and risk factors. It’s a good place to be if you are diversified. But, some investors are looking for the next Nvidia. Spam emails tell me not to miss it! Well, I tried that with Iridium because I thought that there might be a critical mass effect for the intended international business traveler market. But, the service never could cross the chasm of early adopters and I ended up getting out before it crashed when Motorola pulled the plug.
But SpaceX is different for many reasons. First and foremost, it’s already in operation and has reached a kind of critical mass in terms of satellite communications users and basic Internet application. What probably drives them now toward the IPO is that private investors, who put in billions, want to see their exit strategy come to fruition. Also, Elon Musk is the kind of visionary who believes that the future is greater than the current marketplace. That’s a huge promise that is probably worth pursuing. Now, SpaceX will have access to more capital and as long as they continue to spend effectively, it could be amazing.
On the other hand, it might end up like the Mississippi Company founded by John Law in France in 1717. People couldn’t give him money fast enough, but it produced the infamous Mississippi Bubble. I’m not predicting that for SpaceX, just pointing out there is precedent for something like this in these inflationary times. The other side of the coin is that a competitor might arise with a better solution perhaps based on satellites or a terrestrial wireless technology yet to appear broadly. Finally, people might just come to the realization that they don’t really need what the future SpaceX is providing and instead go back to basics. Time will tell.
One perspective worth considering is that of an experienced Wall Street hand, David St Peter. With his Harvard degree, he spent many years in lower Manhattan with Goldman Sachs. From there, he joined AIS, Inc.,the investment subsidiary of American Institute for Economic Research (AIER) in Great Barrington, MA, to manage their trust funds and to advise others with their personal investment portfolios.
David and AIS have always recommended a balanced portfolio that splits funds between dept and equity, which they address systematically, consistent with AIER’s free-market philosophy. What I glean from this is that putting significant money into SpaceX in this IPO is risky owing to market fluctuations after it opens on the stock exchanges coupled with unknowns concerning its initial business model. Once established, SpaceX could be a solid contributor to a variety of indices and the associated funds one can purchase.
That we are looking at space as a big ticket investment is something new and a game changer. It is a far cry from when COMSAT went public in 1964 at a total capitalization of $200 million, still considered speculative at the time. While COMSAT had a protected market as a regulated monopoly for satellite communications, SpaceX and others present an open market that could develop into the next big thing that everyone has to have whatever the price. The good news is, everyone can own it and participate in its success, with minimal risk to their wealth.
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Bruce Elbert is the Founder and President of Application Technology Strategy LLC.(www.applicationstrategy.com) He is a satellite industry expert, communications engineer, project leader and consultant with over 50 years experience in communications and space-based systems in the public and private sectors. He can be reached at: bruce@applicationstrategy.com
