This post was originally shared in my DT Email Newsletter here.
Things are starting to smell funny.
As I’m writing this, the newly IPO SpaceX is now trading at US$2.4 trillion.
It’s been trading for a week plus now and is now the US fifth biggest company, overtaking Amazon and Meta’s valuations – big tech giants that generate enormous amounts of free cash flow each year.
Last year, SpaceX racked up net losses of just over US$4.9 billion. In fact, it has accumulated US$37 billion in losses since it was founded.
That’s the most accumulated losses than any company ever when it got listed. What’s more, it continues to rack massive capex spending.
Remember I wrote here about Cathie Wood? Look, I’m not picking on anyone. The point is this: when a story is so compelling enough, investors stop asking the hard questions.
Cathie Wood’s ARK was built on that same vision – huge disruption, exponential growth, talking about the future. The kind that sounds absurd, then later on racking massive losses that investors could potentially suffer.
Sure, this is great for anyone who has bought early. But terrible timing for anyone who bought at the top.
SpaceX is exactly in that same situation today.
SpaceX is now an AI Company
Put it this way, many retail investors may not realize what they are actually buying here.
You see, SpaceX is now an AI company (well, of course). In its IPO prospectus, I read 93% of SpaceX’s total addressable market is in AI.
That’s almost from businesses that don’t exist yet. What’s more, its flagship AI product, Grok, only accounts for ~3.4% of market share in an AI space that’s still dominated by OpenAI, Anthropic and Google.
In other words, SpaceX is valued like a massive AI tech giant. But its AI product is still lagging far behind.
Which brings me to my next point…
One of its key revenue drivers for this IPO was a leasing arrangement with Anthropic – paying SpaceX US$1.25 billion a month to use its Colossus data centre in Memphis.
The deal was supposedly worth as much as US$45 billion over three years. Yet this deal could be cancelled in just 90 days’ notice.
The funny part is that earlier in March this year, Musk posted “Missanthropic” to his 240 million followers – calling Anthropic the most hypocritical company in AI.
Months later, they are now one of their biggest customers.
Here’s the unusual part.
Index inclusion rules state normally demand companies trade publicly for about a year before they can be put into an index. This allows the company’s IPO to fade and give Mr. Market the time to find a “reasonable price”.
And yet, and yet… Last month Nasdaq changed its rule to grant SpaceX “fast entry”. The same goes for the FTSE Russell.
This means, when SpaceX is added to these indexes, passive funds tracking them will have no choice but to buy the stock in the public market.
As I’ve said, something smells funny – and this is what bothers me most. The very rules meant to protect ordinary savers who would invest in these passive funds are now putting their retirement savings at risk.
Especially if institutional funds are buying these companies whose valuations are built on projections from businesses that don’t exist yet.
So, don’t be too sure. Don’t be too sure.
Would I buy SpaceX today?
If you believe in the Space-AI story – with or without Musk, I’d say forget it. If you truly believe in Musk and just want to enjoy the ride, then sure…
Invest accordingly.
However, in this current market that’s not making much sense today, I’d rather be looking at cash-flow generating assets that would compound our portfolio.
For instance, companies that produce real cash flow, selling a well-established product or service that’s been around for decades.
Sometimes, investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan
