SpaceX Shares Surge on IPO Debut, But Experts Divided on Future Value
The company's initial public offering saw significant gains, but analysts offer a wide range of predictions for its long-term stock performance.
SpaceX's highly anticipated initial public offering (IPO) saw its shares open at $150 on June 12, exceeding the IPO price of $135 and valuing the company at approximately $1.77 trillion. The stock climbed further in subsequent trading days, briefly pushing its market capitalization close to $3 trillion and surpassing giants like Amazon and Microsoft in valuation at one point. By the end of the first week of trading, shares closed at $185, a 37% increase from the IPO price.
The IPO was heavily oversubscribed, indicating strong demand. British investors alone purchased 2.7 million shares, totaling £270 million. Retail investors were allocated up to 30% of the shares on offer, with those investing £2,000 or less receiving their full allocation.
Expert Opinions Diverge
Despite the strong start, opinions among financial experts are split regarding SpaceX's future stock performance. Some view the IPO as a unique investment opportunity, likening it to a "ride of a lifetime" to space exploration and AI development. They highlight the company's ambitious mission to establish a multiplanetary presence and its potential in orbital data centers.
Conversely, many analysts express caution, pointing to SpaceX's current financial status. The company is loss-making, with its valuation at nearly 100 times its current sales, not profits. This is a common characteristic of tech companies going public, but the multiple is exceptionally high. Some experts draw parallels to the dot-com bubble, warning that the current valuation might be inflated by an AI investment frenzy.
Valuation and Future Prospects
Analysts offering a "buy" recommendation often cite the long-term potential of SpaceX's diverse ventures, including Starlink and its AI ambitions. Pierre Ferragu of New Street Research predicts shares could reach $165 within a year, with potential upside to $330 per share under higher growth scenarios. Garry White of Charles Stanley suggests that a more attractive entry point for cautious investors might be closer to $100 per share, balancing the value of Starlink with the speculative nature of AI and orbital data centers.
Dan Ives of Wedbush emphasizes the correlation between SpaceX and Elon Musk's leadership, noting that betting against Musk has historically been a losing proposition. He also posits a high probability of a SpaceX and Tesla merger by 2027. "At the end of the day Musk is SpaceX and SpaceX is Musk, but the broader ramifications of this IPO are important for the market and the overall tech trade," Ives stated.
Those advising to "sell for a profit" or "hold fire" often point to the short-term boost from the IPO's oversubscription and impending index fund purchases. Joachim Klement of Panmure Liberum suggests that while the initial weeks may see gains due to a limited free float and mandatory index fund buying, the long-term outlook is uncertain. Susannah Streeter of Wealth Club notes that much of SpaceX's future success is already priced in, and the company's ambitions are highly capital-intensive and subject to technological and regulatory risks.
Skeptical Views
Skepticism is also evident among some analysts. Ed Croft, CEO of Stockopedia.com, acknowledges the impressive operational performance of Starlink and the near-monopoly of the rocket launch business. However, he questions the reliance of the $1.75 trillion valuation on speculative AI revenue growth, noting that the AI division incurred significant losses last year. "The problem is the price," Croft stated.
Michael Field, chief equity strategist at Morningstar, considers the stock overvalued and advises investors to wait for a more attractive entry point. He points to unknown and untested technologies underpinning much of the valuation, particularly within the AI business, deeming it "extremely speculative."
Stephen Yiu, lead manager of the Blue Whale Growth Fund, plans to remain on the sidelines. He expresses more interest in Starlink but finds the AI division, xAI, to be in an overly competitive landscape. Yiu prefers investing in profitable companies at reasonable prices rather than paying a premium for future potential.
David Coombs, a multi-asset fund manager at Rathbones Asset Management, agrees that while SpaceX is innovative, it is overvalued. He highlights Starlink's success but notes that xAI is a significant cash drain. Coombs prefers businesses in the broader space economy with sustainable revenues and cash flow.
SpaceX's journey as a public company is expected to be closely watched, with its performance likely to be influenced by the interplay between its ambitious long-term goals and the market's valuation of its current and future profitability.