SpaceX’s public debut was anything but typical.

It has the distinction of having record figures for its initial public offering (“IPO”). On Friday the company raised $75 billion and closed the day valued at more than $2 trillion.

It is now the largest IPO in history, and is set to draw significant attention for the time being.

That said, while the company is valued at over $2 trillion, just how much is it really worth?

To answer that question, we’re going to value the company as a whole by using two of our favorite Uniform Accounting tools.

So, let’s look at the numbers and see what our Uniform Accounting tools reveal…

SpaceX’s Profitable Segments

The company’s space segment earned a Uniform return on assets (“ROA”) of 12% last year, right around the market average. We explained that it could be worth about $125 billion if it stood on its own.

And Starlink is the company’s cash cow, with 30% returns. We think Starlink should be worth as much as $600 billion.

SpaceX’s third segment, AI, is losing money as it desperately spends on new data-center construction. Its Uniform ROA was negative 18% last year. And while it’s hard to value an unprofitable business, we assigned it a best-case-scenario value of $600 billion as well.

All told, that puts SpaceX at a $1.3 trillion value by our estimates. That’s quite a bit lower than its IPO valuation and value following its first day of trading.

That tells us expectations are high. And to understand just how high, we turn to the first of today’s Uniform Accounting tools: the Embedded Expectations Analysis (“EEA”) framework.

The EEA shows how well a company needs to perform in the future to be worth what the market is paying for it today.

Most Wall Street analysts use what’s called a discounted cash flow, or “DCF” model. They add up their projections for all future cash flows and discount them based on the “cost of capital.” In other words, it shows how much money a company will have to spend to generate those cash flows.

That’s how normal DCFs work. They’re built on analyst assumptions.

There are a lot of investors combing over companies’ earnings. For most companies, the market gets it right.

With our EEA framework, instead of coming up with our own assumptions, we start by assuming the market knows best. We use Uniform ROA and Uniform asset growth because they’re an easy way to model free cash flow.

SpaceX was originally projected to be worth $1.8 trillion prior to its IPO. At this valuation, investors were betting SpaceX will generate returns of 32% by 2030. That translates to a staggering 660% growth in assets (50% per year for five years).

Based on those projections, the market expects SpaceX to have nearly $300 billion in assets and to have generated roughly $100 billion in free cash flow by 2030.

That’s what the company must achieve in order to satisfy investors.

Starlink is well on its way to recording Uniform ROA of 60%. And the AI business strives to be like the hyperscalers, which averaged 29% returns last year.

However, these are still goals. SpaceX’s business isn’t there yet. So we’d call its current valuation “aspirational.”

That leads to the last piece of the puzzle. It doesn’t matter what the company should do unless management is prepared to do it.

Incentives Dictate Behavior

When it comes to compensation, we evaluate it through what’s called incentives dictate behavior (“IDB”).

IDB is a simple concept. It just means individuals will do what they are paid to do. No stock analysis is complete without a look at how management gets paid.

To receive any stock awards from SpaceX, Elon Musk needs to grow SpaceX’s market cap to a massive $7.5 trillion. That’s roughly 50% larger than “Mag Seven” darling Nvidia (NVDA), currently the largest company in the world.

On top of that, Musk has two non-financial goals:

1. Establish a colony on Mars with 1 million residents (if he hits this, he’s entitled to 200 million additional shares of the stock)
2. Launch enough data centers into space to provide 100 terawatts of computing capacity (this entitles Musk to an additional 60 million shares)

Those are the keys to getting from our $1.3 trillion valuation to something far in excess of $1.8 trillion.

An investor has to believe there’s a better-than-0% chance that Musk can achieve one or both of those goals in the next 10 years.

It’s also important to note that, while he’s entitled to a massive payday if he hits these goals, Musk already controls 85% of SpaceX’s voting shares. So he’s missing some of the compensation-based guardrails that are usually looked for in a business.

He has used his massive voting power to his advantage in the past. For example, he caught the ire of Tesla (TSLA) shareholders after he “bailed out” another one of his companies, SolarCity, by folding it into Tesla for $2.6 billion.

He just pulled a similar maneuver by selling xAI into SpaceX at a $250 billion valuation. And selling X (formerly Twitter) to xAI before that.

An IPO that Breaks the Mold

SpaceX’s IPO is an IPO the market has never seen before. It’s both the largest in history and likely the most-followed among institutions and retail investors alike.

New stocks typically take up to a year to get added to index funds. But because this is such a big IPO, several index funds have changed their rules to start buying SpaceX stock as soon as its second week of trading.

That could create a lot of forced buyers for the stock.

We can’t tell you where the stock will open or where it will trade in the first few months. What we can say is, from where we stand, the three businesses together are worth about $1.3 trillion at best.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

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