SpaceX has long been considered one of the surest bets in Elon Musk’s empire.
The firm dominates commercial launches, turned Starlink into a huge satellite internet business, and remains a key part of Musk’s long-standing goal of reaching Mars.
That’s why a hypothetical SpaceX initial public offering would certainly see high investor interest.
But veteran investor Steve Eisman sees a different tale unfolding behind the hoopla.
The investor famous for betting against the housing market just before the 2008 financial crisis believes SpaceX’s future may depend more and more on artificial intelligence, and that could make the business considerably more expensive to support than its backers realize.
“The valuation’s silly,” Eisman said, arguing that too much optimism may already be reflected in investor expectations.
SpaceX investors face a new AI spending question
It’s simple to understand why SpaceX is so appealing.
The corporation has a solid lead in rocket launches, and Starlink gives it a recurring revenue model that goes far beyond government contracts and one-off missions.
That mix has helped make SpaceX one of the world’s most valuable private corporations.
But Eisman’s warning is about something else: capital intensity.
SpaceX’s capital spending was 42% of sales in fiscal 2023, he said. That number has climbed to 215% of revenue in the most recent first quarter, he claimed.
That is the primary investor worry.
A corporation that is spending extensively to enhance launch capacity for Starlink may nevertheless be characterized as an aerospace and communications enterprise. A corporation that’s making big investments in AI infrastructure looks completely different.
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Artificial intelligence involves huge upfront investment in computing capacity, data centers, processors and electricity. That has already transformed how major tech businesses are seen by investors.
Now Eisman says SpaceX may be joining the same discussion.
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Steve Eisman says SpaceX may be selling an AI story
Eisman is not writing off the rocket business at SpaceX.
He noted the company’s prowess in launches and Starlink. But he added the company’s own growth forecasts seem to be disproportionately related to artificial intelligence potential.
That matters because investors are more cautious about AI spending.
Many companies are pouring billions into infrastructure, but the business models remain uncertain. Eisman said large language models are increasingly hard to differentiate, raising questions about whether companies can build lasting moats.
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That makes SpaceX’s IPO more complicated, he said.
Investors might think they are buying the dominating private space company. They may be buying a company whose future price will depend substantially on AI economics, Eisman says.
That is a key distinction.
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Satellite internet and rocket launches have more defined markets. The AI infrastructure race is a considerably more expensive race and the victors are not yet selected.
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Musk’s track record remains intact, the strongest argument for SpaceX.
Many investors have lost money betting against Musk over the years and SpaceX has frequently done what rivals couldn’t.
But Eisman isn’t betting against SpaceX.
He says he doesn’t want to play the IPO at a value that already prices in too much future success.
That is the actual warning to regular investors.
A SpaceX IPO would test not just investor appetite for Musk, rockets or Starlink. It would be a test of whether public markets are still prepared to pay premium pricing for companies associated with AI, even while worries linger regarding spending, profitability and competitive advantage.
Key takeaways for SpaceX investors
- SpaceX remains a leader in commercial rocket launches.
- Starlink gives the company a major recurring revenue business.
- Eisman says SpaceX’s capital spending has surged relative to revenue.
- His concern is that AI may be driving more of the company’s future valuation.
- A SpaceX IPO could become a major test of investor appetite for AI-linked growth stories.
That means the timing is important.
For much of the AI boom, investors rewarded companies for thinking and spending aggressively. Now they’re asking tougher questions regarding returns.
And if that discussion grows more intense, its IPO might be evaluated on more than just launch dominance when SpaceX goes public.
It can also be judged on whether Musk can prove that SpaceX’s AI aspirations justify the huge price tag.
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