SpaceX’s impending initial public offering (IPO) is generating a lot of buzz, likely due to Elon Musk’s leadership and the company’s cutting-edge technology.
Yet, investing wisely requires more than just exciting personalities and innovative concepts. Here’s my take on why I believe SpaceX’s IPO might not be the best choice for investors and what alternatives they could consider.
Common stocks and common sense
Bloomberg reports that SpaceX aims for a staggering valuation of $1.75 trillion, looking to raise $75 billion with its IPO. This places it as the eighth most valuable company globally, trailing Broadcom and ahead of Tesla, another Musk venture. The filing with the Securities and Exchange Commission was confidential, limiting investor access to financial details. However, for that valuation to hold up, significant profits would be necessary.
SpaceX isn’t just about theoretical space travel anymore. The company has successfully launched satellites, taken people to space, and even aims to send humans to Mars, serving key clients like NASA and the U.S. Department of Defense. Plus, its satellite broadband service, Starlink, offers internet access to millions. Projections suggest that the combined revenue from its rocket launches and Starlink could hit about $20 billion by 2026, with xAI contributing around $1 billion. Last year, revenues were between $15 billion and $16 billion, netting about $8 billion in profit.
Even if we consider the optimistic $20 billion revenue estimate, a $1.75 trillion market cap translates to an astronomical price-to-sales ratio of 87. Such lofty valuations often see share prices soar right after the IPO, only to see a subsequent decline, leaving everyday investors in difficult positions.
Other ways to take advantage of trends
If you’re keen on space exploration investments, a space-themed exchange-traded fund (ETF) may be a more reliable option. Funds like the Ark Space and Defense Innovation ETF, Invesco Aerospace & Defense ETF, and State Street SPDR S&P Aerospace & Defense ETF hold shares in companies related to space exploration and have all outperformed the S&P 500.
These ETFs are accessible, starting around $33, and are traded easily. They provide exposure to a range of space and defense stocks but with lowered risk due to diversification. For instance, the Invesco ETF’s major holdings include Boeing and General Electric, along with stakes in Rocket Lab and Planet Labs. If you’re willing to take on a bit more risk, the Ark ETF features stocks like Rocket Lab and Archer Aviation.
Additionally, if SpaceX does go public, some of these ETFs might take positions, offering exposure to SpaceX shares with reduced risk.
