Steve Eisman’s Take on SpaceX: An Overvalued Stock
Steve Eisman recently shared his insights on why he believes SpaceX is misvalued in the market. He compares the company’s revenue, which hovers around $19 billion, to that of Kellogg, the maker of Froot Loops. The key difference? Kellogg isn’t valued at a staggering 100 times its earnings.
Eisman gained notoriety during the subprime mortgage crisis in the mid-2000s. He famously shorted the mortgage market, anticipating the housing bubble burst. His story became well-known through Michael Lewis’s book and the film adaptation, which featured Steve Carell. Now, Eisman hosts a podcast, The Real Iceman Playbook, where he offers keen economic insights while playfully critiquing the prevailing mindset in the investment community.
In a recent phone call, Eisman criticized the prevailing hype surrounding SpaceX. He believes that the excitement often clouds judgment. “SpaceX has the same revenue as Kellogg,” he observed, noting that he loves Froot Loops but doesn’t go out of his way to buy them. He pointed out that SpaceX’s valuation exceeds 100 times its sales, a metric not seen for any comparable company. In contrast, Palantir’s valuation stands at around 50 times sales. Eisman expressed skepticism about Elon Musk’s ambitious plans, suggesting they resemble something out of science fiction. “I read a lot of sci-fi growing up,” he said, “and it seems like Musk takes these ideas too seriously.”
He highlighted a particularly ambitious aspect of SpaceX’s plans: asteroid mining. “SpaceX’s filings discuss asteroid mining as a way to extract resources,” he noted, referencing a popular sci-fi show that features similar themes. It’s a concept that resonates with his love for science fiction, but the practicality of such endeavors seems questionable to him.
Eisman also questioned Musk’s strategy of creating a conglomerate. He wonders why Musk would pursue such a direction when companies are generally moving away from that model. “Why expand into everything when investors seem to prefer focused companies?” he asked. The idea of SpaceX potentially acquiring Tesla, which has struggled recently, also troubles him. “Tesla hasn’t performed well lately,” he mentioned. Despite Musk’s repeated promises about self-driving cars, Eisman is skeptical about their actual progress.
Eisman’s Concerns About AI Companies
Turning to the broader tech landscape, Eisman pointed out that SpaceX’s future appears closely tied to its AI aspirations. He mentioned that the flagship AI product, whimsically named “Grok,” references concepts from his favorite sci-fi novels. While the total addressable market for SpaceX is touted at $28.5 trillion, he emphasizes that a large portion of this is AI-related and questions the product’s utility, noting that even SpaceX engineers have reservations about it.
Overall, Eisman believes the outlook for large AI companies is becoming increasingly grim. “There’s a significant shift happening,” he stated, identifying two main factors. First, the costs associated with AI development are skyrocketing. For instance, Alphabet’s spending on AI has escalated dramatically, raising the stakes for profitability. This situation may compel companies, including SpaceX, to lean on capital markets for funding post-IPO.
Secondly, he pointed out that AI lacks a significant protective advantage. As competition grows fierce with various players emerging—including ChatGPT and others—Eisman thinks it’s challenging to stake a claim in this space. “You don’t want to be in such a competitive arena,” he cautioned, suggesting it’s better to be a specialized hardware supplier rather than part of the crowded AI market.
He was clear about his stance on shorting SpaceX, stating, “I don’t advocate for anyone to short the stock.” Despite indicating that from a fundamental perspective, the valuation seems absurd, Eisman acknowledged that the market can maintain irrational valuations for extended periods. For many of Musk’s ambitious claims, he thinks they might be fantasies rather than feasible projects.
