As Elon Musk's SpaceX prepares for what could become the biggest stock market debut in history, not everyone on Wall Street is convinced the company deserves its eye-popping valuation. While investor demand for the IPO has reportedly already exceeded $150 billion, valuation expert Aswath Damodaran, Jefferies strategist Chris Wood, and research firm Morningstar have all raised concerns about the pricing, AI hype and market structure surrounding the listing.
SpaceX plans to raise $75 billion by selling 555.6 million shares at $135 apiece, valuing the company at around $1.77 trillion. If successful, it would surpass Saudi Aramco's 2019 listing as the largest IPO ever.
For Damodaran, often referred to as Wall Street's "Dean of Valuation", the problem is not the company but the price. After reviewing SpaceX's prospectus, the NYU Stern professor raised his estimate of the company's equity value to about $1.3 trillion, largely due to the additional cash the IPO will bring onto the balance sheet. Even after that revision, his valuation remains roughly $500 billion below the IPO valuation.
"At the rumored pricing of $1.8 trillion for the company, it is too richly priced for my tastes," Damodaran wrote. A major point of disagreement is artificial intelligence. SpaceX's filing estimates a total addressable market of nearly $28 trillion, with almost $26 trillion linked to xAI.
Damodaran believes those assumptions are overly optimistic. "If the prospectus is to be believed, SpaceX has the largest TAM of any company in history," he wrote, adding that his own estimate of the long-term AI opportunity is closer to $3-4 trillion.
He also lowered his long-term operating margin estimate for SpaceX's AI business to 25% from 45%, arguing that rising competition and the enormous cost of AI infrastructure could prevent profitability from matching revenue growth.
Meanwhile, Morningstar has also questioned the valuation. In a recent note, the research house said SpaceX appears "significantly overvalued" and suggested investors may find better entry points after the stock begins trading.
It also warned that the future economics of xAI remain highly uncertain, describing its moat as "indeterminate" and cautioning that the business could become a "material threat of value destruction".
Jefferies strategist Chris Wood has raised a different concern. In his latest GREED and fear note, Wood argued that SpaceX is benefiting from an unprecedented set of rule changes that could artificially boost demand for the stock after listing.
Nasdaq recently changed its rules to allow mega-cap IPOs to enter the Nasdaq-100 index after just 15 trading days, compared with the previous three-month waiting period. Minimum free-float requirements have also been removed.
Wood noted that although only about 4.2% of SpaceX shares will be publicly tradable after the IPO, the stock will be treated as if it has a 12.7% float for Nasdaq-100 weighting purposes.
The result could force passive index funds to buy large amounts of SpaceX stock shortly after listing.
"Such fast-tracking of new listings into indices has never happened before in America, so far as GREED & fear is aware," Wood wrote.
He argued that the move could suck liquidity away from other stocks, particularly AI-related names that have attracted significant inflows over the past year.
Wood also questioned whether the rush of mega AI IPOs signals that markets may be approaching a peak in AI enthusiasm.
Despite the concerns, neither Damodaran nor Morningstar is questioning the quality of SpaceX's core businesses.
Damodaran actually raised his profitability assumptions for the company's launch business and remains highly positive on Starlink, which grew its subscriber base from 5 million to more than 10 million users. He believes satellite broadband remains the strongest near-term profit engine for the company.
Still, all three sceptics arrive at a similar conclusion. SpaceX may be one of the world's most exciting companies, but at a valuation approaching $1.8 trillion, investors are paying heavily for future growth, AI ambitions and Musk's ability to execute.
Whether that optimism proves justified will become clearer once the stock begins trading on Nasdaq on June 12.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
