In the hallowed halls of the London Stock Exchange, where gilt yields are scrutinised with the intensity of a hawk eyeing its prey, the news of SpaceX’s record-breaking stock debut arrived like a speculative comet. The firm, co-founded by the irrepressible Elon Musk, saw its shares surge by an eye-watering 40% on the first day of trading, a figure that would make even the most hardened bond trader blink twice.
But let us not get carried away by the celestial rhetoric. This is a company that has yet to turn a profit. Its valuation, now hovering north of $180 billion, is based on the promise of satellite internet and Martian colonies, not on the solid bedrock of earnings. As the Chief Financial Editor of this newspaper, I have seen such euphoria before. It ends in tears, usually for the retail investor who buys at the top.
SpaceX’s unique structure as a private company turned public spectacle has confounded traditional valuation models. The lack of quarterly earnings visibility is a red flag for any fund manager worth their salt. Yet, the market has priced in a future that would require a series of near-miraculous events: the successful completion of Starship, the rapid expansion of Starlink, and a regulatory environment that remains favourable.
Meanwhile, capital flight from government bonds continues. The 10-year gilt yield has crept up to 4.5%, a level that would have been unthinkable just a year ago. This is the market’s way of punishing fiscal incontinence. In this environment, high-growth stocks like SpaceX are a risky bet. The tailwinds of low interest rates have vanished, replaced by the headwinds of quantitative tightening.
Let us also consider the broader economic picture. Inflation remains stubbornly above the Bank of England’s target, and the government continues to borrow as if there is no tomorrow. The new Chancellor’s Budget will be a test of credibility. If they spend recklessly, expect gilt yields to spike further, and with them, the discount rate used to value future cash flows. This would make SpaceX’s expensive stock even less attractive.
The company’s co-founder, speaking exclusively to this newspaper, assured investors that the business is on the cusp of profitability. But words are cheap in the City. Actions, or rather numbers, speak louder. SpaceX must demonstrate that it can generate free cash flow, not just hype.
So, as the champagne corks pop in Canary Wharf and the brokers count their commissions, I advise caution. The record debut is a testament to the power of narrative in financial markets. But narratives can shift with the wind, and when they do, those left holding the stock will feel the cold reality of a correction. In the words of one old hand on the floor: 'A rocket goes up, but it must also come down.'
