The London Stock Exchange was set abuzz this morning as Elon Musk’s SpaceX launched what is being hailed as the largest initial public offering in history, raising a staggering $75bn. The float, which priced at $1,200 per share, values the private space exploration company at over $800bn. City institutions, from the venerable Old Mutual to the hedge funds of Mayfair, scrambled for allocation, desperate for a piece of the Musk mystique.
Make no mistake: this is a monumental event. The sheer size of the capital raise dwarfs previous records, eclipsing the $25bn raised by Alibaba in 2014. But as a hardened journalist who has seen the dot-com bubble inflate and burst, I cannot help but raise an eyebrow. Is this a rational valuation, or are we witnessing the triumph of hype over fundamentals?
Let us dissect the numbers. SpaceX’s revenue in the last fiscal year was a respectable $4bn, largely from NASA contracts and its Starlink satellite internet service. That gives the company a price-to-revenue ratio of 200 times. Even for a growth stock, that is astronomical. Tesla, Musk’s other venture, trades at a multiple of around 10 times revenue. The comparison is stark.
The prospectus paints a rosy picture of a future where Starship rockets ferry humans to Mars and Starlink connects the globe. But the path to profitability is littered with technical delays and regulatory hurdles. The Federal Aviation Authority’s environmental review of Starship launches alone has cost the company months and, I suspect, a pretty penny in legal fees.
Moreover, the bond market is sending warning signals. The yield on the 10-year US Treasury has risen to 3.5%, a level not seen since the height of the pandemic panic in 2020. This is a tax on speculative ventures. When risk-free assets offer 5% real returns, the opportunity cost of holding a high-risk stock like SpaceX increases. The City’s pension fund managers, who are mandated to act prudently, may soon find themselves under pressure to trim such frothy positions.
There is also the matter of capital flight. International investors, particularly from the Gulf and Asia, have been pouring money into US equities, but the recent strength of the dollar and rising yields could reverse this flow. The carry trade that has supported tech valuations may unwind, and SpaceX could be caught in the downdraft.
I am not suggesting that SpaceX will fail. Musk has a track record of pulling rabbits out of hats. The Falcon 9 rocket is a marvel of engineering, and Starlink has the potential to generate substantial cash flows. But at this price, the market is pricing in perfection. Any deviation from the script – a failed launch, a delay in the Starship programme, or a tightening of monetary policy – could see the stock crater.
For London investors circling like vultures, the risk is that they are buying into a momentum-driven frenzy rather than a sound investment. The IPO roadshow was a masterclass in hype, with Musk tweeting superlatives and promising a future that seems straight out of science fiction. But in the cold light of day, the balance sheet tells a different story: negative free cash flow, rising capital expenditure, and a valuation that leaves no room for error.
As a fiscal conservative, I believe in market efficiency. If the market says SpaceX is worth $800bn, then so be it. But I also recall the words of the legendary investor Benjamin Graham: “The intelligent investor is a realist who sells to optimists and buys from pessimists.” Today, the optimists are in charge. Tomorrow, the reality check may come.
Watch the gilt yields. Watch the Fed. And watch for any Musk misstep. London’s finest have placed a massive bet on a man whose star has shown no sign of dimming. But the history of financial markets is littered with the wreckage of overhyped IPOs. Let us hope this one does not join them.
