Why We Think the SpaceX IPO Is Overvalued

Why Is Morningstar So Bearish on SpaceX’s IPO?

We value SpaceX at $63 per share, a 53% discount to the upcoming IPO’s offering price. Our valuation is the result of mathematics more than skepticism. With such a wide range of possible outcomes for the company’s financial future, we created forecasts and valuations for three scenarios and probability-weighted them.

Even at $63 per share, we give SpaceX a lot of benefit of the doubt in two of the three scenarios, in which we assume the company can achieve a rapidly reusable Starship rocket enabling multiple launches per week and successfully commercialize data centers in space. Neither of these engineering problems has been solved, and we don’t expect them to be until at least 2028.

In our most optimistic “moonshot” scenario, the company would be worth $1.97 trillion, or $154 a share. That’s 14% above the offering price and a level the shares might even reach in the short term after their public launch, given widespread investor enthusiasm about SpaceX, artificial intelligence infrastructure, and the IPO. However, we assign this scenario, in which both Starship is reusable and scaled orbital data centers are highly successful, a 7% chance of happening, which is one reason our final fair value estimate of $63 is much lower than $154.

What Would It Take for SpaceX to Get a ‘Buy’ Rating From Morningstar?

Morningstar’s consistent and independent equity research methodology is designed to help long-term investors ascertain a stock’s intrinsic value and weigh it against the prevailing market price. What’s more, with a Very High Uncertainty Rating for SpaceX, we would only think the shares offered a compelling risk-adjusted return (and thus garner a 5-star

) below a 50% discount to our

. To illustrate, to get

from Morningstar at the $135 IPO offering price, our fair value estimate, all else equal, would have to be $270 per share. Here are the assumptions we made to arrive at our more realistic valuation.

What Are the Building Blocks of the Fair Value Estimate?

Our analysis of fair value focuses on the profit drivers and forecasts for the company’s businesses described in our full report. Some items that add up to our fair value estimate don’t change with our scenarios. We assume the firm will raise $85.7 billion for 639 billion shares offered in the IPO, which amounts to $6.50 per share of our fair value estimate. Add to that its existing $1.80 of cash and investments, minus $2.30 per share of debt.

Our valuation for the core space and connectivity businesses adds around $40 per share (we believe a slower-growth scenario for Starlink after 2028 would reduce that estimate by $5). Our probability-weighted average of the three wide-ranging AI scenarios adds $16.50 to our overall valuation estimate, which we view as more akin to the value of a call option on the commercialization of orbital AI infrastructure. The math: $6.51+$1.80-$2.30+$40.00+$16.50=$62.51 (we rounded up to $63.00).

What Assumptions About SpaceX Drive the Forecast?

In all three scenarios, we apply base-case forecasts provided by PitchBook for the space and connectivity businesses, in which we assume that by 2035, SpaceX will be able to launch 340 Starship missions (nearly one a day), and that the reusability rate of the rockets on these missions reaches 85%, extending cost and time savings beyond the reuse of the boosters to the upper stage spacecraft. Then we built forecasts for three scenarios to ascertain what the AI business might achieve.

Moonshot

In the first, our most optimistic scenario, SpaceX’s orbital AI platform works, achieves operating cost advantages over terrestrial computing, and eventually deploys and commercializes one-fifth of our forecast of AI infrastructure computing capacity (excluding Russia and China) by 2040. We apply the estimates provided by SpaceX that it can engineer and deploy satellites with the equivalent of 100 kilowatts of AI processing capacity each and eventually fit more than 100 of them into the fairing of a Starship, which we forecast to result in an orbital computing cluster of some 59,000 satellites by 2035, providing the equivalent of 11.6 gigawatts of AI computing capacity and generating $225 billion of annual revenue.

No Go

In our downside scenario, orbital data centers won’t work or offer any advantage over terrestrial ones. We surmise that the company, having invested tens of billions to find this out, would cut bait on the project sometime around 2028, the way management walked away from plans to build multiple small-car factories at Tesla. We assume SpaceX would continue to commercialize its terrestrial Colossus data center but would not take a meaningful share of global computing capacity.

Minimum Viable Product

In our most likely scenario, orbital data centers prove viable, subject to some capacity constraints, but also benefit from SpaceX’s decreasing cost to launch large payloads on Starship, and the company successfully deploys and commercializes around 4% of our forecast AI computational capacity—probably best serving those use cases that can tolerate higher data transmission latency. It’s a project that requires some unproven engineering to succeed, but we do see SpaceX as the best positioned to pursue it.

In this scenario, we estimate SpaceX would engineer and deploy satellites with the equivalent of 50 kilowatts of AI processing capacity each and eventually fit more than 90 of them into the fairing of each Starship launch, resulting in an orbital computing cluster of some 48,000 satellites by 2035, providing the equivalent of 2.4 gigawatts of AI computing capacity and generating $47 billion of annual revenue.

How Do the Scenarios Add Up to the Fair Value Estimate?

• We give the optimistic Moonshot scenario a 7% chance of happening. This represents the combined probability that Starship is reusable 85% of the time and orbital data centers scale well commercially. This scenario would add $108 to our fair value estimate, unweighted, and it lifts the final result by $7.56 per share.
• We assign the No Go scenario a 43% chance of happening, meaning even if Starship is successful, orbital AI data centers may not be, which would detract $6.20 from our fair value estimate on its own, and it weighs on the average by $2.67.
• We deem the Minimum Viable Product scenario as most likely (though far from guaranteed). It is worth $23.50, adding $11.75 to the fair value weighted at 50% probability.

What About Fabricating Chips on the Moon and the City on Mars?

SpaceX has a long list of other projects and ambitions, including actual moonshots and interplanetary colonization. These would most probably absorb massive investment, could come with dilution to stockholders, and have a wide range of possible payoffs, positive or negative. In this way, we view them all as having potential “optionality” value, and it’s a matter for investors to decide what they think the payoffs could be and what premium they assign to each project.

We did not explicitly model or forecast these projects, so we would say either our valuation is agnostic to them or that it effectively gives the projects as a group a net present value of zero.

As with orbital AI computing clusters, we see SpaceX as the firm best-positioned to pursue such ambitious projects. One way to evaluate the value of these opportunities is to use the logic of pricing call options, wherein an investor pays a premium upfront to buy into a project at a predetermined price. If the project works out and is worth more than the strike price, the investor wins. But if it doesn’t, the investor loses their premium and the option expires without value.

If our weighted $63 fair value estimate of SpaceX is accurate, at the offering price of $135, investors are adding $72 per share of “option premium” to their investment, for the right to participate, come what may, in the long list of future projects SpaceX may undertake. The more likely you believe cost-competitive orbital AI data centers will be, the closer to the offering price a reweighted valuation of SpaceX gets, and those extra projects could be seen as free options. Using the inputs above and reweighting our scenarios to 77% likely for Moonshot and 23% likely for MVP, excluding the No Go scenario, the valuation equals the $135 offering price.