SpaceX’s valuation rests on faith, not reliable price discovery

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 13:32

   the stock um it's up around 10 in the past month i mean i had a three-part prediction for spacex part one was it would explode on the ipo got that right part two is it would then get cut in half got that right and part three was that it would start after that point or it would continue to slide as the lockups expired got that wrong uh it's risen to 167 dollars a share from its low of 108 in august it has exploded back up to as you say 2.3 trillion dollar uh market cap um what do you make of of of the rise in this stock which from what from what i can understand doesn't seem to be happening on the back of much news it seems to be mostly sentiment there's been a tiny bit of news right there's been there have been some launches that were quite successful so the starship um project like he had his first

2. 14:27

   orbital flight for starship which is which is important because that's going to be key to getting lots of stuff into space and getting his spaceships back again um i'm not totally surprised that the lockups didn't have much of an effect i know there were a lot of people who were watching this very closely but that was pretty well telegraphed i mean we know we knew that that was coming there's no secret about the fact that there's going to be liquidity overhang so i think that it's i expected well i probably expected it to like you to go up and then to come down below the ipo price what i would say is that there are a lot of people who want this to stay aloft there are like as we've discussed a lot of them in this call a lot of vested interests in wall street want to see this stock continue to go up and elon musk is a great generator of fees for

3. 15:10

   Wall Street. So the analysts have lots of incentives to pump him up. He also has a really big fan base. Look at Tesla. We, I, have been arguing for so long that Tesla's valuation is not based on any real fundamentals. And yet, if I'd bet against Tesla with some periods that are exceptions, I would have lost money. So Musk just has this ability. The problem is also that others now are going to start to think that they have the same magic charms as he does, and they will be wrong. Do you think that the long-term trajectory of this stock will be the same as Tesla? And that is a valuation that just completely exceeds and just lives in a different world from the fundamentals. Like, do you think that the Elon premium is actually going to be enough to keep this company, you know, in the ballpark of $2 trillion? It all depends on a lot

4. 16:02

   of things that I don't feel that I can predict with much certainty, like what's going to happen with the Optimus humanoid robot? Is it going to change the world? Is SpaceX going to merge with Tesla, which is kind of widely expected to be something that's on the menu at some point? You know, how will Starship perform? There are all these things that, like, my expertise is not knowing whether humanoid robots is going to be a $10 trillion market, but if you feel comfortable making that bet, then go for it.

5. 16:28

   And clearly there are enough people who are comfortable making that bet that Tesla is where it is. But this is not a regular company where you're projecting earnings out for a couple of years and putting a multiple on them. This is about faith in Elon Musk. And lots of people have. that. How much faith do you have in the actual, I guess, the price discovery here? Because you mentioned that there are a lot of vested interests, a lot of analysts that are interested in pumping it up. And also the float remains very small. And so I guess part of the thing here is that it's hard to tell how real any of these numbers actually are, and whether they are actually reflective of a market that is even liquid enough to assign a price that is actually commensurate with its value. So I guess, what do you make of the validity of the price, maybe,

6. 17:22

   I would say? That is a really good question, because that $2.3 trillion market cap is, of course, not real. There isn't $2.3 trillion worth of stock that's available to buy now on the market. And if all the stock were unlocked, would it be worth $2.3 trillion? If you tried to buy spacex would you pay to bring your trillion like probably not so that number is not also spacex you know it hasn't been included in some very important indices so it's not like everyone owns it so the actual importance of spacex the amount of spacex that's in your portfolio without you knowing about it is quite small it is important because it like sets a reference point for other kinds of ipo for the big companies asking what they're worth anthropic would be a big one open AI. SpaceX kind of, like NVIDIA before, it sets this idea that a company of a certain level of

7. 18:08

   importance should be worth a certain number of trillion dollars. So that's why I find myself thinking about SpaceX as a $2 trillion company, because we like round numbers and it's big. But as you say, the price discovery is not really there because this is a small free float and it's going to be a small free float for a long time. John Foley is head of the Lex column at the