Scott Gurvey's Public Offerings

I have not held back on my feelings for Elon Musk. But his persona and his work for the Trump administration notwithstanding, I will concede that he is the greatest marketer since P. T. Barnum. Barnum was a 19th century showman, self-made entrepreneur, and co-founder of the Barnum & Bailey Circus. He is often credited for coining the phrase, “There’s a sucker born every minute” although there is no evidence that he actually said it. Elon Mush might have been able to sell shares in his company, SpaceX (Ticker: SPCX), to Barnum. He did manage to sell shares to millions of retail investors.

As of this writing, SPCX had overtaken Amazon to become the world’s fifth-most valuable public company. It trails just behind Microsoft. Its market capitalization sits at approximately $2.66 trillion. This is all within days of setting records as the largest initial public offering (IPO) in history. SpaceX priced its shares at $135 each, offering 555.6 million shares and raising about $75 billion.

It is an amazing achievement when one considers the fact that, on paper, this valuation is unsupported by any reasonable standard. Mainstream financial analysts note that the company’s $2.66 trillion market cap trades at a staggering, speculative 142x price-to-sales ratio, especially considering the company logged a $4.9 billion net loss last year.

Bulls are pricing in Elon Musk’s projection that SpaceX could achieve $1 trillion in annual revenue by 2030 following its merger with xAI. xAI is another one of Musk’s companies. It develops artificial intelligence tools and is the creator of the AI chatbot Grok. According to its prospectus, SpaceX has accumulated a total loss of $41.3 billion since it was founded in 2002.

There is a third leg to the SpaceX story. Musk, who became the world’s first trillionaire based on his combined stakes in SpaceX and Tesla, may have started the company as a reusable rocket maker, but the only profitable part of the business today is the Starlink satellite internet division. It has brought the Internet to the world.

The sight of rocket ships (SpaceX Falcon) landing upright on their tails, ready for reuse, excites anyone who, like me, watched Flash Gordon’s spaceship do the same thing on Saturday morning television as a child. But SpaceX is already on to the next thing. It has a new rocket, Starship, which is still in its test phase, and failing spectacularly. SpaceX has also stimulated competition, and one has to consider the future market for launch services to value its profit potential in the years ahead.

Musk wasted no time in putting his company’s new cash infusion to work. Less than a week after the IPO SpaceX announced a $60 billion purchase of Cursor, a privately company currently owned by Anysphere. Cursor is the hottest AI coding tool in the world. It helps developers write, edit and review computer code. This will be one of the biggest AI acquisitions ever. Anthropic, which has filed for its own IPO, currently dominates the AI coding market with its Claude-based tools.

SpaceX share prices rose following the IPO and jumped when the Cursor acquisition was announced. But rational investors still scoff at the idea of paying 140 times revenue for a company. A rational investor will also note that only about five percent of SPCX is in play right now. That makes supply short and raises prices. Beginning sixty days after the IPO (mid-August), the various lockout periods begin to expire. At that point, insiders who had shares before the offering either as employee benefits or private investment, can begin selling their shares. There are hundreds of newly minted millionaires who will want to do that. This will increase supply and would be expected to push the stock price down.

So, the rational investor will stay away and compare buying of SPCX shares to rolling the dice in Las Vegas. Personally, I’ve always enjoyed the shows and the restaurants in Vegas but am not inclined to gamble there. I take a few wild shots on Wall Street instead. This may be one of them.

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