The SpaceX IPO: Science Fiction or Serious Investment? | The Weekly Wrap

Hinzugefügt: 2026-05-30

[00:00:00]This week's war news was very mysterious. President Trump made it sound like a settlement was close, but then it wasn't. Salesforce reported and did itself no great favors. The overall software narrative remains negative as fears about the impact of AI remain in force. SpaceX is supposed to go public on June 12th. Because this will be the biggest IPO in history, I thought it would be a good idea to analyze it.

[00:00:23]because the valuation is kind of crazy and the only way to justify it is for SpaceX to become a retail cult stock to infinity and beyond or in this case to Mars.

[00:00:42]Hi, this is Steve Eisman and this is the weekly rap. This is for the week ending Friday, May 29, but recorded Thursday night, May 28th. This coming Monday, June 1, we will welcome back Gary Marcus, professor ameritus at NYU and a well-known critic of AI. Catch the first twothirds of the interview for free Monday, June 1st. I also want to touch on a new recurring theme, which is that the business model of technology relies on building dependence and in some cases actual addiction while subsidizing the users's costs. like Uber and Uber Eats, the cost of using AI in the form of tokens has been completely subsidized and that is just now beginning to change. What's new in this model is the enormous costs of tokens for agentic AI.

[00:01:33]I am also flagging what's happening on premiums weekly Wednesday for those who want a deeper dive. On May 27th, we hosted Lakshmi Ganopathy of Unicus Research who shared her deep dive into the consumer, autos, private credit, commercial real estate, and data center financing. And on Monday, June 1st, the Premium Weekly continues the last part of the interview with Gary Marcus where he sums up his thoughts on what might break the AI story. Also, our community board is open and thriving. Check it out on premium.real. realismanplaybook.com.

[00:02:10]And now for the wrap. In this week's wrap, we will discuss the war in Iran, the SpaceX IPO, two quarterly earnings, Salesforce and Dell, and one mailbag about investing in banks and in the ratings agencies. This week's war news was very mysterious. Over the weekend, President Trump made it sound like a settlement was close, but then it wasn't. So, nobody knows where we are.

[00:02:33]Despite this fog of war, the market still sees the war glass as half full and keeps marching higher. And now SpaceX SpaceX is supposed to go public on June 12th, which is soon. The S1 is out. Because this will be the biggest IPO in history, I thought it would be a good idea to analyze it. Elon Musk is certainly ambitious about his company.

[00:02:56]The very first sentence of the S1 states, quote, "Our mission is to build the systems and technologies necessary to make life multi-planetary to understand the true nature of the universe and to extend the light of consciousness to the stars." That is the mission statement, and it sounds like a Star Trek episode. Now, I love Star Trek, so I'm all in favor of a Star Trek remake, but not at this valuation. By the way, the phrase extend consciousness to the stars appears 10 times in the document. I guess a good line bears repeating. Also, one of the potential future businesses listed in the document is, get this, asteroid mining. Why bother mining for stuff on Earth when you can mine an asteroid? Asteroid mining is a key theme of the new sci-fi show on Apple called For All Mankind.

[00:03:50]Maybe Elon got the idea from that show.

[00:03:53]Or maybe he is a writer for the show itself. If only a bank's mission statement could command these multiples.

[00:03:59]But somehow the words we'd like to expand our net interest margin just don't generate the same energy and passion as multilanetary exploration.

[00:04:09]Now, before we get to the fundamentals, we need to look at how NASDAQ stack the deck to make sure our rocket ship of a stock has a successful launch into the stock market stratosphere. How did NASDAQ conspire with SpaceX? By changing all the rules for SpaceX to allow it to be included in indices. Even though SpaceX is only going to float around 5% of its shares, NASDAQ decided that given the potential 1.75 to2 trillion total valuation, a float that equates to around 75 billion needs to join the index. Now, normally NASDAQ would not allow a 5% floating stock to enter into any indices or at least not for many many many months. Also, the index waiting would be small. SpaceX, however, will be allowed to enter indices only 15 days after the IPO. Also, instead of getting a small waiting, NASDAQ will multiply SpaceX's float by three times for index calculations. Finally, Musk is reserving 30% of the offering for retail. This is unheard of for a serious company. In the usual IPO, shares are mostly allocated to institutions and retail receives a pittance. So, why do it this way? Because the valuation is kind of crazy and the only way to justify it is for SpaceX to become a retail cult stock. So, this is an IPO of a sci-fi story tailor made for a sci-fi cult to infinity and beyond or in this case to Mars. SpaceX is composed of three divisions. The first space, this is the rocket launching business for satellites. Two, connectivity. This is Starlink, which provides mobile connectivity all over the globe. and three AI, a combination of AI data centers and an LLM called Gro Plus X. By the way, for those of you who wonder where the word Grock comes from, it is a word created by the science fiction author Robert Heinland in his classic novel Stranger in a Strange Land, which is about a messianic figure from Mars.

[00:06:17]The word grock means to understand something deeply and profoundly. Clearly Elon Musk read this book and takes his science fiction very seriously. By the way, I read that novel when I was in high school. To justify the valuation, Musk and the bankers value the total addressable market, the TAM, as equaling 28.5 trillion, 370 billion for space solutions, 1.6 trillion for connectivity, and 26.5 trillion for AI.

[00:06:50]Now, 28.5 trillion is only slightly smaller than the GDP of the entire United States. Also, it's funny that 93% of the TAM is related to AI when that is now the smallest division and loses the most money. There are reports that the space division's own engineers will not use Grock at all because it is a subpar product, but this is pretty bold. But then again, this is the first time a company has a TAM of the entire universe. So, who's to say? But let's take a look at the actual current numbers, which are to be put frankly, not so bold. In 1 Q26, SpaceX generated total revenue of 4.7 billion, 15% total revenue growth, which is a deceleration from the 33% revenue growth in all of 2025. Still 15% revenue growth isn't bad, but as we shall see, not so great against peers. Company generated a loss of 1.9 billion in 1q26. And here's how the three divisions did. Of the total 4.7 billion in 1q26, 619 million of revenue was in space, 3.3 billion from connectivity, and 818 million from AI. only connectivity generated an operating profit. Perhaps the most important thing to notice is that the space division's revenue was down 28% because of quote lower launch service missions and the timing of work for government contracts end quote. But then again, interplanetary work takes time. Space may be an exciting business, but any business that can experience a decline in revenue of 28% has issues. It seems to me that SpaceX has only one great business, connectivity.

[00:08:49]Connectivity had 1 Q26 revenue growth of 32%. The space business can be erratic, and AI is anyone's guess given increasing competition and a potential race to the bottom on the pricing of tokens. The valuation Musk is looking for is almost 100 times sales. Now, Palanteer currently has the highest trailing price to sales multiple at slightly less than 70 times trailing sales and around 45 times 2026 estimated sales. More importantly, let's stack up SpaceX's one Q revenue growth against its trillion market cap brethren. As seen on this table, the six companies with the largest market caps, Nvidia, Google, Apple, Microsoft, Amazon, and Broadcom, the big six, all had faster revenue growth than SpaceX's 15% for 1 Q26. The big six had revenue growth of 16% to 85%. Nvidia posts at 85% revenue growth but has a pricetorevenue valuation of only 14 times as compared to the 100 times Musk is shooting for.

[00:10:03]The highest pricetorevenue ratio in the trillionaire club is Broadcom at 19 times. SpaceX as a story sounds great but the numbers are just not that impressive. But science fiction always requires suspension of disbelief. Why get in the way of a good story? That is why the mission statement sounds like an intro to a Star Trek episode and why the company's so-called TAM is an insane number. How else can you justify a valuation of 100 times revenue? You need poetry or to have been raised on a steady diet of sci-fi and Star Trek? Do you gro it? One additional point. At a valuation of 1.75 to two trillion, SpaceX will have the seventh largest market cap. But in terms of revenue, it ranks around 200 with Kelloggs. Of course, selling Froot Loops is a mundane but profitable business. One more thing on SpaceX. There are rumors that Musk wants to merge Tesla with SpaceX after it goes public. If that were to happen, the combined company would be unbelievably complex. And now for two earnings reports. Salesforce reported and did itself no great favors. The overall software narrative remains negative as fears about the impact of AI remain in force. While there has been something of a software rally of late, I think it's very tenuous. On the positive side, adjusted EPS was 388 versus 312 expected and versus 258. So a nice beat.

[00:11:35]However, let me point out that Salesforce's adjusted EPS, like other software companies, excludes stockbased comp. GAP EPS was a more mundane $242 versus the adjusted 388 figure. A lot of stockbased comp in there. Personally, I think excluding stockbased comp from earnings is ridiculous. As for revenue, 11.13 billion beat the expected 11.05 05 billion and was up 13% versus last year.

[00:12:07]So far so good. The guidance was not so good. Salesforce guided adjusted EPS to 325 to 327 versus 325 expected. So just in line revenue was guided to 11.27 to 11.35 billion but expectations are for 11.36 billion. So, a miss given the horrendous narrative surrounding software. A guidance miss on revenue is not good and the stock was down a bit after hours.

[00:12:36]Not a disaster, but not great either.

[00:12:38]Nevertheless, Salesforce was up on Thursday because Snowflake reported great numbers and that gave a lift to the entire software group. Dell, a hardware company, has been on a tear this year with the stock up 50% just this month and is up 148% this year.

[00:12:55]Dell's numbers show how much AI capex is impacting the entire hardware tech sector. Dell reported powerful numbers.

[00:13:04]Revenue and EPS beat. Quarterly revenue was up an impressive 39%. EPS was up 45%.

[00:13:12]It raised guidance for the next quarter and for the fiscal year. And now for the mailbag. We have one mailbag this week and it's from Maria. Now Maria's question was quite long so I've edited down pretty considerably. It's still long though. Hi Steve, I've been tracking and she mentions a particular hedge fund manager Q1202613F.

[00:13:32]He the hedge fund manager trimmed his Bank of America position by over 70% and opened equal size new stakes in S&P Global and Moody's. One reading of the BAC exit is that large cap banking is a low margin capital heavy business sitting at the end of a rate cycle.

[00:13:48]BAC's net interest margin runs at 2.01 to 2.45% 45% thin and likely peaked.

[00:13:55]Banks must hold enormous regulatory capital against every dollar of loans which structurally caps return on equity at 12 to 15%. If the rate tailwind that lifted NIM over the past 2 years is now fading and credit quality begins to soften into a slower economy. You are left holding the most cyclical exposed part of the financial system at what looks like a full valuation. Then she turns to the ratings agencies. Here is a paradox I keep coming back to and I would genuinely value your take on it.

[00:14:21]If the volume of global debt has grown so dramatically over the last several years, the ratings agency should have seen a corresponding structural lift in their earnings and stock prices. They haven't, not over the last 5 years.

[00:14:33]S&P's 5-year total return is roughly 24% against a broader market that approximately doubled. The explanation I've pieced together is that 2020 and 21 were extraordinary issuances years driven by near zero rates. companies essentially pulled a decade of refinancing forward into two years, leaving an issuance drought from 2022 through 2024. At the same time, both stocks experience significant multiple compression. The ethical question I'm genuinely torn on and I'll be direct about something that gives me pause.

[00:15:06]Investing in Moody's or S&P requires me to get comfortable with their role in 2008. I know they stamp AAA on instruments that deserve junk status.

[00:15:14]What I don't fully understand is the allocation of responsibility where the agency is the primary driver or they captured by the investment banks structuring the products. I'm not looking for absolution but I think there is a meaningful difference between a structurally captured institution and a predatory one. If you have a view on where the agencies actually sat in that chain of culpability, it would generally help me decide. There's a lot here, so let's take them one at a time. First, with respect to the banks in general and Bank of America in particular, it's true that they are capital intensive businesses and the regulators restrict their leverage. That has always been true. Bank of America's return on tangible common equity is actually 16% which is quite good given how much the banks have been forced to delever. It's also true that banks never do well in a recession because credit costs climb.

[00:16:05]However, for now, I just don't see a recession on the horizon. With respect to the company's net interest margin, Bank of America made a mistake during COVID and buried itself in longdated treasuries. That move has hurt its nim, but those bonds are rolling off. So, the net interest margin should improve over the next several years regardless of Fed policy. I think it's okay to own Bank of America. With respect to the ratings agencies, I like both of them because they are igopies. The stocks have underperformed because debt issuance exploded during co as rates went to zero. Issuance has been light for the last several years but that is now coming to an end and issuance is picking up. I like both companies and I own Moody's myself. As for your ethical conundrum, it's true that the ratings agencies did bad things leading up to the GFC. They were paid three to four times more to rate subprime ABS and CDOS's. So they sold their souls to make the extra fees. However, today they are run by different management teams, so I think you don't have to agonize over owning these stocks. This last Monday, May 25th, we posted an interview with Peter Arman, the defense and aerospace analyst at Baird. We mostly focused on defense companies and which ones are best positioned. Peter shared an amazing story of how the government forced the defense companies to merge in the 1990s.

[00:17:25]They became too big to pivot and smaller, more nimble companies are taking share. Given the war in Iran and the continuing war in Ukraine, questions about which stocks to own, if any, keep appearing. Peter's coverage could not be more relevant. So, check it out. Be sure to check out our website, realismanplaybook.com.

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