WHY DAMODARAN WOULD NOT BUY SPACEX AT THE IPO PRICE

7 June 2026

WHY DAMODARAN WOULD NOT BUY SPACEX AT THE IPO PRICE

Is SpaceX Worth $350 Billion? A Valuation Sceptic's View

Based on publicly available analysis by Aswath Damodaran, Professor of Finance at NYU Stern

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A few weeks ago, Professor Aswath Damodaran — one of the world's leading authorities on corporate valuation — published his assessment of SpaceX ahead of its anticipated IPO. His conclusion was pointed: the private market pricing of around $350 billion is, in his view, extraordinarily difficult to justify from the numbers alone. What follows is a walkthrough of his argument, written for readers who want to understand not just the SpaceX story, but the analytical tools used to tell it.

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2. Part One: How You Value a Company

Before examining SpaceX specifically, it helps to understand the framework Damodaran uses. He calls it "The Valuation Story" — the idea that every valuation is ultimately a narrative about how a business will evolve, translated into numbers.

That story rests on five interconnected components:

1. Target Revenues — how large the business will eventually become, which depends on the total size of the market and the share of that market the company can realistically capture

2. Target Operating Margin — how profitable the business will be at maturity, which depends on unit economics and whether costs fall as the business scales

3. Reinvestment — how much capital must be continuously ploughed back into the business to sustain growth

4. Capital Intensity — the infrastructure, R&D, and capital expenditure required to generate each unit of revenue

5. Growth Lag — the time delay between investing capital and seeing that investment produce revenue

When these five inputs are assembled honestly, they produce a valuation. The discipline of the exercise lies in internal consistency: you cannot claim enormous revenues and high margins and low reinvestment simultaneously without justification.

Glossary — Part One

IPO (Initial Public Offering) – The moment a private company first sells shares to the general public on a stock exchange. Before an IPO, only selected investors — typically large institutions, venture capital funds, or wealthy individuals — can own shares. After the IPO, anyone can buy them.

Valuation – An estimate of what a company is worth in monetary terms. This can be calculated in several ways — by comparing it to similar companies, by projecting future cash flows and discounting them back to the present, or by looking at what buyers have recently paid for similar businesses.

Operating Margin – The percentage of revenue that remains as profit after paying all operating costs (staff, infrastructure, raw materials) but before paying interest on debt or taxes. A 20% operating margin means that for every $100 of revenue, $20 is kept as operating profit.

Unit Economics – The profitability of a single transaction or customer. If a rocket launch costs $30 million to execute and generates $60 million in revenue, the unit economics are positive. Strong unit economics at small scale do not automatically mean the whole business will be profitable — fixed costs matter too.

Capital Expenditure (CapEx) – Spending on long-lived physical assets — factories, rockets, satellites, machinery. Unlike operating expenses (salaries, fuel), CapEx is spread over many years in accounting terms. Capital-intensive businesses require large ongoing CapEx to maintain and grow.

R&D (Research and Development) – Spending on creating new products or improving existing ones. For a company like SpaceX, this includes engineering work on new rocket designs, Starlink satellite generations, and the Colossus supercomputer.

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3. Part Two: The SpaceX Prospectus

SpaceX filed a prospectus — the formal disclosure document required before a public offering — containing its financial statements and business descriptions. Damodaran worked from this document rather than from press leaks or analyst speculation, which is itself a methodological statement: value what can be verified, not what is rumoured.

The prospectus covers three distinct businesses operating under the SpaceX umbrella:

• Launch — the original rocket business, carrying satellites and cargo (and people) to orbit. Revenue here has grown modestly.

• Connectivity (Starlink) — the satellite internet service beaming broadband to homes, ships, and remote locations globally. This is the growth engine, with revenues roughly doubling between 2023 and 2024.

• AI — centred on Colossus, a massive computing cluster leased to Elon Musk's xAI venture for $8 billion annually. This is new, concentrated in a single related-party contract, and raises governance questions.

Damodaran's revenue estimates for these three businesses, built from the prospectus data, produced an enterprise value of $8.2 billion — a fraction of the $350 billion private market price.

Glossary — Part Two

Prospectus – A formal legal document that a company must file with financial regulators before selling shares to the public. It contains audited financial statements, descriptions of the business, identified risk factors, details of how IPO proceeds will be used, and information about management. It is the primary source document for any serious valuation analysis.

Enterprise Value – The total value of a business, capturing both its equity (shares) and its net debt. It represents what an acquirer would theoretically pay to own the entire company outright, assuming they also took on its debts. Enterprise value is distinct from market capitalisation, which reflects only the equity portion.

Market Capitalisation – The total value of all a company's shares at the current market price. If a company has 100 million shares trading at $50 each, its market capitalisation is $5 billion. This does not include debt.

Related-Party Transaction – A business deal between two parties with a pre-existing relationship — for example, SpaceX leasing its Colossus computing infrastructure to xAI, another Elon Musk company. Such transactions attract scrutiny because the pricing may not reflect genuine arm's-length market rates, and the arrangement may benefit one party at the expense of outside shareholders.

Revenue – The total income a business generates from selling its products or services, before any costs are deducted. Revenue is sometimes called "turnover". It is not profit — a company can have large revenues and still lose money if its costs are higher.

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4. Part Three: The TAM Problem

The prospectus claims a Total Addressable Market of $426 billion across SpaceX's three business lines. Damodaran regards this figure as substantially inflated — a product of what he calls "shooting the arrow, then painting the target".

The pattern works like this: a company decides, often with its investment bankers, what valuation it wishes to achieve. It then constructs a TAM large enough to justify that valuation, using optimistic assumptions about which markets it competes in and how broadly those markets should be defined. The $26 trillion figure cited in the prospectus for the enterprise AI space — used to validate the Colossus business — is a clear example: it includes virtually every business on earth as a potential customer, which makes the number functionally meaningless as a forecasting tool.

Damodaran's own TAM estimates are substantially lower, and he still finds the $350 billion valuation unjustifiable even against his more generous assumptions for the space launch market.

Glossary — Part Three

TAM (Total Addressable Market) – The total revenue that would be available to a company if it captured 100% of its defined market with no competition. In practice, no company achieves 100% share, so TAM is used as a starting point: you estimate TAM, apply a realistic market share, and derive a target revenue. The problem is that TAM is easy to manipulate — define the market broadly enough, and any number becomes achievable on paper.

Investment Banker – A financial professional who advises companies on raising capital, mergers, and public offerings. In an IPO context, investment banks ("underwriters") help set the offer price, market the shares to institutional investors, and earn fees proportional to the amount raised. Their financial interest is in a successful, well-priced offering — which can create incentives to support optimistic valuations.

Arm's Length Transaction – A deal between two unrelated, independent parties acting in their own separate interests. Arm's length pricing is considered the fairest benchmark for whether a transaction reflects genuine market value. When two Elon Musk companies do business with each other, the transaction is by definition not arm's length.

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5. Part Four: The Share Count Problem

One of Damodaran's more technical criticisms concerns how the share count is presented in the prospectus. The stated share count used to calculate per-share value does not include the full diluted count — the total number of shares that will exist once all options, warrants, and employee share awards are exercised.

This matters enormously. If you divide a $350 billion valuation by a smaller share count, the implied price per share looks more attractive. But once all the additional shares vest and are exercised — which will happen — the ownership of existing shareholders is diluted: each share represents a smaller fraction of the company than it appeared to at the time of purchase. Damodaran uses the fully diluted share count of approximately 2.5 billion shares, which changes the per-share arithmetic materially.

Glossary — Part Four

Share Dilution – The reduction in existing shareholders' ownership percentage caused by the creation of new shares. If you own 10 shares in a company with 100 shares total, you own 10%. If the company issues 100 new shares (to employees, or to raise capital), you now own only 5% — your stake has been diluted, even though you still hold 10 shares.

Stock Options – Contracts giving an employee or investor the right to buy shares at a pre-agreed price (the "strike price") at some point in the future. If the market price rises above the strike price, the option is valuable — the holder can buy cheaply and sell at market price. Options are not shares until they are exercised, but they represent future shares that will dilute existing holders.

Warrants – Similar to stock options but typically issued to outside investors rather than employees, often as a sweetener attached to a debt or financing deal. Like options, warrants represent future shares and contribute to dilution.

Fully Diluted Share Count – The total number of shares that would be in existence if every option, warrant, and convertible instrument were exercised simultaneously. This is the honest denominator to use when calculating per-share value, because it reflects what ownership will actually look like once all commitments are honoured.

Vesting – The process by which an employee earns their share awards over time, typically subject to continued employment. A four-year vesting schedule with a one-year cliff means nothing is earned in the first year, then 25% vests at the one-year mark, with the remainder vesting monthly or quarterly over the following three years.

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6. Part Five: The Elon Premium

Damodaran acknowledges something that pure numbers-based analysis cannot fully capture: the Elon Musk optionality premium. Musk has demonstrated, across Tesla, SpaceX, and other ventures, a capacity to enter markets and reshape them in ways that defy conventional forecasting. Investors who believe this will happen again with SpaceX — perhaps through a Mars mission, a defence contract, or some currently unimagined application — are paying for that possibility.

This is not irrational. Optionality has real value. The question Damodaran raises is whether $350 billion — or, as he notes, now apparently $400 billion — is a reasonable price for that optionality, given what the underlying businesses actually generate. His answer is no: at that price, the market is assuming not just that Musk will continue to be exceptional, but that every business line will simultaneously achieve its most optimistic scenario.

He would not buy the stock at the IPO price.

Glossary — Part Five

Optionality – In financial terms, the value of having the right but not the obligation to pursue a future opportunity. A company with optionality has credible paths to large future revenues that are not yet reflected in current financials. Investors sometimes pay a premium for this possibility. The difficulty is that optionality is genuinely hard to price — it can be used to justify almost any valuation if invoked loosely enough.

Priced for Perfection – A colloquial phrase used when a stock's market price already incorporates every optimistic scenario, leaving no margin for error. If growth disappoints even modestly, or one business line underperforms, the stock falls sharply — because none of that disappointment was priced in. SpaceX at $350 billion, Damodaran argues, is priced for perfection across all three businesses simultaneously.

Discount Rate – The rate used to convert future cash flows into present-day values. A dollar received in ten years is worth less than a dollar today — because of inflation, risk, and opportunity cost. The discount rate captures this time-value-of-money principle. Higher-risk businesses warrant higher discount rates, which reduce the present value of future earnings and therefore reduce the calculated valuation.

Cash Flow – The actual movement of money into and out of a business. Profit (as reported in accounting statements) can diverge significantly from cash flow because of timing differences, depreciation, and non-cash charges. Investors focused on intrinsic value typically prefer to analyse free cash flow — the cash generated after all necessary reinvestment — rather than reported earnings.

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7. Conclusion

Damodaran's SpaceX analysis is a masterclass in disciplined valuation under conditions of narrative excess. The company is genuinely extraordinary — technically, operationally, and in terms of the ambition it embodies. Starlink is a real and growing business. The launch franchise is world-class. The Colossus AI infrastructure is formidable.

But a great company and a great investment are different things. The price you pay determines the return you receive. At $350–400 billion, SpaceX's private market valuation requires a sequence of best-case outcomes across multiple business lines, a TAM that holds up under scrutiny, a share count that doesn't obscure dilution, and a continuation of Elon Musk's track record indefinitely into the future.

That is a lot to assume. As Damodaran puts it: he would not buy this stock.

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References

Reuters

https://www.reuters.com/legal/government/spacex-sets-135-price-blockbuster-ipo-upending-wall-street-convention-2026-06-03/

https://youtube.com/shorts/C3zCYkMPhXA?si=yt8QXj-UaWZfybbc

Patrick Boyle's analysis

https://youtu.be/IHD8BDFYyGI?si=0RoSS2rwnyPDoYfn

This post draws on publicly available analysis. All valuation figures and prospectus citations are sourced from Damodaran's published work. This is not investment advice.

This AI version preserves my text and applies my preferred blog structure with numbered headings, section dividers, and glossary formatting.