SpaceX IPO Valuation: Morningstar Analysis and Market Debate

Morningstar Values SpaceX at 53% Discount to IPO Price

Morningstar has issued a bearish valuation for the upcoming SpaceX IPO, estimating the company's fair value at $63 per share, which represents a 53% discount to the offering price of $135 per share. This valuation is based on a probability-weighted analysis of three financial scenarios, reflecting significant uncertainty regarding the company's future engineering milestones.

Morningstar's fair value estimate is calculated as follows:

  • Cash and Investments: +$1.80 per share
  • Debt: -$2.30 per share
  • IPO Proceeds: +$6.50 per share (assuming $85.7 billion raised for 639 billion shares)
  • Core Space and Connectivity: +$40.00 per share
  • Orbital AI Infrastructure (Weighted): +$16.50 per share
  • Total Fair Value: ~$63.00 per share

The Role of Orbital AI Data Centers in Valuation

The primary driver of the valuation gap is the feasibility of orbital AI data centers. Morningstar views these as a "call option" on the commercialization of orbital AI infrastructure, assigning three distinct probabilities to its success:

1. The "Moonshot" Scenario (7% Probability)

In this optimistic case, SpaceX successfully deploys an orbital computing cluster of 59,000 satellites by 2035, providing 11.6 gigawatts of AI computing capacity. This scenario assumes Starship achieves an 85% reusability rate and generates $225 billion in annual revenue, lifting the fair value to $154 per share.

2. The "Minimum Viable Product" Scenario (50% Probability)

This is the most likely scenario, where orbital data centers are viable but constrained. SpaceX would deploy approximately 48,000 satellites by 2035, providing 2.4 gigawatts of capacity and generating $47 billion in annual revenue. This scenario adds $23.50 to the unweighted fair value.

3. The "No Go" Scenario (43% Probability)

In this downside case, orbital data centers fail to offer any advantage over terrestrial computing. Morningstar assumes SpaceX would abandon the project around 2028, similar to how Tesla pivoted away from certain small-car factory plans. This scenario detracts $6.20 from the fair value.

Critical Engineering Dependencies

Morningstar notes that two critical engineering problems must be solved by at least 2028 to justify the higher valuation:

  1. Rapidly Reusable Starship: The ability to enable multiple launches per week.
  2. Commercialized Space Data Centers: The successful deployment and monetization of orbital computing.

Market Perspectives and Counter-Arguments

Discussion among technical observers and investors reveals a sharp divide between fundamental valuation and market sentiment.

Technical Skepticism

Some critics argue that orbital data centers are fundamentally flawed due to cooling and maintenance challenges. One observer noted:

"The cooling situation would make no sense at all... LLM training has absurd cooling requirements even here on earth where convective cooling is an option."

Other analysts point to the limits of the space market itself, suggesting that Starship's high development costs (estimated at $15 billion without revenue) can only be justified if SpaceX captures a significant share of the $26.5 trillion AI market, rather than relying solely on space operations.

The "Elon Premium" and Market Demand

Conversely, many argue that SpaceX stock is a bet on Elon Musk's ability to innovate rather than a bet on current fundamentals. This "option value" is reflected in the high demand for shares, with reports indicating the IPO is oversubscribed.

Governance Concerns

Public investors face significant governance risks due to the share structure. According to the prospectus, Elon Musk holds over 85% of the voting power through Class B super-voting shares, meaning public investors have limited power to elect directors or remove the CEO.

Alternative Valuations

While Morningstar is particularly bearish, other analysts offer different perspectives. Professor Aswath Damodaran has provided a valuation between $1.25 trillion and $1.35 trillion for the equity, which is lower than Musk's target but higher than Morningstar's estimate.

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