The largest IPO in history came on June 12. SpaceX(NASDAQ: SPCX) sold about 556 million shares at $135 each, raising about $75 billion. After the investment banks underwriting the offering exercised their “green shoe” option to buy more shares, that amount is now $85.7 billion — nearly three times the next largest raise in history.
Among those who managed to get shares on the first day was the manager of SpaceX bull and billionaire fund Ron Baron, who added $ 1 billion to his largest stake in the company.
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Baron predicted that SpaceX would become “the biggest company in the world.” This is why I think you are wrong.
Ron Baron already has a large stake in SpaceX
First, these are far from Baron’s first assignments. His fund, Baron Capital, began buying SpaceX through an employee stock sale back in 2017 and eventually invested nearly $2 billion in 27 rounds of private equity funding.
The company’s total stake is now worth more than $25 billion, making it its largest position at $65 billion under management.
Baron thinks that’s about to get bigger. He told CNBC’s executives Squawk box in May that SpaceX “will be the biggest company in the world” and that he believes “within the next 10 or 15 years, [it] it will cost $10 trillion, $20 trillion, $30 trillion, and I could be much lower.”
Why Baron thinks SpaceX will be worth $30 trillion
Baron is so powerful because he sees a hypergrowth company doing things on a scale no one else can match, saying, “What they’ve done is impossible for anyone to accomplish. It’s not going to happen.”
He believes that Starlink, the company’s satellite Internet and broadband business, will eventually reach 300 million users and generate $1 trillion a year.
In context, Starlink had about 10 million subscribers and $11.4 billion in revenue by 2025, so he is betting on a thirty-fold jump in users, expecting to pay them three times for the service what they are today.
He also sees Starship, the next-generation rocket under development, as a revolution for the launch business. In its normal configuration, Starship is designed to haul 100 to 150 tons of payload into low Earth orbit compared to 17.5 metric tons on the Falcon 9, the company’s current workhorse.
He is confident that this will strengthen SpaceX’s position as a leading launch provider and expand its already impressive pipeline.
Why don’t I buy the hype
Of course, the obvious milestone for driving market growth is the company’s valuation: Because SpaceX has a market cap of $2.6 trillion versus $18.7 billion in 2025 revenue, its stock trades at about 140 times sales. That’s a completely excessive price-to-sales ratio (P/S) for a company of any size, let alone operating at this scale. And remember, SpaceX is also losing money, posting a net loss of $4.9 billion last year.
However, Baron doesn’t deny that the stock is overvalued by conventional metrics. He says they don’t say anything because the company’s opportunities are huge.
I get that. I just think his vision of the future, like Elon Musk’s, is more fantasy than reality. Starlink’s potential market cap will be far less than $1 trillion unless you believe it will replace the bulk of the telecommunications industry.
Image source: Getty Images.
Its technology, by design, is not good at serving the metropolitan areas where most of the world’s paying customers live. This is a business that can enhance an existing system, not replace it.
And then, of course, you have xAI — the SpaceX furnace. The AI arm is struggling to raise capital while burning through roughly $1 billion a month. This situation can be improved, of course, but for the foreseeable future, xAI will draw more and more of the company’s resources.
That is, unless it depends on leasing data center capacity: A series of recent deals shows that xAI is exploring that model. This may change the business’s good cash flow, but it’s an incredible business model in comparison. SpaceX’s high valuation depends on it being truly a one-of-a-kind company. A data center operator is one of many.
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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a policy of disclosure.
Billionaire Ron Baron Puts $1 Billion into SpaceX IPO. Here’s Why They Call It “The Greatest Company On The Planet” In The Making. was first published by The Motley Fool
