Last month’s SpaceX I.P.O., as you know, was pure bonkers. The company completed an $85.7 billion equity raise, the largest of all time, at a share price of $135. The resulting $2.1 trillion market cap—achieved at the end of its first day on the public markets—was quite the feat of financial engineering, requiring the services of 23 Wall Street investment banks, including all of the so-called Big Five: Goldman Sachs and Morgan Stanley (the lead underwriters), as well as JPMorgan Chase, Bank of America, and Citigroup. Together, the underwriters hoovered up a tidy $555,555,555—the biggest fee bonanza in Wall Street history. Goldman and Morgan Stanley received $111 million apiece, while the other three banks were paid some $83 million each.
In the end, there was probably very little risk involved for the underwriters, given that there was virtually no chance of a hiccup between pricing (when they actually pay for the stock) and distribution (when they offload it to the eager investors they had lined up). And, since the fees are a function of the amount of capital raised, as opposed to the amount of time spent getting that money, I am sure plenty of jigs were danced at both 200 West Street and on the corner of Broadway and 48th when the deal was done.
Of course, a month later, the picture has become considerably more complicated. SpaceX started trading at $150 a share, and shot up as high as $225—giving the institutional investors who bought at the I.P.O. price plenty of room to get out at a tidy profit. But the stock has since come back to Earth. It’s currently trading around $115, which means that all the people who bought SpaceX on day one have collectively lost about half a trillion dollars! (This is not investment advice.)
Upon the completion of an I.P.O., federal securities law mandates a 25-day “quiet period” before the underwriters can publish their research on the prospects for the new stock. For SpaceX, that quiet period ended July 7, and Wall Street is just starting to cough up its research on Elon’s company. But for the underwriters, that presents a bit of a dilemma. If your firm was just paid a record sum for marketing SpaceX at $135 per share, and for the post-pricing pop, what are the odds that your research department (however independent and virtuous!) will recommend that investors now sell that very same stock because it’s overvalued?
Wall Street Bulls
In fact, you will not be surprised to learn that every Wall Street bank that served as underwriter on the SpaceX I.P.O. and has published research has a buy rating on the stock, with several of the price targets seemingly truly aspirational, and borderline absurd. I am not questioning the integrity of the research analysts who wrote these reports—I am certain they are men and women of high moral character—but the obvious tension flicks at one of the realities on Wall Street. To wit, if you trashed the stock in your initial research report about the company, you can hardly expect Elon to reward your firm with more fees from follow-on investment banking business. A fine line must be walked, obviously.
Raymond James, the regional investment bank headquartered in St. Petersburg, Florida, whose underwriting fee was a modest $2.3 million, has triple-jumped right over the line. Brian Gesuale, the Raymond James research analyst who wrote the SpaceX report, has put a price target of $800 a share on the stock—that is not a typo—implying the company would have a market cap of nearly $10.5 trillion, or roughly one-third of the current U.S. G.D.P. Gesuale described SpaceX as “one of the defining industrial infrastructure companies of the 21st century” and “the most significant infrastructure convergence since the advent of the internet.” He predicted that SpaceX’s total addressable market will somehow reach $30 trillion.
Gesuale also included some wild projections for SpaceX’s future revenue and profitability: from $38.5 billion in revenue and $17.7 billion in EBITDA today to more than $837 billion in revenue and $696 billion in EBITDA by 2031. That would be a roughly 40x increase in EBITDA in five years, with an EBITDA profit margin of 83 percent, as compared to 46 percent today. Of course, if SpaceX does hit nearly $700 billion in EBITDA in five years—more than double the $326 billion that Aramco achieved in 2022 (the most ever)—the $10.5 trillion valuation would only be a modest 15x EBITDA! Is this Gesuale’s Henry Blodget moment?
Research departments for the other SpaceX underwriters are a bit more reserved, understandably. In its initial report, Morgan Stanley has a buy rating on the stock and a price target of $300 a share, a modest 160 percent gain from where it’s trading today. Bank of America has the requisite buy rating and a $235 price target. Deutsche Bank, which collected $11.1 million in underwriting fees, has a buy rating and a price target of $255 a share. Wells Fargo, which also got $11.1 million in fees, has a buy rating and a target of $230 a share. JPMorgan Chase: buy; $225. Citigroup: buy; $200. You get the idea.
Meanwhile, Goldman, the other lead underwriter, has a buy rating and a $205 price target, merely 78 percent higher than where the stock is currently trading. Its report—which is authored by Eric Sheridan and features tasteful color photos, including one of Earth from space—seems downright reasonable. “We see the company as well positioned to scale its differentiated advantages across space (launch & reusability), connectivity (broadband & mobile satellite constellation) and AI (compute, X, etc.)—with each of these markets having the potential to become multiple trillion-dollar opportunities over a 5+ year time horizon,” Sheridan wrote—although I’m not sure I see X/Grok becoming a “multiple trillion-dollar” opportunity anytime soon.
Moreover, Sheridan predicts a comparatively middling $106 billion in EBITDA by the end of 2028, up from $14.2 billion by the end of this year. His adjusted EBITDA estimate for 2031 is just a tad below Gesuale’s projection, at $679 billion, with EBITDA margins increasing into the 80 percent range. Wowza!
Healthy Skepticism
Don’t get me wrong. With the possible exception of Raymond James, these are serious analyses, and they’re written by serious professionals who are, in theory anyway, not influenced by the investment bankers on the other side of the wall. But for my money, I prefer the reports coming out of investment banks and research shops that were not involved in the SpaceX underwriting.
Kutgun Maral, at Evercore ISI, wins the heft award. His July 14 report—buy rating, $230 price target—came in at a whopping 157 pages, and he followed it up with another 11-page report three days later. “[SpaceX] is a single, vertically integrated machine that turned reusable, low-cost launch into a near-monopoly on access to orbit, used that edge to build Starlink into a scaled, cash-generative connectivity franchise, and is now pointing the same flywheel at AI infrastructure,” he wrote.
Peter Supino, at Wolfe Research, clocked in with a buy rating and a price target of only $175 per share. “SpaceX turned a competitive moat into an ocean of opportunity that we don’t see others crossing,” Supino wrote. He also had the decency to allow that he could be wrong: “We don’t expect SpaceX to out-innovate Anthropic or OpenAI on the model side, but we expect SpaceX to build a cost advantage into the compute end game through verticalization and space access; but that will be moot if we are all in an A.I. bubble.”
Finally, let’s turn to the analysts who managed to avoid getting caught up in the hype and thus far have proven to be far more accurate in their assessments. Our friends at MoffettNathanson issued a 93-page report on July 14 with a neutral rating on the stock and a fabulously realistic price target of $131 a share. Then there’s Keith Snyder, at an outfit named CFRA Research, who, as best I can tell, is the lone research bear on SpaceX, and has been pretty much since the S-1 filing was made public back in May. He has a sell rating on the stock, with a price target of $115. (Bingo, Keith!)
Keith seemed unconvinced by the Wall Street hyperbole, and sees reusable rockets as a potential “bottleneck” if there are delays or technical setbacks. He also appeared to not be a fan of SpaceX’s A.I. initiatives—both X/Grok and the Colossus data centers. But the real SpaceX bear remains our friend George Noble, who recently told me that he thinks the SpaceX stock should trade at $30 a share.
Obviously, all these different points of view are what make markets. And we have to believe that research analysts are free from the influence of future investment banking fees. Still, don’t you find it just a little curious that every underwriter has a buy rating on the stock? I do.