SpaceX IPO: Is This Space and AI Stock Really Only Worth $780 Billion?

SpaceX is quickly approaching its target initial public offering (IPO) date. The company could go public as early as this month.

According to reports, SpaceX is positioning itself as both an artificial intelligence (AI) stock, a satellite stock, and a rocket stock. In total, SpaceX believes its total addressable market across all of these opportunities exceeds $28 trillion.

Recent reports suggest that SpaceX is targeting a valuation of $1.77 trillion, with the goal of raising as much as $75 billion in fresh cash.

Yet a recent report from Morningstar suggests that the entire company may only be worth $780 billion -- less than half of SpaceX's ideal valuation target.

How much is SpaceX really worth? The answer may surprise you.

Is SpaceX only worth $780 billion?

To understand why Morningstar analysts aren't buying into a $1.77 trillion valuation for SpaceX, it's important to highlight where SpaceX gets its target valuation from in the first place.

"We believe we have identified the largest actionable total addressable market in human history," the company's recently published IPO prospectus claims. "We estimate that our quantifiable TAM is $28.5 trillion, consisting of $370 billion in Space from space-enabled solutions; $1.6 trillion in Connectivity across $870 billion in Starlink Broadband and $740 billion in Starlink Mobile as well as additional opportunities in enterprise and government; $26.5 trillion in AI across $2.4 trillion in AI infrastructure, $760 billion in consumer subscriptions, $600 billion in digital advertising, and $22.7 trillion in enterprise applications."

I am extremely excited about SpaceX's rocket business. While competition continues to rise, the company's rocket division has shifted the paradigm for rocket launches, lowering launch costs faster and more reliably than any other rocket company in history. The company's connectivity division, meanwhile -- which mostly consists of its Starlink internet and mobile services -- is already profitable with a long runway for growth.

But when looking at SpaceX's targeted markets, these opportunities account for very little of its projected growth potential. A whopping $26.5 trillion out of its $28.5 trillion total addressable market has nothing to do with rockets or communication. Instead, it deals with a single opportunity: AI. And it is this opportunity that Morningstar analysts are most skeptical about.

Image source: Getty Images.

"We ​don't see Grok as one of the leading AI labs today," concludes one of Morningstar's analysts, referring to SpaceX's primary AI chatbot product. "We think the company has been significantly overvalued and investors will have opportunities ​to buy the stock at more attractive levels after the IPO."

Morningstar suggests passing on the company's initial IPO, shifting focus instead to buying once the first major correction arrives. "[L]ong-term investors eager ​to participate ⁠in SpaceX's future endeavors and potential success will have opportunities to do so with a greater margin of safety than the initial offering is likely to ⁠provide," ​Morningstar stresses.

IPO stocks are often difficult to value. That's why they can often surge or collapse in value in the days, weeks, and months following their public debuts. I certainly understand Morningstar's skepticism over the value of SpaceX's AI ventures, especially considering its AI division is still a heavy money loser. But with up to $75 billion in fresh capital, the company will be able to scale this division more aggressively than many of its competitors, with a rocket and telecom business to support novel growth opportunities like orbital data centers.

I love SpaceX as a business. But as Morningstar's report points out, a great business doesn't always make for a great stock.

Ryan Vanzo 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 disclosure policy.