SpaceX now has a market cap of ~$2.5 trillion. Two days ago, it was higher than both Amazon and Microsoft.

This is ridiculous.

Amazon earns ~$100 billion on sales of $743 billion and has the world’s most impenetrable moat. SpaceX lost $5 billion on sales of $19 billion last year.

Still, an impressive IPO from the world’s greatest entrepreneur.

My teenagers would cringe at this, but I don’t hate the player, I’m just not a big fan of his (stock) games.

SpaceX is a meme stock with a fake market cap. There, I said it.

Why? They only floated ~4% of the company’s shares at the IPO. This is unprecedented. They’ve created artificial and temporary scarcity. And some indexes are even breaking their own rules (10% float minimum) just to participate in this party.

I love a good low supply + high demand investment, but not if there is a growing glut of supply on the horizon.

Instead of making insiders wait for the standard single 180-day cliff to sell their stock, SpaceX implemented a tiered and rolling lockup schedule to gradually increase its teeny tiny stock float.

Love it or hate it, this was brilliant.

Elon is obviously an unreal operator. However, he’s arguably just as skilled at capital markets. He would have been one hell of an investment banker. “Funding Secured!”

This IPO was manufactured to support an inflated valuation into a giant wave of early investor and employee selling (aka exit liquidity). Good for them, they took the risk and it appears they are going to get PAID.

The low supply of shares has already led to a ~$700B increase in market cap from the IPO price which was only (checks notes) about a week ago.

$700 billion ain’t what it used to be.

So why the low float? Why the custom unlock schedule? Why lobby the indexes (which have to buy the stock regardless of valuation) to break their rules to include?

Because inflated stock is Thor’s Hammer in the hands of a skilled capital allocator.

The best CEOs sell stock and buy bolt-on businesses when their shares are overvalued, then repurchase stock when it's undervalued (which Tesla has avoided given Elon’s unmatched ability to sell the dream).

Inflated stock is an all-powerful business weapon Elon consistently wields to attract unreal talent, fund growth and acquire competitors on the cheap (stock purchases vs. cold hard cash).

Of course, this machine only works because Elon has a track record of eventually delivering in spectacular fashion.

Directionally correct, just way late on timelines.

I get it, nobody wants SpaceX stock advice from an income investment guy. It obviously won’t be in our dividend growth portfolio.

This isn’t exactly a discounted cash flow type of investment.

There is zero need to look at a spreadsheet or even read the S-1 IPO filing. Elon’s business plans are pretty fluid:

…for now.

You certainly can’t do my favorite “Crayon Math” analysis and back into anything sniffing a trillion dollar valuation. At least not with a straight face.

Because this is not a bet on reality as we know it.

Nope, this is a bet on adventure.

A ride-or-die, come hell or high water investment in the world’s richest, most impressive entrepreneur. Not my cup of tea, but I suppose there are worse investment strategies.

Can Musk execute a chain of low-probability events per usual?

Does he take humanity to Mars?

Will he ever stop taking on new baby mamas?

Who knows, who cares, it’s a “fun to watch” kind of wager.

That’s the bet. And I do mean bet.

SpaceX is a beautiful business story. It’s probably the best ever told.

Which is why it’s being valued almost entirely on what it might become.

Once again, I’m not saying it’s going to be a “bad investment”. Nobody has a clue what this company is actually worth or what they’ll eventually achieve.

What we actually know is A) the rockets and Colossus are insanely impressive and B) that a series of interconnected projects have to go extremely well to compensate new investors for paying today’s price.

If all new retail investors get that, great. Plenty of smart institutional investors are fine with that bet.

However, my fear is a lot of retail, Robinhood style investors believe they are investing in a blue-chip technology stock. When in reality, it’s is a late-stage venture capital investment trading in the public markets.

It’s part fever dream, part inspiring, part exit liquidity.

To be fair, betting against Elon has historically been a painful strategy. I certainly would never short his stock, he’s killed plenty of hedge funds and made grown men cry.

And he has repeatedly accomplished things that once seemed impossible.

The early investors are going to be compensated extremely well for that uncertainty. Today’s investors are paying a premium after much of the dream has been recognized.

Once again, there’s nothing necessarily wrong with making that bet. It’s hopeful, ambitious and its far more fun to talk about then stable income investments.

SpaceX might become one of the most important companies ever built.

Elon might continue turning science fiction into reality.

So if you feel you must own it regardless of price, just size it accordingly in the “play” part of your portfolio.

Yes, I think the valuation is nutty. But we’ve told clients it’s fine to fall in love with the vision, just don’t bet house on the timelines.

Brad Johnson