The London Stock Exchange is reportedly courting SpaceX for its blockbuster stock market debut, with the Elon Musk-led rocket company targeting a valuation of $1.75 trillion. That figure is not a typo. It is nearly three times the market capitalisation of Tesla, Musk’s electric car venture, and exceeds the combined value of every FTSE 100 company bar a handful. For a firm that has yet to turn a consistent profit, this is a bet on the future that would make even the most seasoned venture capitalist blanch.
Let us crunch the numbers. A $1.75 trillion valuation implies investors expect SpaceX to generate revenues and earnings that dwarf its current operations. Last year, SpaceX reportedly hauled in around $8.7 billion from launching satellites and ferrying astronauts. To justify such a lofty price tag, it would need to grow revenues tenfold and deliver profit margins that most industrial companies can only dream of. The bull case rests on Starlink, its satellite internet constellation, which Musk claims could eventually produce $30 billion in annual revenue. Even if that proves accurate, the valuation still leans heavily on the assumption that Starlink will become a monopoly-like cash cow, resistant to competition from Amazon’s Project Kuiper and others.
What does this mean for the London Stock Exchange? The exchange has been desperate for a flagship tech listing since the ARM Holdings fiasco, when the chip designer chose New York over London. Snagging SpaceX would be a coup, burnishing the City’s credentials as a home for high-growth companies. But there is a catch. London’s investor base is more conservative than Wall Street, less accustomed to valuing dreams over dividends. Pension funds and insurers, the backbone of UK equity markets, may baulk at a company whose valuation is based on projections of interplanetary travel and global broadband dominance. If the listing goes ahead, it will test whether London can stomach the volatility that comes with such speculative assets.
For the broader market, SpaceX’s debut could be a catalyst for a new wave of space-related IPOs. But it also raises red flags for fiscal hawks. We have seen this movie before. Low interest rates and quantitative easing inflated asset prices across the board, from tech stocks to cryptocurrencies. Now that central banks are tightening, the mood is shifting. A $1.75 trillion valuation for a company that is essentially a very high-risk infrastructure play looks like a throwback to the ZIRP era. If the Bank of England continues to hike rates to combat inflation, the discount rate applied to future cash flows rises, making such stellar valuations harder to justify.
There is also the matter of capital flight. The UK government’s recent fiscal missteps, including the Truss mini-budget debacle, have shaken confidence in British assets. Sterling has weakened, gilt yields have spiked, and foreign investors are looking elsewhere. A high-profile SpaceX listing could stem some of that outflow, but it is no panacea. Investors will demand healthy returns to compensate for currency risk and the perception that UK plc is less stable than its peers.
In my two decades in the City, I have learned one thing: markets are efficient only when participants keep their feet on the ground. SpaceX’s ambition is awe-inspiring, but its valuation is a leap of faith. The London Stock Exchange must decide whether it wants to champion such leaps or remain the home of steady, boring equities. Either way, the fallout will be felt in portfolios from St James’s Street to Canary Wharf.
