SpaceX stock has sagged a bit since its early peak, but that's not why Musk isn't a trillionaire.
Market cap, as I have noted time and time again, is just eye-candy bullshit. Financial news sources want to generate clicks and capture eyeballs - as all modern "journalists" today want to do. Our whole information infrastructure today has been corrupted by fast cash and special interests. In our world of high-tech and "information economy," belief in UFOs, flat earth, moon landing denial, anti-vaxxing, etc. ad nauseam, is at an all-time high. Hold on tight, AI is going to make it much worse!
Sadly, few have the capacity to do anything more than a superficial analysis. Take this recent article online - a bit of schadenfreude click-bait for Musk-haters, claiming that people are "losing money" on the SpaceX IPO because it has dropped to "only" 30% over its IPO price. Most folks didn't lose money, though.
Buried in the article are a number of comments which should be the 100-point type headline:
A further decline in SpaceX shares reduced CEO Elon Musk’s net worth by $67.8 billion to about $1.2 trillion, according to Forbes’ estimates. His fortune hit a record high above $1.4 trillion amid SpaceX’s three-day winning streak, and Musk still ranks well above Google cofounder Larry Page ($300.8 billion) as the richest person in the world.Morningstar analysts lowered its fair value estimate for SpaceX to $62 from $63, citing a “sizable dilution” of SpaceX shares following the Cursor deal, noting a best-case scenario would price shares at $169 should its AI revenue improve.It’s a cooling from the record-setting demand since its debut: Investors purchased $369.8 million in SpaceX shares over its first three sessions, accounting for more than quadruple the funds poured into Nvidia ($88.2 million) over the same period, according to a Vanda Research note on Wednesday.
Wait. What? We are talking about Billions of dollars - Trillions even, and the amount sold to the public was a paltry $369 million? A little more than a third of a billion? No, that can't be right. They actually raised $85.7 billion, which is a lot of money, but represents only 4.7% of the stock of the company.
As I noted time and time again, the purpose of an old-fashioned IPO was to raise capital to build factories and fund a business. A modern IPO, however, is structured to sell off a pitiful fraction of the company in order to create a market for the company stock so that founders can cash-out and make real money. This is particularly true in the tech field, where founders want to run for the exit before everyone discovers that the "tech" is just bullshit.
There are 13.5 billion shares of SpaceX outstanding, according to Google AI (consider the source!) and Musk holds about 6 billion shares. The IPO sold about 639 million shares at the IPO or about 4.7% of the outstanding shares, which is typical of a modern cash-out IPO. If that was not enough, these new shares have only one vote each, while Musk's shares have 10 votes each. He clearly is not worried about any potential proxy fight down the road.
So why isn't Musk a trillionaire? Again, "market cap" is nonsense. It is just a number generated by basic math - the number of outstanding shares multiplied by the latest share price (the price the "last sucker in" paid for his paltry investment). It is "wealth on paper" not in real life, with only one or two real exceptions.
For example, if a company is severely undervalued and someone wants to buy it, they may make a takeover bid and offer the shareholders an attractive buy-out price above the trading price for their shares. For example, many years ago, I bought a small number of shares in Winn-Dixie, the grocery chain. Shortly thereafter, there was a takeover bid of $2 a share more than I paid and in a matter of a few weeks, I made a thousand dollars. Whoop-ee! In that case, the "market cap" of the company actually represented a number slightly less than it's actual value.
But in most other cases, market cap is meaningless, particularly with tech companies that are trading at 100 or 200 times their earnings (EPS). Tech companies also - like SpaceX - have huge blocks of shares held by a few prominent investors or founders. If those folks started selling off their shares to generate cash, the share price would drop precipitously, for two reasons. First, the market could not absorb the shear volume of sales - more supply than demand, and thus the price would plummet. Second, even if these principals sold off shares in small lots (so as not to depress the price too much) people would notice this and wonder why the founders are bailing out on their own company.
Real wealth doesn't exist on paper, but in cold hard cash, or at least cash equivalents. If Musk held a trillion dollars in a diversified portfolio of real estate, stocks and bonds, commodities, and the like, he would be a trillionaire, as he could liquidate any one of these assets (or combinations of each) without tanking their market value. But when your entire portfolio (or a substantial part of it) is tied up in closely held speculative tech stocks, your net worth is just that - speculation. He cannot cash-out of these positions, simply because he owns too large a share of too few companies. That, and the "market cap" of those companies is far and above the actual value of the companies themselves.
The "last sucker in" share price only represents what some small retail investor, likely ill-informed and mostly gambling, paid for his share. I am sure a number of buyers of the Tesla IPO - like many before it - bought a small amount of stock (a few grand at most) on the thought that they could then flip this after the stock "pops" out of the gate - as it appeared to do, dropping off after peaking shortly after the IPO dropped. This share valuation does not represent an actual valuation by the market of the underlying value of the company, anymore than financially stressed consumers, paying $15 for doordash delivery of $15 of fast-food means that fast food is now worth $30. It just means the little guy is often uninformed and driven by emotion, not logic.
Of course, it could all go the other way, provided that SpaceX stops losing money and starts making a shit-ton of it, instead. Given the current state of the AI business, the recent Anthropic disaster, and the public's general distaste and distrust of AI, it seems that the entire industry is over-valued, over-hyped, and long due for consolidation. And the ultimate winner might be.... the Chinese, who are far ahead of the US, far less stressed by regulations, and offering AI products today for 1/60th the token price of American AI companies. In other words, even if AI is a "thing" it likely will end up a "thing" made in China, like so much of everything else (including electric cars!).
Another way to look at Market Cap in situations like this is to ask, "where did all the money come from?" and the answer is, it didn't come from anywhere because it didn't exist to begin with. No one plunked down two trillion dollars in the SpaceX IPO, but rather only 4.7% of that amount - the amount of money people actually paid hard cash for shares. The rest is "wealth on paper" which is speculation, not actual wealth. When the real estate market crashed in 2008, some idiots actually posted online, "where did all the money go?" as the real estate and stock markets lost billions, if not trillions of dollars. What was lost was not cash money in circulation, but the idea of what these things were worth.
My house has doubled in value since I bought it, but while this might be added to my "net worth" it doesn't amount to actual wealth until I sell it. And who knows? Maybe we are on the verge of another speculative housing bubble or interest rates, or insurance, or property taxes, or just demographics, may tank the value. After all, I live on a retirement island of boomers, who are dropping like flies, going into assisted living, or moving back home to be close to their children. Will the next generation be in a position to buy these vacation homes (and RVs and motorcycles, and hobby cars)? Bear in mind, the next generation is smaller than the boomer set. Throw in a hurricane, a property tax spike, and a general recession, and, well, today's market valuation means nothing.
Ditto for SpaceX. Right now, the market valuation is mere speculation. If it were a traditional company - making products and selling them at a profit and paying dividends - you could put a more realistic valuation on the share price. If your company pays $5 per share in dividends every year or has retained earnings in the same amount, you can quickly and accurately calculate a target price for that stock. But technology stocks, which often never show a profit, or if they do, have a P/E ratio in the hundreds, and rarely, if ever, pay dividends, are much harder to quantify. The only real number is the amount the "last sucker in" paid for his one paltry share. And given how the Internet has been used to influence people and turn the markets (and everything else) into a casino, I would not put much faith on the valuation by "the last sucker in" as his valuation is not based on any informative valuation, but emotional response. After all, Musk owns Twitter, and I am sure he didn't use that lever to hype the share valuation of SpaceX.
Right?
Of course, it could all go South in a hurry. Twitter is breaking even - in good years. And Elon pledged his stock in Tesla and SpaceX to buy Twitter - while paying a billion a year in interest. Hope they don't call in that note! (Hmm... maybe that is why he is doing the SpaceX IPO?). Tesla is leveraged by cash incentives that Trump has cancelled, and makes more money from selling carbon credits than from cars. Since Trump promises to loosen EPA requirements, what are those carbon credits worth? The market for EVs is saturated and many manufacturers are pulling back or going bust - and the specter of cheap Chinese EVs is always on the horizon. SpaceX traditional rockets seem to be doing well, but the "Starship" concept is proving to be unworkable, other than as a really big firework. NASA has basically told Elon to fuck off with his proposal to fly the Starship to the moon as a lunar lander (wtf?) as the darn thing has failed to meet a number of milestones. And the AI thing? Well, a race you enter at the end isn't one you are likely to win.
Speaking of the Starship, I just got done reading Jame A. Michener's Space (1982) which was on my pad device (along with thousands of other books). The idea of launching a huge-ass rocket, rendezvousing in low earth orbit to refuel, and then taking the whole kit and kaboodle to the moon and back was proposed by Von Braun and the Peenemünde gang back in the day. It was shot down then as too impractical. It was deemed easier for a rendezvous in lunar orbit (between the CSM and LEM) with staged rockets that would dispose of each stage (and weight) when no longer needed.
It was an interesting discussion and, according to Michener, an issue that divided the space community back then. People were quite vehement that their way was the correct way. The lunar docking model won out, but of course was more of a one-and-done deal. Those proposing earth orbit rendezvous claimed it could be used to create a platform for long-term exploration of space (as illustrated in the opening sequence of 2001: A Space Odyssey). Perhaps they were right, but then again, the budget just for the Apollo missions turned out to be too much, with three later missions (18-20) scrapped due to budget concerns. A permanent base on the moon? Seems like a fantasy then - and now - when we can't even balance our budgets as it is.
So, Musk is chasing an age-old dream. And in order to make Starship work, he would need to expand funding for NASA by a factor of ten. No problem there - he has a close friend (or use to) in the White House. lol.
