Elon Musk’s shares in Space Exploration Technologies (NASDAQ:SPCX), or SpaceX as it’s more commonly known, are worth nearly $1bn. My 10 shares are currently (8 September) valued at $1,479 (£1,088). But I don’t want to be a billionaire. I couldn’t deal with all those people clambering to be my friend. In fact, a million will do me.
So could my SpaceX shares be worth seven figures (I’m talking dollars here) within 10 years? For a bit of fun, I asked ChatGPT for its thoughts.
What did it say?
After 16 seconds, the software answered: “Yes – mathematically, they could,” although it cautioned that it would require an “extraordinary” increase in valuation.
To achieve my target, a 668-fold increase in the stock price “equivalent to 92% compound growth every year for 10 consecutive years” is needed. Expressed another way, it would require the company to increase its current market cap of around $2trn to $1,300trn.
On reflection, it said this is “not a realistic base-case assumption” and “extremely unlikely”.
Although using a piece of software to make investment decisions isn’t a good idea, to be honest, I have to agree in this instance. However, I still think there’s a good chance that my shares will be worth a lot more than they are today by 2036.
Why?
Firstly, I think its Starlink operation is a great business. The network of satellites is helping to provide high-speed internet to 12m customers in 167 countries. And it’s becoming more mainstream. For example, Airtel Africa, the FTSE 100 telecoms group, is using the technology to provide connectivity in rural Africa. Airlines are also interested in working with Musk’s company.
In fact, Starlink is the only part of SpaceX that’s current profitable. During the three months to 30 June, it reported income of $1.656bn. Just imagine how profitable it could be with, say, 500m customers. This doesn’t seem like an unrealistic target to me.
I also see huge potential from SpaceX’s Starship programme. It’s developing the world’s most powerful rocket, with a maximum thrust equivalent to 90 Boeing 747s. If all goes to plan, having a reusable spaceship with the capacity to carry 150 tonnes could be a gamechanger.
Buyer beware
However, there are many risks. Based on its current financial performance, I think the stock’s overvalued. Investors have already priced in some of the anticipated success. Any sign of a slowdown and there could be a sharp correction in the stock price.
Also, some of the group’s ambitions – like having a colony of 1m people on Mars – are a bit silly to my mind.
But isn’t that the point of SpaceX? Musk says he wants to take the fiction out of science fiction. But there’s so much hype surrounding the group it’s sometimes hard to see the wood for the trees.
My view
However, I retain a small shareholding because if the group can achieve just some of what it wants to, I’m pretty confident that my shares will be worth considerably more than they are today.
Having said that, I won’t be totally surprised if SpaceX crashes and burns. I think it definitely qualifies as a high-risk investment. On this basis, I think it’s worth considering only a small allocation in a portfolio.
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James Beard owns shares in Space Exploration Technologies and Airtel Africa plc.
