Elon Musk-led Space Exploration Technologies Corp’s (NASDAQ:SPCX) blockbuster IPO back in June was one of the most anticipated events of the year on Wall Street. Amid massive valuations and bullish expectations, the IPO managed to exceed expectations and raised nearly $86 billion, as well as hit a high of $225/share.
However, what followed was the company’s first-ever earnings report and earnings call as a public company, as well as volatility in the days that preceded and followed the event. SpaceX stock, at one point, fell well below its IPO price of $135/share, but has since managed to take back some of its lost value.
While the stock’s high highs and low lows have attracted many investors’ opinions, Ross Gerber, the co-founder of investment firm Gerber Kawasaki, shared his insights into what drives SpaceX in a conversation with Benzinga. Here’s what he had to say:
Investors Overpaying For the Elon Premium
Gerber shared that SpaceX’s IPO reflected a typical post-IPO scenario when companies were "trying to find a market," adding that some of his firm’s clients had already "liquidated" part of SpaceX stock.
"When you look at the stock market today, it’s hard to see a lot of companies innovating like SpaceX," Gerber said, outlining that some investors were "willing to pay a very high price to have that type of innovation."
The investor clarified that he was not part of that group, but confirmed that Gerber Kawasaki held SpaceX for its clients and that he also held some stock as part of the Twitter buyout.
When asked about the SpaceX lockup release following the IPO, Gerber said that he did not "judge investments" based on supply and demand, but rather on determining its value.
"When you look at the P/E ratios of Tesla and SpaceX, they don’t really make sense compared to Google or any other company," he said. "Why is it [SpaceX] worth $1.3 trillion now?" He asked, before sharing what he called "the Elon premium," which can vary "between half a trillion dollars to a full trillion dollars of premium just because it’s Elon."
Gerber then said that investors should ask if "investing in an Elon Musk company worth paying an extra $600 billion because it’s an Elon Musk company" over its actual value. "I personally have chosen not to pay that premium for it," he said.
Elon Musk’s ‘Management By Hallucination’
Gerber delivered criticism of Musk’s claims and timelines. "I don’t trust anything he says of any timeline for anything," Gerber said. The investor called Musk’s style "management by hallucination," saying that the billionaire’s claims were "delusional."
He said that people believed what Musk said because he was "Elon Musk" and that he was somehow smarter than the rest of the human population. "He’s not that smart," the investor said, before adding that Musk was "really smart in one area of life," but did not expand upon what that was.
The investor then said that Musk was "one of the greatest engineers of our time" and that he had built "amazing things," but "what he says is mostly garbage." He added that sometimes, the billionaire "just says things," but what mattered was "what’s real."
Terafab Is a ‘Wonderful Idea’
Outlining his take on Terafab, Gerber said that the semiconductor facility, which is touted to be bigger than the largest building in the world once complete, was a "wonderful idea" and that Musk was "actually good" at building things.
However, the investor expressed skepticism about the project because "the size and scale of it creates problems" for Musk because "he’s got to spend more money than he can get his hands on." He then suggested that Musk should build an "end-to-end" AI solution.
Gerber was also skeptical of Musk’s Terafab timelines. "If he tells me it’s going to be done in two years, it’s just like, what the f**k are you talking about, dude? It’s not," the investor said. Musk is "a fundamentally important person in pushing technology forward," the investor said, but doubted if he would "be the guy who profits the most from it."
The conversation then shifted to Mars and colonies on Mars, which is another one of Musk’s ambitious ambitions. Gerber did not mince his words, saying that humans were "not going to live on Mars," dismissing it as an "absurd" concept. "It’s like a level of hallucination to believe this stuff," he said.
"He uses Mars to sell people on his vision, just like he used climate change to sell people on his vision. But I think in his heart, it’s all bullcrap," the investor said.
Orbital Compute Is a Potential Possibility
The investor said that his work involved working with SpaceX employees, which leads him to believe that data centers in orbit were "a potential possibility that’s real," but Starship’s reusability remains a key obstacle in the path to achieving satellite-based compute, calling it the "main limiting factor."
However, Gerber said that the concept did not "make sense anytime in the near term," citing the potential to build data centers on Earth using solar panels and batteries. "Maybe in 10 years, that will be a viable solution and maybe a good solution. But I think they sell a lot of ideas to keep investors happy," he said.
Ultimately, Gerber said that SpaceX was "not a bad company to own," but he reiterated that he was not paying "some trillion dollar premium to own Elon’s company." The investor then said that if SpaceX were to go "below a hundred [dollars], maybe I’ll look at it."
Starlink Is a Life-Saving Investment
Starlink is one of SpaceX’s key revenue drivers and the investor believes the satellite internet service is a "huge business opportunity" for SpaceX. “If Starlink continues to make 50% margins and grow, well, that’s their best business. It’s not a bad business either," he said.
Gerber also called the service “a life-saving investment,” adding that he owned two Starlink connections. He also highlighted how the service helped the investor during the Palisades wildfires. "Starlink is one of the reasons Ukraine is still a free country. That’s how important Starlink is," he said.
He then highlighted the service’s application in the defense sector, with U.S. drones featuring Starlink antennae on them. The service was also an "important asset" for regular people who would want better access to the internet globally.
"You’ve got the commercial internet business, which is planes and all planes have bad internet except ones with Starlink. So that business can grow and grow and grow," He said, while also saying orbital compute would not work without Starlink.
Gerber reaffirmed his calls for a Starlink-enabled AI phone that can take away distractions as opposed to regular smartphones like Apple Inc.‘s (NASDAQ:AAPL) iPhone, which were destroying people’s "social lives, dating lives, mental health."
Potential Apple Competitor, Threat from US Adversaries
"I think somebody should compete with Apple," Gerber said, "and Tesla’s talked about it, and they’re good at hardware design, and I think there’s a market for a super phone," he added.
Speaking on the possible competitive threat posed by Amazon.com Inc.’s (NASDAQ:AMZN) Leo satellite internet service, Gerber said that space was a "tough business," and that competitors could try to take some market share away from SpaceX, but Musk had "a pretty good moat with the launch cadence and reusable rockets."
"If you’re a business guy, it doesn’t make a ton of sense to try to compete with Starlink," the investor said, adding that a bigger threat was from U.S. adversaries like Russia, who could target "a bunch of these Starlink satellites just to slow down Ukraine, you know."
He added that the company faced a "bigger risk to Starlink than competitors. I think it’s a strategic asset in the United States that our enemies might try to target."
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Photo courtesy: Samuel Boivin / Shutterstock.com
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