Why It Matters After successive rounds of private investment, culminating in a $250 billion deal to acquire an artificial intelligence lab from its founder, which pegged SpaceX’s private market valuation at around $1.5 trillion, market conditions are primed for the company’s owners to offer around 3% of the company’s shares to public investors. As we launch Morningstar research coverage of SpaceX, we assess the fundamentals of the company’s three main business lines and their potential value to an independent investor. Amid unprecedented supply and potentially intense demand for its shares, we spell out how we think the boost, separation, and max Q phases of the company’s public launch could unfold. The Bottom Line We value SpaceX at $780 billion with a Morningstar Economic Moat Rating of narrow. The firm’s core launch and satellite communications businesses drive its moat rating due to the prodigious cost advantages achieved through continued research and development and accelerated economies of scale. We see a wide range of possibilities around the newly acquired AI business and find its economic moat indeterminate, and it also poses a material threat of value destruction to the company, which limits our overall economic moat rating to narrow. Our discounted cash flow valuation of SpaceX is $780 billion, about 48% below its private market valuation, including a wide range of probability-weighted scenarios for the AI business. Bulls Say With a small initial float boosted by almost every investment bank on the planet, buoyant investor appetite for AI infrastructure bids, and an unprecedented path to inclusion in the Nasdaq 100 Index just 15 trading days after the IPO, we expect SpaceX’s share price will likely survive separation and even ascent toward orbit, at least for a time. Max Q, the moment of greatest atmospheric pressure on a launch vehicle, will come for SpaceX’s stock in the months following the IPO, when successive tranches of stock held by private investors and employees are slated to become available for sale into the public market. We think long-term investors eager to participate in SpaceX’s future endeavors and potential success will have opportunities to do so with a greater margin of safety than the initial offering is likely to provide. Founded in 2002 and commonly known as SpaceX, the Space Exploration Technologies Corporation designs, manufactures, and operates a family of reusable rockets to launch various payloads into Earth orbit for government and commercial customers. Starting in 2019, the company began launching a constellation of its own communication satellites to provide mobile broadband and wireless services under the Starlink brand. In early 2026, the company acquired xAI from its founder Elon Musk, which operates a large language AI model named Grok, a gigawatt-scale data center called Colossus, and the social media network X. How Does SpaceX’s Business Work? SpaceX is a vertically integrated conglomerate built around its global dominance in space-centric infrastructure. The company’s core strength is its ability to deliver payloads to orbit at unmatched scale, frequency, reliability, and cost efficiency. Other major business lines of the company, from Starlink to future orbital infrastructure initiatives, are ultimately derived from and enabled by its leadership in low-cost space transportation. The company’s technological lead over its competitors is evident in its having more than 80% global share in mass delivered to orbit and in having reduced launch cost per kilogram by more than 95%. SpaceX’s cost advantage is driven by its reusable launch architecture, particularly the ability to repeatedly reuse boosters, thereby significantly lowering per-launch costs and spreading fixed manufacturing costs across multiple missions. The Falcon 9 platform has been the workhorse for the firm, but its next-generation Starship rocket has the potential to further reduce launch costs, increase payload capacity, and expand the range of economically viable orbital applications. Successful scaling of Starship, which we expect could occur by 2029, would significantly widen the firm’s advantage over its competitors, improve Starlink’s economics, and unlock new business models across communications, logistics, and space infrastructure. The firm’s current market value is contingent upon paving the way for novel revenue streams, such as orbital computing, which we believe are possible given the firm’s unique advantages, but their viability, timelines, and financial outcomes remain highly uncertain. What Drives Profits, and What Is the Outlook for SpaceX’s Rocket Business? Profit drivers for the space launch business are basically launch cadence times payloads minus the steadily decreasing average cost to launch before reinvestments in research and development. The unit invested over $3 billion in research and development in 2025, with a focus on its large next-generation rocket, the Starship, on which much of its future business rests. Its enormous lift capacity and potential for full reusability, if it proves out, will provide a meaningful further step change downward in SpaceX’s average cost to launch, especially per unit of payload mass. It may happen behind schedule, but we assume that the engineering of the reusable upper stages of Starship will eventually pan out. The challenge is to develop heat-shield materials that can withstand 1,800 degrees Fahrenheit and the stresses of atmospheric reentry without requiring time-consuming or costly remanufacture before they can repeat the journey. We point to advanced materials science and manufacturing techniques that enable turbine jet engine components to withstand thousands of flight cycles at temperatures above 3,000 degrees. We don’t think the turbines’ technology is transferable; we only point out why we think a solution is within the realm of possibility. Once paying customers use Starship, the company’s research and development costs will diminish as a percentage of sales, and we expect the launch business’ margin profile to improve over time, reaching $18 billion in revenue at a 20% operating margin by 2035 in our base-case scenario, as provided by PitchBook. What Are the Profit Drivers and Outlook for Starlink? We expect Starlink to continue as the primary cash generation engine and internal funding source for other ambitious projects the firm has underway in the medium term. Starlink benefits from the firm’s extensive launch cost advantage, and a majority of the company’s future launches will be allocated to scaling Starlink deployment by launching tens of thousands of communications satellites into low Earth orbit. We expect Starlink’s revenue and profits to compound at a high rate, supported by its unmatched ability to provide connectivity in remote areas worldwide. What Are the Profit Drivers and Outlook for Starlink? We expect Starlink to continue as the primary cash generation engine and internal funding source for other ambitious projects the firm has underway in the medium term. Starlink benefits from the firm’s extensive launch cost advantage, and a majority of the company’s future launches will be allocated to scaling Starlink deployment by launching tens of thousands of communications satellites into low Earth orbit. We expect Starlink’s revenue and profits to compound at a high rate, supported by its unmatched ability to provide connectivity in remote areas worldwide. Our thesis does not depend on the company achieving all or even most of its stated aims. In SpaceX’s registration statement, it identifies a combined $1.6 trillion total addressable market for its mobile and broadband services. The figures equal or exceed all current global spending on mobile and broadband services outside Russia and China. Our forecast does provide for aggressive growth and very high incremental margins for Starlink service, and based on Starlink’s 2025 reported 50% revenue growth to $11.3 billion and 58% (positive) operating income growth exceeding $4.4 billion or 39% margin, we see the business model validated. We can see a path to further tens, not necessarily hundreds, of billions of dollars in annual revenue growth in the coming decade, and operating margins potentially exceeding 75%, driven by the company’s leading operating cost advantage and the negligible incremental cost of adding users to existing network infrastructure. An important consideration is that the biggest structural difference between a scaled satellite network operator such as Starlink and traditional cable, fiber, or wireless operators is that an investment in SpaceX’s orbital telecom infrastructure increases its utility to all users globally, whereas investments by fixed-line and wireless operators apply locally. Limitations on the amount of data that can travel to and from orbit over the available radio spectrum mean that Starlink faces meaningful barriers to adoption in the densest population centers, as well as a disadvantage in the latency of the signals it can maintain, especially relative to cable and fiber transmission. However, we don’t think Starlink has to solve these limitations or necessarily face them to succeed. Nearly one-fifth of the Earth’s population resides in the least-densely populated areas, providing close to 2 billion potential customers. A growing array of services, such as powering onboard Wi-Fi for airlines, plays directly into Starlink’s capabilities that incumbents cannot match. We call these niche-plus growth opportunities, and they include jobs such as telemetry and fleet connectivity that tend to operate across wide swaths of terrain and may not require the lowest latency. Our base-case forecast entails $56 billion in revenue for Starlink in these niche and growth areas by 2035, representing about 45% of the identifiable market we’ve sized. Another area where Starlink has seen rapid adoption is offering direct-to-cellular service. We don’t think the company will necessarily take on incumbent wireless providers, nor do we think it would be likely to succeed in doing so. However, we think that a global market opportunity amounting to $67 billion by 2035 exists, largely for Starlink’s taking: striking deals with mobile providers across the globe to offer an add-on service that provides satellite-based wireless connectivity where cell tower coverage is insufficient or nonexistent. We see this wireless “add-on” opportunity as requiring only a few dollars per user across many hundreds of millions of potential users, using existing providers’ radio spectrum. We estimate Starlink could generate $24 billion in such revenue by 2035, 36% of the market we identified. How Will SpaceX’s AI Business Make Money, and What Are Its Prospects? SpaceX’s AI division, which was Musk’s stand-alone firm xAI until February 2026, has a lot going on, including operating the social network X, formerly known as Twitter. We estimate xAI has invested the equivalent of $50 billion to build a large language AI model named Grok and a gigawatt-scale data center called Colossus. One of the many lofty goals the company plans to pursue with IPO proceeds is to demonstrate its ability to build and commercialize orbital data centers. For the purposes of our analysis of the IPO, we built a discounted cash flow forecast of the AI unit’s existing businesses and a model of how orbital computing infrastructure could potentially take shape, leveraging the company’s launch capability in the Starship rocket and its expertise in designing, building, and launching networked satellites at scale in its Starlink business. We don’t think X is material or particularly relevant to the overall business case, and our forecast offers fairly straightforward advertising revenue and some other ancillary subscription and licensing income. We don’t see Grok as one of the leading AI labs today, and while we modeled a range of outcomes for this portion of the business, none of them meaningfully add to or subtract from our valuation of the AI business. Profit drivers we identified for the AI business that matter most to our forecast and valuation, which we in turn suggest investors should focus on, are capacity utilization of the Colossus I and Colossus II terrestrial data centers, and in turn the potential for AI computational infrastructure in orbit, representing capacity expansion for SpaceX’s AI business, and the ability to commercialize it. In short, the outlook is very uncertain. We modeled three scenarios to ascertain what the AI business might achieve. In the first, our most optimistic “Moonshot” scenario, SpaceX’s orbital AI platform works, offers meaningful operating cost advantages over terrestrial computing, and eventually deploys and commercializes one-fifth of our forecast of global AI infrastructure computing capacity. In a downside scenario we call “No Go,” orbital data centers won’t work or offer any advantage. We surmise the company, having invested tens of billions to find out orbital data centers will not work, would cut bait and find ways to commercialize Colossus but would not take any meaningful share of global computing capacity. In our most likely scenario, orbital data centers prove viable, subject to some capacity constraints, but also benefit from SpaceX’s decreasing cost to launch large payloads, and the company successfully deploys and commercializes around 4% of our forecast global AI computational capacity (excluding Russia and China)—probably best serving those use cases that can tolerate higher data transmission latency. It’s a project that requires some unproven engineering to succeed, but we do see SpaceX as the best positioned to pursue it. Does SpaceX Have an Economic Moat? We believe SpaceX has established a demonstrable, durable, and widening competitive advantage in the form of a cost advantage in its space and connectivity businesses. This cost advantage stems from the extensive research and development the company has conducted to design its rockets to be reusable, lightweight, and powerful, making them radically cheaper to operate than other systems, especially when measured per unit of payload mass the rockets carry into Earth’s orbit. The company’s rapid testing and iteration cycle, followed by its rapid dominance over the space launch market in sheer volume of rockets built and payloads deployed, provides it with formidable economies of scale. We believe these advantages are likely to endure despite imitators because of SpaceX’s absolute cost advantage and the long lead it has in the race, as each successive launch, especially when reusing existing equipment, further lowers SpaceX’s average cost. The company’s dominance of the global orbital launch market is dramatic: In 2025 alone, it launched 83% of the mass sent to orbit from Earth, nearly 10 times more than the nearest competitor, the Chinese state space agency. SpaceX’s 165 launches last year represent 51% of

Source: Morningstar

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