In this episode of Motley Fool Hidden Gems Investing, Motley Fool contributors Tyler Crowe, Matt Frankel, and Jon Quast discuss: Starlink’s profitability. The profitability of the space launch business. The unbelievably large market estimates. Is SpaceX actually just an AI company? Can investors benefit from this corporate structure? The leap of faith that is the valuation. To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. When you're ready to invest, check out this top 10 list of stocks to buy. A full transcript is below. This podcast was recorded on May 21, 2026. Tyler Crowe: It's SpaceX's S-1 day on Motley Fool Hidden Gems Investing. Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe, and today I'm joined by longtime contributors Matt Frankel and Jon Quast. Guys, we picked one heck of a day to record here because I'm looking across the news. Walmart's down 7% on tepid guidance. Other consumer retailers are way down. Quantum computing companies are up like 20% on a deal with the government for equity deals and things like that. Nvidia had their earnings. But we're not even going to talk about any of those things today because you know what? Earnings, they come and go. But an S-1, as big as SpaceX, only comes around once in a while, so we're going to do a deep dive into SpaceX's S-1 today, and we're going to do the whole show on it. We're going to start with what we liked about it in the first section. We'll call it the good. In the second part, we'll go to poke some holes into some of the things that we didn't like. Based on what we were talking about before the show, there's a few things that we're not big fans of, and then at the end we're going to give our verdicts on whether or not we're going to be buying this IPO, whether we may be waiting, or if any of us are just like, No, thank you. Obviously the job today was before we went on, it's just basically comb through the S-1, see what you see, see what you like. Jon, I think we all came to the consensus. There's plenty of things to like and not like, but what stood out to you most is like, hey, this is good. I really like this. Jon Quast: There are multiple parts to SpaceX's business, but the best-looking one to me was Starlink. Starlink is both profitable and it's growing like crazy, so check this out. This is the satellite business that allows Internet connectivity around the world. Even in remote places, that's the appeal of it. But in the first quarter, its subscriber count more than doubled. It now has more than 10 million subscribers to Starlink. Now, average revenue per user did drop in the first quarter, and it fell pretty significantly. That would ordinarily be troubling to me. But it's added these lower price points. It's expanded into international markets where the monetization isn't as high. The net result has been this robust subscriber growth, and that is really important. More than that, it's also been able to grow that revenue profitably even at the lower monetization rates. Subscribers more than double, as I said, revenue up 32% year over year, that's a really good growth rate. Then it delivered a segment operating margin. I'm just talking Starlink. We're backing out the other parts of the business. The Starlink operating margin was 36%. Now, if this was a standalone business, you would look at that. You'd see subscribers more than doubling, revenue up more than 30%, operating margin approaching 40%, that would be a business that I'd be very interested in owning because that is great growth, great profitability, and fantastic adoption pointing to long-term trajectory. I would love that. Tyler Crowe: I'm going to jump in with an anecdote here because the eyes may not know. I lived in Africa for like six years, and I did. I signed up to be a Starlink customer in 2019, and I think six months ago is when I actually got the email. It was, hey, we're now available. Where are you living? I've moved since then, and I was like, not as much helpful today. But I feel like when I got that email like six months ago, I think my haunches should have been up like, man, if they're emailing me about this, this must mean there's like an IPO or something is coming because they want to grow. Matt Frankel: Jon's right that Starlink is the shining star of this business, at least so far. It's actually the fastest-growing telecom company of its size and history. Starlink has 75% of all active maneuverable satellites on Earth. It's a big competitive advantage. $4.4 billion in operating income last year, it's a legit business. Beyond Starlink, you really need to read a little bit between the lines for some of the good points, at least when it comes to things that don't have to do with things that the company's going to do in ten years, 20 years, like building a colony on Mars. The space business has a massive market share. That's one. 80% of the mass delivered to orbit globally comes from SpaceX. Capex actually seems reasonable to me, you guys might disagree. It's at a roughly $40 billion annual run rate, and that includes AI spend, that includes the space spending, that includes Starlink infrastructure. That actually gives it the lowest capex rate of any trillion-dollar tech company in the world. We'll discuss the company's total addressable market claims when we're not in the what's good segment of this podcast. But just looking at Starlink, the Starlink has an estimated $1.6 trillion market opportunity, and that's a market that already exists today. It could become a much larger business from here. Tyler Crowe: Yes, $1.6 trillion market opportunity, I think globally spend on telecommunications was 1.5. Maybe I'm teasing what we'll get into in the next section, but that does seem like a pretty ambitious target here, but I don't actually won't even talk about Starlink because we covered it a little bit here, and it wasn't actually the thing that stood out to me the most. It's a nice business as you said, it's growing. I think competition's coming. Amazon bought Globalstar. It's been launching its own satellites. It's trying to compete in this regard, as well, so that's something to consider with Starlink. I'm actually more impressed with the launch business than I thought I would have. I know there's been stories about the launch business on borderline profitability. They've been trying to get Starship off the ground, it's heavy lift rocket, and I think it's done like 11 tests. Wouldn’t you know, they’re actually scheduled for their 12th test flight, I think, later today. I'm sure that's a little bit of a cherry on top for the S-1 to have a successful Starship launch, fingers crossed with all that. Aside from this mammoth amount of money they've been putting into Starship in the past, I want to say a year, year and a half for development that business is pretty more or less profitable. You saw this very large ramp in R&D spending specifically to Starship in this most recent quarter, most recent year. Aside from that, just using Falcon Heavy Falcon nine launches, it does appear to be profitable from bringing in outside customers. It's not like amazing margins, but it's something, which goes a long way in the space industry because this was an industry that was dominated by one company, United Launch Alliance 15, 20 years ago, and now for fractions of the cost, we're actually eking out alpha national profits on this. Now, that revenue has slowed down, and I'm not going to try to hand-wave that away, and I would like to see why in the coming quarters. I would like to know whether that was some pricing competition because Rocket Lab is starting to do launches, Ariane 6, which is the European Ariane Group. Their European Space Agency they're launching for Amazon this year as well as starting to see some other companies going into Blue Origin, as well. Maybe it's pricing competition, maybe it was SpaceX deliberately putting more of their own satellites into orbit on its rockets that was a higher cost burden that brought down the profitability. There's a little bit of balance here. I'd like to see where that goes, but overall, I was more impressed with the launch business than I thought I was going to be. I think we're two out of three here because we've got launch, we've got satellite communications, and then we've got this great big AI box. I don't think it's a surprise that none of us have talked about that segment because I think when we get to the what we're not huge fans of that's going to come up next. Tyler Crowe: As we said, we're going to go into the nitty-gritty of the SpaceX S-1 here and probably get to some of the stuff that when looking up and down the S-1, there's gonna be some things that we love and some things that we don't like. Clearly, there are some things in this that aren't the best. I can't say that every single part of this thing was a glowing recommendation as to why SpaceX was something people would want to buy at the beginning. With that in mind, let's just go around the horn again. Jon, what was your ego? What was the thing you read there and let's go that's of gross. Jon Quast: SpaceX is headquartered in Texas, and I will quote the great band, Alabama. If you're going to play in Texas, you've got to have a fiddle in the band. SpaceX has two fiddles in its band, and space is playing second fiddle to AI now. You expect a company such as SpaceX to be 100% space. It is a small part of the vision of the company at this point, and I'm not just blowing smoke. I need to consider these numbers. Matt pointed out how reasonable the capex number was for this company. It's extremely reasonable when you take out AI, 76% of first quarter capital expenditures was AI related, not space related. That's not an insignificant number. The company has a deal in place with Anthropic now. This is hot off the press. Anthropic will be paying SpaceX $1.25 billion a month. That translates to $15 billion annually. Now, that's great. I love revenue. But consider that if this deal had been in place last year, it would have accounted for 45% of the company's revenue. This is a huge deal. It's a huge part of the business moving forward for SpaceX. You look at the total addressable market. SpaceX waving its hands in the air, saying, we've got the largest total addressable market in history. 80% of this $28.5 trillion market, 80% is enterprise AI. That is very interesting. The company is also looking to acquire Cursor for $60 billion. That acquisition could eat up all of the IPO proceeds, and the IPO proceeds are set to break all the records. You look on top of this. It wants to build out Terafab. That could be a $55 billion initial investment, so for some, this might not be gross. This might not be like undesirable. Maybe our listeners are actually celebrating this pivot, this emphasis, this vision that it has for AI. I wouldn't necessarily disagree with that. It is very surprising, though, that a space company is focusing so hard, and I think that listeners need to understand if you're investing for the rockets, if you're investing for Starlink that is waning in significance in the eyes and vision of management from here. Matt Frankel: Jon hit the nail on the head with all the different things you're doing with AI, but the biggest concern is based on a $2 trillion valuation. You're paying more than 100 times sales for a company that lost $5 billion last year. About 300 times trailing EBITA. Growth is impressive, but not to the point of justifying that type of valuation all by itself. The valuation is clearly based on things that Elon Musk thinks he can do over the long-term like space-based data centers, which is part of that $28.5 trillion figure Jon just mentioned. There's also that risk mentioning Elon Musk that you're betting on his future vision. He's not only completely in control, he's also in charge of Tesla. He's also in charge of Neuralink. He's also in charge of the Boeing company. That's still a thing. There's a lot of things that occupy his time and attention, and that is a risk, especially as this business gets bigger and focuses more on AI and all these other adjacent opportunities at the same time. Tyler Crowe: To your point, for those who are keeping score at home the entire GDP of the United States is $32 trillion, so we have a total addressable market that's 75, 80% of the U.S. GDP. That seems pretty ambitious. It seems like a very global idea that sometimes you start looking at those numbers and go. Wonder where they got that, similar to what I was saying with the Starlink number being roughly equivalent to more than all the revenue spent on telecommunications in 2025. Hey, but that's the point of S-1 is we're trying to be lofty. We're trying to be ambitious here, and things like that I can poke holes into that pretty easy. But as an investor above anything else, this was the thing that got me the most. What I see is a corporate structure and an executive payment structure that and to be harsh here is completely agnostic. Or potentially even working against investor outcomes and shareholder returns outside of Elon Musk. The combination of like this dual class share that they have in a compensation structure that's extremely dilutive to investors. I don't think it really strikes me as a business that wants to work necessarily for its shareholders. I know I'm being pretty controversial here when I say this, but let's start with this market cap goal that is put out there. I think it's like 1 billion shares of Class B shares. Raising market cap doesn't always necessarily mean raising the share price to like we mentioned the cursor deal. That's $60 billion. That's probably going to be issued shares. Perhaps there's some cash issued shares, but that's going to raise market cap and could have zero impact on actual price of the stock. There could be other acquisitions that happen in the future that you pay for with stock that may not affect the price. There are lots of ways that you can increase the market cap of a company and have basically a flat share price, so keep that in mind when you hear market cap-based goals for the executi

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