It’s a World-Class Investment. It’s a Junk Investment. What Is Going On With SpaceX?
Ms. McLean is a financial journalist and co-author of “The Smartest Guys in the Room.”
The recent initial public offering for SpaceX was the biggest stock sale the world has ever seen, with shares priced as if life on Mars were a sure thing. The company’s debt, on the other hand, is priced as if it were junk. Is this what F. Scott Fitzgerald meant when, nearly a century ago, he wrote, “The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function”? How could the same company simultaneously be viewed as a top-tier investment and something that might not be able to pay its bills?
The answer starts with Wall Street’s long-held distinction between “smart money” and “dumb money.” In that view, the roughly $2 trillion value that the stock market is affording SpaceX — about the same as Amazon’s value, and more than JPMorgan’s and ExxonMobil’s combined — is being set by naïve investors who think Elon Musk’s promises will all miraculously be realized. The debt, on the other hand, is being priced by seasoned investors, the ones who understand that profits actually have to be earned, and who are rightly skeptical of Mr. Musk’s grand pronouncements.
