- Alpha Ba: SpaceX is unquestionably an exceptional business—but that doesn’t automatically make it an exceptional investment
- SpaceX debuted at an approximate US$2.2 trillion valuation, making it one of the largest IPOs ever
- Ba describes Starling, the satellite broadband network as the company’s most valuable business, accounting for roughly 60% of revenue
- For the moment, Pillow Investment will remain on the sidelines
SpaceX’s captivating public debut
Alpha Ba, Chief Investment Officer at Pillow Investment Partner, a global consulting powerhouse based in Toronto, joined The Market Online’s Expert Exchange for a global update following the launch of SpaceX in the public market.
Ba outlines that Starlink is the crown jewel, but governance, capital allocation and valuation keep Pillow Investment Partner on the sidelines.
This article is a journalistic opinion piece which has been written based on independent research. It is intended to inform investors and should not be taken as a recommendation or financial advice.
The public debut of SpaceX has captivated investors around the world, becoming one of the largest initial public offerings in history. While enthusiasm surrounding Elon Musk’s aerospace giant has propelled the company into the spotlight, not everyone is ready to buy into the story.
According to Alpha Ba, Chief Investment Officer at Pillow Investment Partner, SpaceX is unquestionably an exceptional business—but that doesn’t automatically make it an exceptional investment.
“We’re always very careful about IPOs because generally they don’t do well at the entry price from a long-term compounding perspective,” Ba said during an interview on The Expert Exchange. “The valuation here was not attractive to us. We think the stock is overvalued, and we’re not interested at this valuation.”
SpaceX debuted at an approximate US$2.2 trillion valuation, making it one of the largest IPOs ever. After surging in early trading, shares pulled back significantly, reinforcing concerns that investor enthusiasm may have outpaced fundamentals.
Starlink’s SpaceX leading role
While SpaceX is widely recognized for its rockets, Ba argues that investors should focus on what is driving the company’s economics today: Starlink.
He describes the satellite broadband network as the company’s most valuable business, accounting for roughly 60% of revenue while generating nearly all of its operating profits.
“The early evidence suggests that Starlink is akin to a toll road business,” Ba said. “Average revenue per user has gone down from about $99 three years ago to $66, yet subscribers have grown dramatically to about 10 million and margins remain very high. That’s a very attractive flywheel business.”
Rather than viewing declining revenue per user as a weakness, Ba believes it demonstrates the scalability of the business.
“The evidence points toward a toll road rather than a traditional growth story,” he added. “That is very attractive from an investment perspective.”
He also believes Starlink has the potential to become a dominant global infrastructure platform.
“It has some elements of a potential monopoly,” Ba said. “If not a monopoly, at least a dominant player from a rural broadband perspective globally.”
SpaceX and profits
Ba also challenged the common perception that SpaceX’s launch operations are unprofitable.
“We think the lack of profitability narrative is overstated,” he said. “The losses there are reinvestment, not weakness.”
He explained that frequent launches—many conducted for Starlink itself—continue to lower the cost per mission, creating a self-reinforcing competitive advantage.
“What that does is continuously drive down the cost per launch. We think there’s an attractive flywheel in the space launch segment because of that.”
Rather than viewing declining revenue per user as a weakness, Ba believes it demonstrates the scalability of the business.
“The evidence points toward a toll road rather than a traditional growth story,” he added. “That is very attractive from an investment perspective.”
He also believes Starlink has the potential to become a dominant global infrastructure platform.
“It has some elements of a potential monopoly,” Ba said. “If not a monopoly, at least a dominant player from a rural broadband perspective globally.”
SpaceX and Artificial Intelligence
Despite seeing attractive characteristics in Starlink and launch services, Ba believes investors cannot ignore another part of SpaceX’s business: artificial intelligence.
“The Starlink business and the launch business are attractive, but you can’t own them without owning the non-attractive AI business, which is very heavily loss-making,” he said.
Ba also questioned management’s capital allocation strategy, pointing to significant fundraising and acquisitions that continue to funnel resources into AI initiatives with uncertain economics.
“The capital allocation is suspect,” he said. “A lot of money is being invested in the AI business with unattractive economics.”
Beyond valuation and capital allocation, Ba believes governance presents one of the biggest long-term risks for shareholders.
“Elon Musk owns 42% of the stock but 85% of the vote,” Ba noted. “Essentially there’s no independent board that can rein him in if he needs to be reined in.”
For institutional investors like Pillow Investment Partner, governance risk is difficult to diversify away.
“These three risks are very important to us,” he said.
Not buying—at least not yet
Despite acknowledging that parts of SpaceX exhibit the characteristics of a high-quality compounder, Ba says the firm’s investment committee is waiting for several conditions to improve before reconsidering.
“SpaceX has some element of high-quality compounding, which is attractive,” he said. “Valuation would need to come in to a much more attractive level. We’d like to see broader profitability, continued confirmation that Starlink is like a toll road business, improvements in the launch business, and improvements from a governance perspective.”
Until then, Pillow Investment Partner remains on the sidelines.
“At this point, no—we’re not going to participate in a SpaceX investment.”
As one of the world’s most closely watched public companies, SpaceX presents investors with a unique combination of mature infrastructure economics and high-risk technology ambitions. Whether that combination ultimately justifies its multi-trillion-dollar valuation remains one of the market’s biggest investment debates.
For more Expert Exchange interviews and insights, check out, Ba’s Stock Picks from Latin America to Canada. Previously, Ba also gave a global market update in the the trade war disruption.
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