How Putin’s Space Failures Highlight SpaceX’s Dominance

SpaceX closed with a market capitalization above $2 trillion on Thursday for the first time since early July. (Justin Sullivan/Getty Images)

Key Points

• SpaceX shares jumped 6.4% on Thursday, closing with a market capitalization above $2 trillion for the first time since early July.
• Russia’s efforts to build a satellite constellation to aid its war in Ukraine are failing, with many satellites failing to reach orbit.
• SpaceX plans to launch its Starmind AI satellites in 2028, with the goal of eventually creating a massive AI data center in space.

Space is the new strategic high ground. That makes access to it very valuable.

London news outlet The Times recently reported that Russia’s effort to build a Starlink-like satellite constellation to help in its war efforts with Ukraine is failing. Russia has launched dozens of satellites, with many failing to reach the appropriate orbit, leaving Russian troops with limited ability to use satellites to guide drones.

Starlink has no such limitations. It is SpaceX’s space-based broadband product with thousands of satellites in orbit, millions of subscribers, and billions in annual earnings. CEO Elon Musk doesn’t let Russians use the system. Ukraine does use Starlink in its war efforts.

Russian President Vladimir Putin’s difficulty in establishing secure space communications illustrates a couple of key points for investors. For starters, there is only one SpaceX. It handles half of the world’s orbital launches and far more than half of the mass put into orbit annually. Its pioneering use of reusable rockets has led to an enormous competitive moat in launch services. A lead it is using to build large communications and, eventually, AI businesses.

Second, it illustrates the strategic importance of space. Militaries around the world need eyes above the clouds to wage modern warfare. That puts SpaceX, as the primary gatekeeper to space, in a unique position. Of course, SpaceX is an American company, supplying the U.S. military with launch and satellite services. Its Starshield product is like Starlink, but for the military.

What Starshield, or SpaceX’s launch services business, should be valued at is hard to say. Leading aerospace & defense franchises such as Howmet Aerospace or GE Aerospace trade for close to 30 times earnings before interest, taxes, depreciation, and amortization, or Ebitda, over the coming 12 months. SpaceX trades for closer to 40 times, but SpaceX’s space business only accounts for about 5% of its estimated Ebitda. Communications accounts for about 25% of estimated Ebitda, but the majority of that is Starlink and not Starshield.

Most of SpaceX’s Ebitda is expected to come from its AI business. SpaceX stock is, and will remain, an AI play. But the company’s ability to access space is part of the AI story. SpaceX’s Starmind AI satellites are slated to launch in 2028. Eventually, SpaceX wants to have tens of thousands of Starmind satellites in orbit, creating a huge AI data center in space.

There is little doubt that space is growing in importance for militaries around the world. Planet Labs reported fiscal second-quarter earnings on Thursday evening. Its defense and intelligence business accounted for 70% of revenue in the quarter, up from 57% a year ago. Those percentages mean defense revenue almost doubled to $81 million in the quarter.

(Planet Labs has hundreds of satellites in orbit. Yes, SpaceX launched many of them.)

That’s impressive growth for Planet Labs. More defense growth is ahead for the company and for SpaceX. No one, especially the U.S., wants to cede the high ground.

SpaceX stock was up 0.3% at $150.34 in premarket trading Friday, while S&P 500 futures were up 0.1% and Dow Jones Industrial Average futures were down 0.1%. Shares jumped 6.4% on Thursday, leaving shares with a market value above $2 trillion for the first time since early July, according to Dow Jones Market Data.

A price target hike by Oppenheimer to $280 from $250 might have given shares a boost.

Write to Al Root at allen.root@barrons.com.

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