Elon Musk's SpaceX IPO filing just told us what business he's betting on for the future—and it's not rockets

The recent SpaceX offering statement, filed on May 20, illustrates that the company's current operations in rocketry, satellite deployment, and artificial intelligence (AI) yield minimal revenues while incurring substantial losses. With an anticipated market capitalization of $1.5 trillion or more following the IPO planned for mid-June, it seems that investor optimism is based primarily on future potential. However, a thorough examination of the S-1 document uncovers significant obstacles that could hinder the company's ability to generate the expected returns for eager shareholders in what is projected to be the most highly anticipated IPO in recent history.

The challenges arise not solely from SpaceX entering the public market at a lofty valuation. As noted in the prospectus, Elon Musk's company has transitioned from being a commercial space leader facing manageable competition to positioning itself as an AI-focused player in direct competition with industry behemoths such as Microsoft, Google, OpenAI, CoreWeave, and other powerful entities.

To gain a competitive edge in this densely populated niche, SpaceX must dramatically increase its capital expenditures on data centers and invest in research and development to create innovative products. The S-1 indicates that these already substantial expenditures are accelerating and are projected to grow further in the coming years. However, it may take considerable time for AI-related profits to materialize. The report suggests that while the established space operations could generate significant success, they may not suffice to fulfill the financial ambitions set forth by Musk and reflected in the overall valuation.

Governance and Profitability Concerns

A recent comprehensive analysis by David Trainer, CEO of New Constructs, identifies various vulnerabilities that could jeopardize SpaceX's future. Notably, the governance structure is uneven, as a small group of funds and individuals is expected to hold nearly 60% of shares, yet wield virtually no voting power. Elon Musk will maintain almost complete control; he cannot be ousted via shareholder vote and has the authority to appoint a board primarily comprised of insiders.

Trainer also highlights that SpaceX will debut as the least profitable company among its main competitors in the industry.

Another noteworthy concern is Trainer's discovery that a significant portion of the projected IPO revenues is already allocated. This raises the question of where the necessary funding for capital expenditures will originate. The anticipated issuance of additional shares and potential borrowing to support AI initiatives may pose a considerable downside risk for investors.

Of the two non-AI sectors, rockets are posting losses while the satellite side is thriving

Per the S-1 details, SpaceX operates on three primary fronts: Space, Connectivity, and AI. Overall, the consolidated entity reported $18.7 billion in revenue alongside an operating loss of $2.6 billion, with AI activities being the foremost contributor to losses.

The Space division comprises the company’s rocket offerings, which are manufactured in-house and employed for launching its own satellites. It also includes contracts with NASA for rocket sales and launches, along with specialized orbital trips for premium-paying clients.

Conversely, the Connectivity segment proves to be a robust financial success with ample growth potential. This segment, which represents nearly two-thirds of total revenue, is SpaceX's only profitable venture. The Starlink division operates a constellation of 9,600 satellites, constituting three-quarters of the total fleet currently in orbit. The service boasts over ten million paying subscribers for mobile and broadband connectivity. This segment maintains a strong competitive edge due to its dominant position in the commercial satellite market, backed by substantial investment and advanced technology that present a considerable barrier to entry for competitors. It serves as a dependable source of cash flow.

In the twelve months concluding in Q1, Starlink expanded its subscriber base, doubling to reach ten million. However, the influx of new customers brings challenges, as profitability per subscription has declined, falling from $99 in 2023 to $66 in the current Q1. Consequently, revenue growth has also experienced a lag, with a 50% increase in 2025 compared to the previous year, amounting to $11.4 billion. Although the segment remains extremely profitable, yielding $4.4 billion in operating income last year with a 30% margin, it faces escalating competition from terrestrial networks operated by entities like T-Mobile and Google Fiber, which many users find to be more dependable than satellite alternatives. The overarching issue remains: even if the Connectivity sector continues to grow rapidly, it may not be sufficient to generate the level of revenues and profits necessary to satisfy shareholders or fund AI endeavors.

A big concern for shareholders: The IPO proceeds won't be available for funding most AI capex

The burden of financing AI initiatives weighs heavily on that sector. Recently, SpaceX has positioned itself as a major player in the AI industry, particularly following its merger with Musk-controlled xAI in February, a move that reportedly enhanced SpaceX's private valuation by $250 billion. AI has also been a critical source of losses, generating $4 billion in revenue over the last five quarters while incurring over double that amount, $8.9 billion, in operating losses.

Trainer emphasizes that the challenges from both the Space and AI sectors—despite the success of Starlink—leave SpaceX lagging behind competitors in both broadband and mobile sectors, as well as in the AI market, when assessed by profitability and return on invested capital. Last year, SpaceX recorded returns of -7% and -3% in those metrics, significantly trailing firms such as Comcast (12% and 6%), AT&T (17% and 4%), Amazon (11% and 14%), and even CoreWeave (10% and 1%).

This company-wide profitability deficit raises crucial questions regarding how SpaceX will finance its substantial need for capital expenditures needed to fulfill its ambitious AI objectives.

The company is swiftly broadening its array of data centers, many newly acquired from xAI. The flagship facilities, dubbed Colossus I and II, are located in Memphis and encompass a total of 2 million square feet. Additionally, SpaceX is investing $20 billion in a new hyper-scale center in Mississippi. Since the beginning of 2025, the AI segment has expended $20.4 billion to expand its infrastructure footprint, accounting for two-thirds of SpaceX's total capital expenditures during that time. In Q1 alone, AI expenditures reached an impressive $7.7 billion. The previous year, the AI segment accounted for 60% of the overall R&D investments, with Q1 expenses hitting $3.5 billion—double the amount spent in the prior year.

These figures indicate that Musk is leveraging his reputation as a visionary to craft a potentially overvalued stock. The excitement surrounding the IPO has prompted expectations of raising $80 billion, despite SpaceX only needing to sell about 5% of its shares. It appears that the company is poised to accumulate a war chest sufficient to fund a few years of AI investments independently.

However, Trainer points out that this may not be the reality. The analysis indicates that SpaceX has already committed a staggering $62.8 billion, or 78% of expected IPO proceeds, to various third-party payments. This allocation breaks down to roughly one-third each for Valor Equity Partners, a key early investor; Musk's X Corp. and xAI creditors for debt repayment; and EchoStar for the "Spectrum Acquisition Closing." This leaves less than $18 billion available to invest in the growth of SpaceX, primarily for bolstering its AI computing capacity. It is important to note that this amount falls short of what the AI sector consumed in the last five quarters alone.

The challenge becomes clear: the remaining $18 billion may not sustain operations for long, considering the rising costs associated with AI expenditures, spanning capital outlay, operating expenses, and research and development. The S-1 indicates that free cash flow generated from the company's non-AI operations contributed only $1 billion last year, which could support a minimal portion of what Musk envisions as the engine driving growth. The prospectus also hints at the potential issuance of more shares and additional debt to sustain the rapid expansion of data center projects, strategies that could dilute shareholder value and inflate interest expenses.

One of the most crucial statements within the expansive, nearly 400-page document appears on page 53, where SpaceX highlights the extensive investment and protracted timeline required to capitalize on the promising AI sector. The document asserts, "We expect to allocate substantial capital to expand our compute infrastructure, and we anticipate a multi-year investment horizon before these deployments yield sustained positive AI Segment Adjusted EBITDA. Throughout this investment period, our capital expenditures will scale quickly." It's worth noting that "scaling up" is occurring from a base where Q1 expenditures alone reached a staggering $7.7 billion.

The AI opportunity and the competition

The S-1 also underscores SpaceX's heavy reliance on its newly formed AI division to drive the aggressive revenue and profit growth anticipated by investors at the projected $1.5 trillion valuation. A key illustration within the S-1 is a chart detailing the total addressable markets for each of its three segments, with SpaceX estimating a remarkable total TAM of $28.5 trillion. Notably, AI comprises a staggering $26.5 trillion or 93% of this total. Large total addressable markets provide significant growth opportunities but also attract intense competition. SpaceX is shifting focus from its dominant satellite business to an arena increasingly crowded with established industry leaders such as Microsoft and Google. While the market may expand rapidly, numerous rivals will be vying for their respective shares, an environment likely to pressure pricing and profit margins.

Trainer’s assessment suggests that, to deliver meaningful returns to investors at a $1.5 trillion valuation, SpaceX would need to be realizing $189 billion in annual profits by 2035. If the valuation were to rise to $1.75 trillion, the target escalates to $245 billion. In 2025, no U.S. company has approached even the lower figure. Musk is banking on what could be described as "Out of this World Profits" to satisfy investor expectations. Compounding the challenge is SpaceX's introduction as a company currently operating at a loss.

For investors, if there's one takeaway from the S-1, it is not the fanciful aspirations regarding solar-powered data centers orbiting the Earth, but rather Musk's candid acknowledgment that generating profit in AI will require substantial financial outlays and take considerable time. While investors may find merit in supporting his vision, the risks associated with this highly anticipated IPO are equally significant.