Limitations of the Unlimited

Tian Xuan Zhou (Oliver)
Bachelors Student, New European College – Munich

If space is infinite, then aerospace is an unlimited industry.

1.77 Trillion, SpaceX’s target valuation for its IPO that is set to debut this Friday. Aiming to raise 75 Billion, 4.2% of this 1.77 Trillion dollars at $135 dollars per share at least. This is most definitely uncharted territory. Although I am a firm believer in the future of the aerospace industry, this valuation to me is rather high initially, and I have a feeling a lot of “the street” may think the same. A fiscal year revenue of 3.4 Trillion is projected in FY2040, this is FOURTEEN years. It is also known that XAI, after the merger with SpaceX, will be the subsidiary to produce the bulk of the revenue going forward until 2030, ranging from 330 Billion to 470 Billion. I think this is making a lot of people reconsider their thoughts about valuations, and not just SpaceX.

This is why I will be derisking in general for Monday next week, which I am anticipating a huge spike in volatility and huge intraday swings. Especially with this Friday placement, all market participants will have a whole weekend to digest and decide on Monday. Already seen a rotation into financials, which a huge reason is because of the banks heading the IPO itself, with Morgan Stanley and Goldman Sachs being the stand out two. Consumer staples also saw an influx. Whilst there has been a global drawback in tech sectors. I also think that it is very hard to hedge this event, due to this largely being an unknown unknown, shorting KOSPI is an idea (terrible idea I think, this is more of a downside bet), VIX options assuming that volatility is spiking come Monday. So I think it is best to take out some exposure.

Why am I leaning more towards the downside? For one, the options volume and trade for indexes globally. Take for example SPX put options are seeing a lot of activity, however call options for example are also seeing a lot of activity but not in the same direction, there is a lot more downside protection in comparison to the upside, this is the same with HSI options and the same with Japanese index options. This is more evident with put spreads, with SPX bear put spreads for next Monday (+1 expiration) seeing a considerable amount of open interest. Not very optimistic in my opinion.

Not to say that I dislike this industry in the long term, I love aerospace (If money didn’t matter I would love to work as an astrophysicist) , I just think that the valuation is a bit inflated currently. I am still very optimistic for smaller cap aerospace companies and I am still actively looking to buy long into RDW again. Overall the IPO of SpaceX I think will be a tailwind for the sector as a whole going forwards. Potentially maybe looking to pick up SpaceX in the future.