Roughly six weeks ago, on June 12, Elon Musk's Space Exploration Technologies (SpaceX) (NASDAQ: SPCX) cemented its name in Wall Street's record book. Its initial public offering (IPO) raised $85.7 billion, including the underwriters' overallotment option, and its market cap quickly vaulted to nearly $3 trillion in the days that followed.
Although Wall Street analysts have set some truly lofty price targets for SpaceX stock, the biggest bull in the room continues to be its CEO. On July 17, Musk responded to a commenter on social media platform X (a subsidiary of SpaceX) by stating: "I said SpaceX will be worth more than Earth if we achieve our goals."
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Musk has a habit of making otherworldly innovative promises -- but this is one target that the bond market simply doesn't agree with.
Bond traders are sending a clear message about SpaceX
Before SpaceX went public, it released a lengthy registration statement (S-1) that contained its financials, risk factors, and forward-looking projections, among other details. The company's S-1 also noted that debt and equity offerings would be relied on to expand artificial intelligence (AI) start-up xAI's compute capacity.
SpaceX wasted little time raising additional capital after its IPO. On June 23, the company priced $25 billion in debt across five tranches, with maturities ranging from 2031 to 2056, and coupon rates of 5.35% to 6.65%.
Bonds are typically issued at or around par value ($1.00) and can trade above or below par, depending on the bond market's outlook for the company in question. Since SpaceX's bonds began trading a few weeks ago, they've been sinking like a cement block:
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2031 bond: 99.92 cents (issued) / 98.35 cents (as of July 17)
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2033 bond: 99.84 cents / 97.10 cents
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2036 bond: 99.83 cents / 95.63 cents
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2046 bond: 99.93 cents / 92.63 cents
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2056 bond: 99.45 cents / 91.07 cents
While this decline isn't as noticeable in the bond maturing five years from now, there's been a decisive drop in bond prices for the longer-dated maturities over the course of three weeks.
As a reminder, bond prices and yields are inversely related. As bond prices are dragged lower, yields are pushing higher. What this tells us is that bond traders still don't see an attractive risk-versus-reward scenario with some tranches of SpaceX's debt yielding north of 7%.
More importantly, it indicates the bond market isn't convinced that Elon Musk's company can make good on its debt obligations. Despite SpaceX's mammoth capital raise, the company hasn't demonstrated it can generate recurring profits, and several of its operating segments are highly capital-intensive (xAI and its space infrastructure operations) and prone to production delays.
Based on what the bond market is telling us, not only will Musk's company not be worth more than Earth, but there aren't any solid guarantees it'll remain one of America's largest public companies.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Elon Musk Just Claimed That "SpaceX Will Be Worth More Than Earth," but the Bond Market Strongly Disagrees was originally published by The Motley Fool
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