SpaceX: Reading between the lines
Elon Musk’s SpaceX has given markets a rare opportunity to test risk appetite across credit and equity in recent days, having followed its blockbuster initial public offering (IPO) with a bond market debut.
The long-awaited IPO last week raised some $86bn, taking SpaceX’s cash account to well over $100bn and making Tuesday’s $25bn bond issuance look small by comparison. The way in which equity and credit investors have priced these newly issued financial instruments has been quite informative when it comes to our assessment of the state of risk markets.
SpaceX went public at a price of $135 per share. Metrics like price-to-earnings ratio do not add much value given the business is loss-making at this stage, but based on revenues the multiple was close to 100x, while the enterprise value-to-EBITDA (earnings before interest, tax, depreciation and amortisation) ratio was around 260x. It comes as no surprise that most of this valuation is derived from future growth potential, which would include putting data centres in space, bullish expectations for the AI business and steady growth in Starlink, among others. Trading has been quite volatile but, after travelling the stock market equivalent of Mars and back, the shares are still 15% higher than the IPO price.
Fixed income pricing by contrast has remained closer to planet Earth. Rating agencies gave the unsecured bonds issued by SpaceX on Tuesday a Baa1/BBB/BBB+ rating, comfortably into investment grade territory.
One analyst at S&P described the rating committee as “one of the most interesting I’ve had in 20 years,” and indeed it is highly unusual for a BBB+ rated company to be showing capital expenditure (capex) equivalent to four times the cash generated by its operations. SpaceX’s capex last year was close to $20bn while cash generated by operations was $6.7bn. In Q1 2026 alone, the numbers were $10bn and $1bn respectively. We also noted the absence of clear guidance on future capex numbers in the roadshow. That said, it is probably just as unusual to see a company this imbalance between cash generation and capex alongside net debt of -$50bn and a $1.75tr equity valuation sitting below bondholders.
In our view, SpaceX’s credit profile is not consistent with other BBB+ issuers but nevertheless, the credit risk at this stage looks low given the enormous cash pile on balance sheet. Rating agencies do not usually give a lot of weight to future plans, and SpaceX was no exception. S&P specifically said it did not consider in its ratings the plans for colonising the Moon and eventually Mars, building data centres in space, or the design and production of SpaceX’s own chips.
S&P considered these plans outside the scope of ratings as “many of these plans are not yet quantifiable.” If and when they become a reality, however, they could put pressure on ratings if the payback period is too long between initial investment and cashflow generated. This would not be in keeping with SpaceX's statement that its financial policy “targets investment grade ratings, which will serve as a guardrail for future investments and capital needs,” though needless to say this policy could be abandoned at the company’s discretion.
The five tranches of bonds issued on Tuesday came at spreads of 110bp, 130bp, 140bp, 165bp and 175bp for five, seven, 10, 20 and 30-year maturities respectively. At time of writing the five-year bonds are trading slightly tighter in the secondary market at 107bp, while the seven- and 10-year bonds are trading roughly flat to where they were priced and the longer dated bonds are around 3bp wider. It seems the bond market generally agrees with our view that the ratings are a little too optimistic. The bonds are trading at spreads more typical of a BBB- rated issuer, close to two notches below their actual rating.
In our opinion, credit markets are pricing the risks involved in tech and AI in a less exuberant manner than equity markets at the moment. This is as it should be, given bondholders do not benefit from the potential upside if SpaceX’s grand plans come to fruition. The so-called hyperscalers are raising enormous amounts of debt but also of equity, and while this provides no guarantee that credit profiles will not deteriorate, it is definitely a positive from a bondholder perspective.
Companies such as Google or Meta might end up with returns on equity that are lower than initially expected, but there is a long way from there to having severe credit issues. Bondholders can withstand a wide range of return on equity outcomes and still get paid their coupons and principal in a timely manner.
As for SpaceX, only time will tell if its bonds are cheap to the rating or if the rating is too optimistic. But the buffer to withstand some disappointment in results in the near future seems a lot fatter in the bonds than the equity.
