Aswath Damodaran: “SpaceX Looks AWFUL As An Investment”

**Aswath Damodaran** (0:00)
I'll tell you up front, SpaceX looks awful as an investment. We don't know whether there'll be a bust, but history suggests there will be a bust. Amount of money that's being put into AI CapEx is immense, which means that when the correction comes, the pain will be more intense.

**John Johnston** (0:20)
Hi everyone, JJ here. Welcome back. Well, today we're going to check in on what Professor Aswath Damoderan from NYU thinks of SpaceX as an investment, and generally the AI sector, the booming AI sector, the AI bubble, if you will. Well, I think it is. It seems like he is not too keen on really investing in that sector. At the current valuation, he does own some of the Mag 7 I think he says five out of the Mag 7 stocks, but he specifically references SpaceX in this. This is from Excess Returns, a YouTube channel and podcast. I'll link to it in the description. This is well over an hour, this interview. I've just selected a couple of clips where he's talking about SpaceX and AI and how it's going. And he is known as the Dean of Valuation.
He's very experienced at it, has decades of experience, and this is what he thinks.

**Aswath Damodaran** (1:20)
On AI, here's the challenge. The market is big, but the unit economics don't look great yet. And as far as I can see, I'll accept the big market. I'm willing to go $5 trillion, $6 trillion, not to the $26 trillion. But I don't see an easy way for this to become a market where, by unit economics, I'm talking about how much you make on the next unit you sell.
It's going to stay, in my view, a low gross margin business because of the nature of the business. In fact, there's an interest.

**John Johnston** (1:53)
So he's talking about SpaceX here, that TAM, that total addressable market, and a huge chunk of that is supposed to be AI. And he's really questioning it.

**Aswath Damodaran** (2:05)
Which is, at the high end of the spectrum, AI can replace a person, but it's so expensive to deliver that AI. Then you've got to be a McKinsey consultant that I'm paying a million dollars for AI to actually pay off for me. So if you want to build the market being big story, it has to go with bringing down the cost of high power AI. And that's going to be tough to do. This business is still very much information. We're going to run into this again when OpenAI goes public and Anthropic goes public. The total addressable market is what bankers and the company are going to use to dazzle us. Look at how big the market is.
I'm looking to see what they tell me about the unit economics.
My guess is they'll underplay it because it doesn't look good now and there's no e. This is not like unit economics in a software business.

**John Johnston** (2:59)
The data centers they're building, they're so expensive for this AI compute.
There looks to be cracks forming as well, just to dazzle us or a tweet that was saying that Meta is not actually using all the compute that they've got. There's talk that they might be leasing it or renting it to Anthropic and SpaceX, which is XAI, has been doing that too. So being told that their compute constrained, it does not seem like that's the case in at least two of the cases. So it's all OpenAI and Anthropic really, and the other is just going to rent space to them, just be data center providers. Is that where it's heading? I mean, how is this going to play out? It's such early days, which is what he says in this. It's too early to tell and the valuations are sky high.
And he said even good companies can be good investments or bad investments depending on the price. And he's done a valuation of SpaceX, which is really just over a trillion, I think, or 1.2, 1.3, it's far from the market valuation of well over 2 trillion to as much as 3 trillion it's been.

**Aswath Damodaran** (4:08)
Hey, you know what? As I scale up, my margins are going to go up because it cost me almost nothing to produce that extra unit. Be interested to see what the stories are for these AI companies as they go public. The case of SpaceX, I did assume that Grok would actually become a legitimate contender for the enterprise AI market. Which right now, it's actually third in line, or even fourth in line after, because it hasn't really focused that much on that market. I assume that they would find a way to focus. They recently, I mean, they just announced a new business versus acquisition. And that's really an enterprise AI solution. You're providing coding solutions to companies that need coding.