The Trillion Dollar Gap | Aswath Damodaran on SpaceX, AI and the Big Market Delusion

**SPEAKER_1** (0:01)
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**SPEAKER_3** (0:56)
We are excited to announce the launch of a new podcast, The Intangible Economy with Kai Wu. AI and the broader technology revolution are changing how we live, work, and create value. In each episode, Kai will sit down with investors, researchers, and other experts to discuss how innovation and other intangible forces such as brands, human capital, and network effects are transforming markets and investment outcomes. In this episode, Kai is joined by the Dean of Valuation, Aswath Damodaran. They discuss AI, SpaceX, value investing, and a lot more. If you would like to continue receiving new episodes of The Intangible Economy, you can subscribe on all major podcast platforms using the links in this episode description. Thank you for listening. We hope you enjoy the new show.

**Aswath Damodaran** (1:28)
Any company can be a good investment at the right price. Conversely, any company can be a bad company at the wrong price.
So this notion of good companies are good investors, let that go. We make this mistake of assuming growth is always good, but growth when it's accompanied by huge amounts of reinvestment and substandard gross margins, which unfortunately the state of the AI market now is insane amounts of capex, might not just be neutral to value, but actually be value destructive. What's SpaceX saying? We're going to be players in this space, we're going to compete, we're going to win a significant market share of the AI market. But in the same breath, they're also saying, we're renting out space from our data centers to our biggest competitors. If AI is a tool, it's going to be a much smaller market than AI replaces people. So the stories we're telling about 10, 50, 20, 25 trillion markets are actually terrifying stories for the rest of the world.

**Kai Wu** (2:29)
Our guest today is the legendary Aswath Damodaran, who has been teaching corporate finance at NYU for over four decades, earning him the moniker, the Dean of Valuation. He has published a dozen books on finance, investing, and posts regularly at his blog, Musings on Markets.
I am particularly excited to have Professor Damodaran on as a guest on the intangible economy as he has been a long-standing advocate for the importance of intangible assets in company valuation. In my opinion, this lens has helped him apply classical valuation techniques to a much broader set of companies, ranging from asset-like tech companies to consumer brands, to younger firms earlier in their corporate life cycle. Professor Aswath Damodaran, thank you for taking the time and welcome to the intangible economy.

**Aswath Damodaran** (3:13)
Thank you for having me.

**Kai Wu** (3:15)
Let's start with the news of the day, SpaceX.
SpaceX, of course, went public last week. The company brings together almost every hard problem in valuation today, high and uncertain growth, negative profits, limited financial history, few company peers, huge risk-willed market, massive capital requirements, disruptive narratives, and key person risk. You first valued the company in April and then updated your valuation once the prospectus dropped a couple of weeks ago.
We now know what happened. SpaceX IPO'd at a valuation of $1.8 trillion and has been met with unbridled investor enthusiasm. As of this recording, it now trades at around $2.7 trillion, making it the world's fifth largest company with a market cap greater than that of Amazon and slightly below Microsoft. So obviously, the narratives around SpaceX are super upbeat. However, you've argued that the narratives must be supported by the numbers, in this case, the valuations. Can you walk me through your SpaceX valuation? What was your target valuation and how did you arrive at this figure?

**Aswath Damodaran** (4:19)
I mean, if you look at SpaceX, it started as a space launch business. In fact, people don't seem to quite know this. It's older than Tesla. It was founded by Elon Musk with the money that he cashed out with on Paypal about a few months before Tesla was founded. So it's been around. In terms of chronological age, the company's been around a long time, 25 years. And when it started, I think the Musk vision was people need to look to space, go to Mars. And that, for many people, when you think about SpaceX, they think about like Blue Origin. So it's another company trying to get people out to Mars. But over time, that's not how that part of the business has evolved. What SpaceX essentially has done is it's reinvented the space launch business. Let me step back. Pre-SpaceX, if you wanted to launch a satellite into space, you were dependent on either a government agency or an established defense company. They did it on the side. This was not their primary business. It was one and done. You launched something into space on a rocket, the rocket blew up, and you were done. It was an expensive process. When SpaceX came along, the response from many experts in the field, and that's something to remember. Elon Musk has consistently proven these experts wrong. He said, you can't do this. This is a very different business. You don't have the expertise to do it. He changed their minds. He changed the business by creating relaunchable rockets. That's a revolution he brought in, and it gives that part of the business an incredible cost advantage over competition. Recently, there are some young companies that have tried to do what SpaceX has done, but essentially, they've lowered the cost of launching things into space, and they've been lucky in a sense that we need more and more stuff in space to support what we do need on Earth, from GPS to our phones. Satellites have become an indispensable part of what we do. So at its core, that is SpaceX's original business, and for about 15 years, it built that business. It was slow to take off because it's a very technological business. I mean, it's an engineering marvel. This isn't an app company or a software company. This is a physical infrastructure company, and it took them a while to get their feet on the ground, but even after they got their feet on the ground, it's not a big business. It's not like you got thousands of people lined up to launch stuff into space. It's a small niche market, and they have a huge market share of that market because of the cost advantage.