Investors planning to buy shares in SpaceX through its initial public offering, which is approaching a $2 trillion valuation, are betting on CEO Elon Musk and his ability to transform the companys growing satellite business into something much larger by using an as-yet unproven rocket system to support massive artificial intelligence ambitions.

Musk successfully transformed SpaceX into the worlds largest rocket company by launching thousands of Starlink internet satellites and pioneering reusable rocket technology that reshaped the economics of the space industry.

But the company is now seeking a valuation based not only on its current achievements, but also on the empire it could eventually become if Musks ambitious bets on Mars colonization, space-based data centers, and artificial intelligence leadership succeed.

At the center of these ambitions lies a chain-reaction thesis in which each stage unlocks the next phase of funding and expansion. Starlink is expected to generate the cash flow needed to fund the next-generation Starship rocket, while Starship would lower launch costs and expand the market, eventually supporting the companys new artificial intelligence business, which continues consuming enormous amounts of capital.

Josh Gilbert, analyst at trading platform eToro, which plans to offer trading in the stock after listing, said: The risk is not whether SpaceX is a real company, because it clearly is. The real risk is whether a $1.75 trillion valuation adequately reflects the execution challenges of a company that is partly a rocket business, partly an internet provider, and partly an artificial intelligence project all driven by the vision of one person.

SpaceX is already testing investor patience after revealing in its S-1 filing losses of $4.28 billion during the three months ending March 31, an eightfold increase compared with the same period last year.

Those losses alone are likely to push investors toward relying less on traditional financial metrics and more on belief in Musks ability to execute his promises.

Investor confidence in Musk

From building Tesla into an electric vehicle company worth more than $1 trillion and accelerating the global shift toward clean transportation, to leading SpaceX into becoming the first private company to transport astronauts for NASA, Musk has repeatedly transformed high-risk engineering bets into dominant businesses. That track record strengthened investor confidence that even his most ambitious assumptions for SpaceX could eventually become reality.

Greg Martin, co-founder of Rainmaker Securities, said during a video call: You cannot justify a valuation between $1.75 trillion and $2 trillion for SpaceX using traditional financial metrics alone. Many investors believe SpaceX could eventually become a company worth between $5 trillion and $10 trillion.

Musks projects frequently arrive behind schedule. Teslas Cybertruck, unveiled in 2019, did not begin deliveries until 2023, while the Roadster 2 announced in 2017 remains under development, alongside Teslas low-cost EV platform and Optimus robots. The robotaxi service expected to support near-term growth has also rolled out more slowly than earlier promises suggested.

Even so, investors, analysts, and fund managers interviewed by Reuters largely remain optimistic, with many believing the companys satellite and space operations alone justify a valuation approaching $2 trillion.

Business risks

SpaceX would join a very small group of companies valued above $2 trillion, most of which generate stable revenue and strong profits.

In contrast, SpaceXs accumulated deficit reached approximately $41.31 billion by March 31, reflecting years of spending that vastly exceeded revenues due to the cost of developing reusable rockets, the massive Starlink network, and giant artificial intelligence data centers.

Starlink remains the companys financial backbone after generating $3.26 billion in revenue during the quarter ending in March, up nearly one-third year-on-year, although profit margins faced pressure from international expansion and other expenses.

SpaceX presented Starship not merely as a rocket, but as a core component of the companys future, stating in the risk factors section of its filing:

Our ability to execute our growth strategy depends heavily on Starship.

The company warned that any delays in development or in achieving cost targets could disrupt deployment of next-generation satellites and artificial intelligence infrastructure, increase expenses, and weaken growth and customer retention.

It also stated that its currently operational Falcon 9 and Falcon Heavy rockets are incapable of deploying the companys newest satellites.

Revenue from the space business declined 28.4% during the March quarter, while losses widened to $662 million from $70 million a year earlier as SpaceX poured massive investment into Starship development.

Meanwhile, losses in the artificial intelligence business jumped to $2.47 billion, while capital expenditures tripled to $7.72 billion, exceeding the combined capital spending of all other operations.

SpaceX summarized the challenge by stating:

The complexity and interconnectedness of our engineering, manufacturing, assembly, ground infrastructure, and space transportation systems mean that disruption in any single component could trigger cascading effects across our entire operations.