SpaceX merges Elon Musk’s AI firm – will the shares rocket?
‘It is time to move forward, to be among the stars, to expand the scope and scale of human consciousness,’ says Elon Musk.
The Tesla tycoon’s latest deal may inspire investors to follow his call; but the recent failure of Orbex, a UK space initiative based in the Orkney Islands, highlights the dangers of boldly venturing beyond this planet.
Earlier this month, Musk announced a $1.25 trillion (£930bn) merger between his rocket company SpaceX and his loss-making start-up xAI, which owns the X social network.
The combined entity, to be called X.AI Holdings, will list on the stock market in July in what could be the largest IPO ever. The business could be worth $1.5 trillion (£910bn).
X.AI aims to colonize Mars and establish factories on the Moon.
But more immediately, he hopes to build solar-powered data centers that would orbit in space and provide the computing power to fuel the growth of artificial intelligence.
Reaching for the stars: Elon Musk says it’s ‘time to move forward and expand the scope and scale of human consciousness’
This latest expansion of ‘Muskonomi’, as Musk’s empire is known, underlines the important role space will play in the AI arms race.
But it also underlines the importance of space for land defence, at a time when NATO countries have pledged to increase spending in this area by 5 per cent to $13.4 trillion (£9.9 trillion) by 2035.
Space firms of all stripes could capture 10 to 20 percent of that increase thanks to increased spending on technologies such as earth observation, which includes satellite surveillance of infrastructure and troop movements.
For example, Azalea satellites operated by UK defense giant BAE provide ‘intelligence, surveillance and reconnaissance to improve the nation’s ability to protect against modern threats’.
According to Mark Boggett, managing director of the Seraphim Space Fund investment trust, information from satellites is now becoming an important defense capability. He said: ‘Ships and tanks can now be destroyed by drones that cost a few dollars to build. But better technology gives you an advantage over attackers.’
Approximately 70 percent of the revenues of the companies in which Seraphim Space invests are obtained from defense. These tech stars are diverting their satellites from monitoring projects for insurance and oil companies to monitoring hostile territory on behalf of the US, UK and other NATO countries.
Defense is one of the reasons why the S&P Kensho Final Frontiers index of space technology companies has increased by 86 percent in the last 12 months.
Members of the index include arms and weapons companies such as US giants Boeing, Lockheed Martin and Northrop Grumman, as well as names such as Planet Labs. Founded by three former NASA scientists, the business operates a fleet of image-taking satellites. Its shares are 409 percent higher than a year ago.
The creation of X.AI has been described by skeptics as ‘financial engineering’. There are also no details yet on how Musk plans to raise the massive amount of capital to assemble and launch the satellites; He wants to have a constellation of one million satellites.
But it would be short-sighted not to see this initiative as a warning to look beyond planet Earth for the next portfolio opportunities, no matter how distant. Here’s how to plan your trip to space.
Takeoff?: A SpaceX rocket during launch
A share in SpaceX
According to Shaun Maguire of US venture capital firm Sequoia Capital, X.AI’s planned stock market debut should be ‘the healthiest wealth creation event in history’.
This is likely because the welfare of the company’s workforce will increase with appreciation in stock options.
The IPO could also provide a major boost to Musk’s campaign to surpass other tech billionaires in the AI weapons war, as Musk is SpaceX’s largest shareholder with 43 percent.
Boggett said: ‘The combination of the two businesses will have a moat; It’s a competitive advantage. Data centers are voracious users of costly energy. But X.AI’s data centers in space will have access to an unlimited source of free energy from the sun.’ Musk may choose to use these data centers solely for the use of his own ventures, including Tesla, or provide access to rivals for a fee.
star funds
If you have money in Scottish Mortgage, Musk’s extraterrestrial ambitions may also be good news for you. This £13.38 billion investment trust, managed by Baillie Gifford, invested $200 million in SpaceX in 2018.
This is currently worth $3.3 billion. SpaceX is also held by other Baillie Gifford trusts: Baillie Gifford US Growth, Edinburgh Worldwide and Schiehallion.
Despite the promise of the X.AI reward, buying shares in these trusts currently carries considerable risk.
Hedge fund Saba, run by activist investor Boaz Weinstein, still owns 30 per cent of Edinburgh Worldwide and is making a third attempt to take control of the trust.
Schiehallion and Scottish Mortgage (I’m an investor here) are a bet on technological innovation of all kinds.
Baillie Gifford US Growth supports Amazon, Meta, Nvidia and other Magnificent Seven stocks (Tesla, Alphabet, Microsoft and Apple) that you may already have exposure to.
Another trust – RIT Capital Partners – also owns a small slice of SpaceX. But this confidence also applies to the more adventurous, as unlisted companies make up 30 percent of the portfolio.
Shares in Seraphim Space rose 155 per cent to 146p last year, but the trust does not have a stake in SpaceX and prefers to support start-ups and established companies in all aspects of space infrastructure.
Finnish tactical satellite manufacturer ICEYE is currently the largest holding company. The company will produce satellites for the German government in a joint venture with the country’s arms giant Rheinmetall.
Seraphim’s other investments include HawkEYE, a U.S. leader in the collection and analysis of radio frequency (RF) data, a service with a variety of military applications.
AST SpaceMobile is another Seraphim investment. This US satellite designer is building a mobile network in space that would increase connectivity in remote, rural or urban locations with poor coverage.
This week Seraphim secured funding from the British Business Bank and the National Security Strategic Investment Fund’s second venture capital fund.
If you want to explore every aspect of space, other options include two exchange-traded funds (ETFs): Ark Capital Space and Defense Innovation and VanEck Space Innovators, whose ticker symbol (known on the exchange) is Jedi after the Star Wars warrior order.
In this fund’s portfolio you’ll find US spacecraft manufacturer Planet Labs and Rocket Lab, seen as mini SpaceX.
defensive strategy
Over the past year, UAE shares increased by 52 percent, while Babcock increased by 118 percent.
The price of Rheinmetall, which won the tender to supply unmanned aerial vehicles, or ‘flying warheads’, to the German army this week, increased by 66 percent.
Increasing geopolitical tensions since the beginning of this year are one reason to continue carrying these defensive names.
But Musk’s new emphasis on space could direct even more defense spending there, giving their shares an extra boost.
If you want a broader exposure to defense operators, there are three defense ETFs: Future of Defense, Global X Defense Tech, and VanEck Global.
None of them promise to take you to infinity and beyond. But they can play a vital defensive role in your portfolio in these uneasy times.
DIY INVESTMENT PLATFORMS
A.J. Bell
A.J. Bell
Easy investment and ready portfolios
Hargreaves Lansdown
Hargreaves Lansdown
Free fund trading and investment ideas
interactive investor
interactive investor
Fixed fee investment from £4.99 per month
free trade
free trade
Investing in Isa is now free on the basic plan
Trade 212
Trade 212
Free share sales and no account fees
Affiliate links: If you publish a product, This is Money may earn a commission. These deals are chosen by our editorial team because we think they’re worth highlighting. This does not affect our editorial independence.
