Key Points

SpaceX is reportedly targeting a $1.77 trillion valuation.
Investors should understand what that valuation is betting on.

Reports indicate SpaceX is aiming for a valuation of $1.77 trillion. This amount falls toward the higher end of prior estimates that ranged between $1.5 trillion and $2 trillion.

Many analysts are warning about this elevated valuation, particularly since SpaceX has not achieved profitability. A recent Morningstar assessment places the company at roughly $780 billion. Yet SpaceX's prospectus shows the firm is pursuing a total addressable market of $28.5 trillion.

For historical context, the targeted $1.77 trillion valuation may appear excessive because most of the company's upside remains unrealized. Setting the share price therefore centers on future possibilities rather than present results.

What could the company ultimately become? Investors considering the SpaceX IPO will place most of their capital on one primary opportunity.

Here is what the SpaceX IPO valuation depends on most

SpaceX currently earns profits only from its Starlink division, which delivers satellite broadband and mobile connectivity. This unit produced about $11.4 billion in revenue last year and generated $4.4 billion in operating profit.

The rocket segment ranks among the most advanced globally. Successful commercialization of the Starship vehicle could slash payload expenses and give SpaceX a leading edge in both cost and capacity worldwide.

Most of the target valuation, however, does not rest on these two segments. Only $2 trillion of the claimed $28.5 trillion total addressable market relates to Starlink and rockets. The balance centers on artificial intelligence.

SpaceX's AI operations remain unprofitable, and details on scaling or profitability are limited. The company itself acknowledges the risks in its prospectus.

"Our AI business is in a relatively early stage, it is being integrated into our organization, its business strategy is still developing, and it will require significant capital expenditures to fund compute, infrastructure and power generation, model training, and product development," the prospectus states. "Additionally, our AI business is subject to challenges inherent in a nascent, highly competitive, capital intensive and rapidly changing industry."

The IPO valuation therefore appears steep, yet it largely reflects expectations for the emerging AI unit and its pursuit of a $26.5 trillion total addressable market. Strong results in this area alone could support the $1.77 trillion price.