A Statistically Sound Valuation Measure for SpaceX, Open-AI and Anthropic

Measuring Early-Stage Market Value When Earnings are Negative and PE Ratios Undefined.

Abstract: Traditional valuation metrics, most notably the price-to-earnings (P/E) ratio, break down and become mathematically undefined when a firm reports negative earnings. This paper addresses this structural limitation by applying a continuous valuation statistic, S=(V-E)/V where V is value and E is earnings. This alternative valuation statistic is valid for all levels of earnings and can be used for early-stage companies with high valuations despite negative earnings. The statistic was applied to the early year earnings of Amazon and Tesla and the projected value and earnings for three companies preparing IPOs, SpaceX, Open AI and Anthropic. The market-based S values for Amazon and Tesla when they first publicly traded exceeded the projected values of these current IPOs by a substantial margin. Even though projected valuation of SpaceX, OpenAI and Anthropic exceed previous IPO valuations, the projected S statistic suggests actual valuations could be even higher than the projections. Whether these prices materialize and persist is TBD.

Introduction:

Traditional valuation statistics, especially the ubiquitous PE ratio, are undefined when earnings are negative. The PE ratio cannot be used to evaluate firms in the early stages of their growth or any firms with negative earnings. This paper applies a valuation transformation proposed by Bernstein (2025) that remains mathematically defined whether earnings are positive, zero, or negative, to examine the path of valuation of two historic tech companies, Amazon and Tesla, from their inception to maturity. The paper then applies this valuation methodology to projected earnings and valuation statistics for three companies, SpaceX, OpenAI, and Anthropic, which are currently preparing for an IPO.

Methodology:

My SSRN paper, Measuring Portfolio Valuation, describes the measurement of firm and portfolio PE statistics when some firms have negative earnings. This note on valuation measures is my most frequently downloaded article.

PE ratios behave counterintuitively when earnings are negative because an increase in price causes P/E to become more negative rather than larger.

By contrast, the statistic S=(V-E)/V will increase whenever V rises or E falls, regardless of whether E is positive or negative. At E=0 this number is 1, at E<0 this number is greater than one (indicative of a higher valuation), and for E>0 this number is less than 1.0.

For instance, a company trading at a conventional P/E ratio of 20 translates to S=0.95 while a company with a PE ratio of 15 has S=0.933.

The PE ratio does not exist when E is negative, but the S remains well defined.

The S can be used to evaluate valuation in the early growth years when a company has no earnings or when a company experiences large losses later in its product cycle.

Tesla and Amazon:

The early phase of tech companies is often characterized by a combination of astronomic valuations and substantial losses. The S statistic in the early phase of a firm’s growth is a measure of the relationship between expanding market enthusiasm and escalating market losses.

For Amazon, S at its 1997 public inception was 1.071, and it reached its lifetime maximum S at 1.256 in 2000.

For Tesla, the first-year value of S at its 2010 public inception was 1.091, and it reached its maximum value of S in 2012 with a highest value of 1.104.

SpaceX, OpenAI and Anthropic:

SpaceX, OpenAI and Anthropic are preparing their IPOs, and the released projections of V and E can be used to create the initial valuation statistic S.

· SpaceX: A projected V of 1.77 trillion and E of -4.9 billion yields an S value of 1.00276.

· OpenAI: A projected V of $852 billion and E of $14 billion yields an S value of 1.01643.

· Anthropic: A projected V of $965 billion and E of -14 billion yields an S value of 1.01450.

Conclusion

Unlike the traditional P/E ratio, which suffers from mathematical discontinuity, the S statistics is defined over all values of E.

The projected S values for these pending IPOs are lower than the initial S values observed for Amazon and Tesla, indicating that their projected valuations are not unusually aggressive relative to those historical benchmarks.

Of course, actual outcomes are TBD.