SpaceX is preparing for its highly anticipated initial public offering (IPO) scheduled for Friday, June 12, with plans to list on the Nasdaq exchange under the ticker symbol SPCX. The shares are set to be priced at $135, which would give the company an initial market capitalization of approximately $1.77 trillion. Analysts speculate that this figure could soar even higher by market close, with some projections suggesting a potential valuation of $5 trillion on the first day of trading.
Investor interest in SpaceX is palpable, as both institutional and retail investors scramble to acquire shares in the company led by Elon Musk. CNBC’s Jim Cramer, known for his previous successes as a hedge fund manager, notes that such demand could drive SpaceX’s valuation dramatically upward. However, he also warns that this frenzy could adversely impact the broader stock market, as investors might need to liquidate positions in other stocks to fund their investments in SpaceX.
The projection for SpaceX’s IPO is to raise a groundbreaking $75 billion, tripling the previous record set by Saudi Aramco’s $26 billion offering in 2019. However, the current cash levels among institutional investors and high-net-worth individuals are nearing historic lows, suggesting that significant selling pressure could arise from established stocks such as Amazon, Microsoft, and Nvidia to gather the necessary funds for the SpaceX investment.
Recent surveys reveal that institutional investors had only 3.9% of their portfolios in cash as of May, a figure alarmingly close to the record low. Similarly, ultra-wealthy individuals held less than 10% of their portfolios in cash, marking the least cash allocation since the survey’s inception in 1999. Consequently, fund managers looking to invest in SpaceX will likely seek out liquidity through the sale of existing holdings, possibly inducing downward pressure on major stocks that constitute a significant portion of the S&P 500 index.
Despite the anticipated initial surge in SpaceX stock prices fueled by limited share availability and high demand, analysts caution that the company may struggle to maintain its lofty valuation in the long term. With plans to sell 555,555,555 shares, SpaceX’s float will account for just 4.2% of its total shares outstanding at the IPO price. The initial price-to-sales (P/S) ratio is projected to be about 92, significantly more expensive than any other stock in the S&P 500. In contrast, Palantir currently holds the title for the highest valuation in the S&P 500 at just 65 times its sales.
Morningstar analysts currently value SpaceX at $780 billion based on a discounted cash flow analysis, reflecting a sharp decline from its IPO valuation and emphasizing the speculative nature of its pricing. Historical performance of major IPOs also raises concerns, as the top ten U.S. IPOs by initial market value have consistently underperformed the S&P 500, trailing by over 120 percentage points since their launch.
In summary, while the demand for SpaceX shares could lead to extraordinary early trading activity and a potential valuation surge, many factors suggest that maintaining such a valuation may be unsustainable in the long term, especially as more shares become available and historical trends indicate possible underperformance compared to established market indices. Investors are encouraged to carefully evaluate options, including the S&P 500 index, as they navigate the implications of SpaceX’s market entry.
