The anticipation is building as the highly-anticipated initial public offering (IPO) of SpaceX is set for June 12, just days away. This event is being touted as one of the most significant IPOs in Wall Street’s history, potentially surpassing previous records with a projected valuation of at least $1.8 trillion. This valuation would position SpaceX ahead of Tesla, another billion-dollar venture owned by entrepreneur Elon Musk, while also aiming to raise a stunning $75 billion.
At present, the largest IPO record is held by Saudi Aramco, which raised $29.4 billion during its 2019 debut. In the meantime, companies like OpenAI and Anthropic are vying for valuations near the trillion-dollar mark, yet SpaceX is set to redefine the benchmarks on Wall Street by tapping into both the aerospace and artificial intelligence sectors.
The excitement surrounding SpaceX is palpable, with many investors attracted by the dual prospects of advancements in AI and the burgeoning space economy. Musk’s impressive track record with Tesla, where shares surged by over 26,000% since its IPO in 2010, adds further allure to SpaceX’s upcoming debut.
However, amid the significant buzz lies a cautionary note for retail investors. Historical patterns signal potential pitfalls, suggesting that mega-IPOs often struggle soon after debuting. While initial excitement may propel stock prices upward, many high-profile companies have seen downturns shortly after their IPOs. For example, Meta Platforms (previously Facebook) saw its stock plummet by 38% within six months of going public. Similarly, Saudi Aramco shed 15% of its market value shortly after its IPO.
An alarming concern for prospective investors is SpaceX’s staggering price-to-sales (P/S) ratio. With reported sales of $18.67 billion from the previous year, a $1.8 trillion valuation would translate to an astronomical P/S ratio of 96. Historically, companies in emerging technologies have struggled to maintain P/S ratios above 30 over extended periods, raising red flags about the sustainability of such high valuations.
Moreover, recent structural changes in the way major stock indices operate may inadvertently disadvantage retail investors. Nasdaq has modified rules to allow for expedited inclusion of SpaceX into the Nasdaq-100, eliminating the usual waiting period and minimum float requirements that typically accompany such inclusions. Additionally, SpaceX could be introduced into the Russell U.S. Equity Indexes within just five trading sessions post-IPO, impacting how shares are publicly traded.
This quick inclusion process means that passive exchange-traded funds tracking these indexes will be compelled to acquire shares, potentially inflating prices temporarily. However, in an environment where insiders hold a significant majority of SpaceX’s shares, this scenario could lead to a steep redistribution of wealth from retail investors to company executives soon after the stock begins trading.
A staggered cash-out system is already in place, allowing insiders (excluding Musk, who is subject to a longer sell restriction) to start selling their shares shortly after the company’s quarterly earnings release expected in August. This could lead to a sell-off that would negatively impact retail investors, who may find themselves acquiring shares only to watch their value decline.
Prospective investors are advised to proceed with caution, particularly considering the current environment characterized by rapid valuation changes and the impending IPO frenzy. Experts recommend exploring other investment opportunities that may present more reliable growth and returns in the current market landscape, rather than getting swept up in the hype surrounding SpaceX’s debut.
