SpaceX Plans IPO Valued Over $1 Trillion, Investors Anticipate Surge

Investors are reacting enthusiastically to reports that SpaceX is considering an initial public offering (IPO) that could potentially fund Elon Musk’s ambitious plans for Mars. The rocket and satellite company is aiming to raise over $25 billion, with a valuation exceeding $1 trillion anticipated. According to a source familiar with the matter, the IPO could take place as early as June 2024.

Retail investor interest is expected to be significant, as many have been eager to gain exposure to the company. Shay Boloor, chief market strategist for Futurum Equities Research, stated in an interview, “It’s going to be the craziest IPO in the history of the stock market.” He went on to suggest that if the company targets a valuation of $1.5 trillion, it could exceed $2 trillion once trading begins.

Investor Sentiment and Musk’s Management Style

Despite the inherent risks associated with SpaceX, including Musk’s unconventional management approach, investors remain undeterred. Musk’s leadership of five companies, including The Boring Company and his artificial intelligence venture, xAI, has often brought regulatory challenges. His history includes public disputes with the U.S. Securities and Exchange Commission, particularly following his controversial 2018 tweet claiming he had “funding secured” to take Tesla private.

According to Christopher Marangi, co-chief investment officer for value at GAMCO Investors, the risks associated with Musk’s leadership are intrinsic to investing in such innovative companies. Marangi noted, “The reward has to compensate holders for the risk.” GAMCO has exposure to SpaceX through its investment in EchoStar, which acquired shares as part of a spectrum deal in September 2023. While Marangi described any further investment in SpaceX as “too speculative,” he acknowledged the excitement surrounding space-related ventures.

Strong Operations and Future Potential

Investors are optimistic about SpaceX’s current operations and future prospects, which could attract considerable interest during the IPO. Dan Hanson, senior portfolio manager at Neuberger Berman, oversees a fund that held approximately 5% of its assets in unlisted SpaceX shares as of November 2023. He described the situation as “rare,” where a company possesses both “the steak and the sizzle.”

While SpaceX’s ambitious plans to send humans to Mars have garnered public fascination, its established launch services and Starlink communications products are likely to contribute significantly to its valuation. The proceeds from the IPO could be instrumental in funding new technologies, such as space-based data centers that require less energy-intensive cooling compared to terrestrial facilities.

Investment professionals like James St Aubin, chief investment officer of Ocean Park Asset Management, which does not currently hold a stake in SpaceX, expressed a bullish outlook on the company. He pointed out that investors might soon include SpaceX in discussions of the “Great Eight,” expanding upon the current “Magnificent Seven” tech stocks.

Historical Context and Market Risks

While the excitement surrounding SpaceX’s IPO is palpable, historical data suggests that richly valued IPOs often struggle to deliver sustained gains. Jay Ritter, a professor emeritus at the University of Florida who studies IPOs, noted that from 1980 to 2023, only seven of 45 companies that went public with valuations exceeding 40 times their annual sales were trading higher three years later. On average, these stocks declined by about 50% from their first-day closing prices and lagged the broader market by roughly 63%.

High-profile examples of underperforming IPOs include Beyond Meat, Palm, and Snowflake. In contrast, Tesla, which launched its IPO in 2010 at a lower valuation, has seen significant appreciation over the past decade.

Ritter cautions that the ultra-high valuation SpaceX could achieve may limit its upside potential. “Even if it becomes a $2 trillion company, that’s only going to be a return of 100% or 200%,” he explained.

As investors await further developments, the potential IPO of SpaceX stands as a significant moment in the financial landscape, reflecting both the allure and the risks of investing in high-profile technology ventures.