The anticipated initial public offering (IPO) of SpaceX on June 12 is capturing significant attention in financial circles. If successful, it could surpass Saudi Aramco’s record-setting $29.4 billion IPO from 2019 and achieve a valuation of at least $1.8 trillion.
Elon Musk’s company, renowned for its advancements in space technology and artificial intelligence (AI), aims to raise $75 billion through this offering. While large language model companies like Anthropic and OpenAI strive for valuations nearing $1 trillion, SpaceX’s potential debut poses both excitement and concern among investors.
Despite the excitement, experts express skepticism about the IPO’s viability. SpaceX’s operational losses, capital-intensive model, and lacklustre growth in its AI division raise red flags. Historically, megasized IPOs often face a rocky start; many see a decline in share price within the six months following their debut. For instance, Facebook (now Meta Platforms) experienced a 38% drop during this period after its IPO.
Moreover, the IPO’s valuation poses a significant issue. Analysts note that the price-to-sales (P/S) ratio could reach 96 if the company is valued at $1.8 trillion, far exceeding sustainable levels observed in successful tech companies. This suggests a possible overvaluation, or “bubble,” which may lead to substantial losses for investors in the long run.
Structural changes by Nasdaq to facilitate SpaceX’s inclusion in stock indices may also disadvantage retail investors. The new rules allow SpaceX to be added to major equity indices more swiftly, resulting in forced buying from passive funds. However, this may lead to a situation where insiders, who control most shares and can begin selling shortly after the IPO, benefit disproportionately, possibly leaving everyday investors at a disadvantage.
As the IPO date approaches, potential investors must carefully evaluate the associated risks against the promise of potentially high returns.
