SpaceX’s Historic IPO: What You Should Know
The major news from Thursday night centered around SpaceX and its CEO, Elon Musk, who reportedly became the first billionaire on paper due to SpaceX’s initial public offering (IPO) priced at $135 per share. This IPO raised an impressive $75 billion, setting a new record as the largest IPO ever.
Public trading started today on the Nasdaq, with shares initially priced at $150 around 11:45 a.m. ET. By midday, the stock price climbed to $168, bringing its market capitalization to $2 trillion and making it the world’s seventh-largest company.
However, before you rush to invest, there are some important details about SpaceX’s chaotic debut that you might want to keep in mind.
Supply and Demand
Typically, IPO shares are mostly given to institutional investors such as pension funds or hedge funds, usually accounting for about 90% to 95% of shares. But SpaceX took a different route, initially aiming to allocate 30% of shares to individual investors through five different brokerages.
It’s crucial to clarify that “requesting stock” doesn’t mean “buying stock” right away. The allocation for retail investors actually dropped to the low 20% range. Yet, demand for IPO shares was astonishing, reportedly exceeding $100 billion. Many retail investors who had hoped for large allocations ended up with just a small portion of what they wanted. Still, they could purchase additional shares once trading commenced, leading them to anticipate a spike in stock price.
On another note, the crypto perpetual futures market had anticipated SpaceX stock would trade between $172 and $176 per share (27% to 30% over the IPO price) before the market opened on Friday, indicating a potentially sharp increase.
Focus on Long-Term Potential
For long-term investors, the key question isn’t how the stock performs in its initial hours or days, but whether it will continue to excel over years or even decades. Analysts are divided about SpaceX’s future once the initial excitement fades.
Some analysts appear optimistic. For example, Oppenheimer rated SpaceX as “Outperform” with a price target of $190, indicating a 40% increase over the IPO price. They highlight the company’s capital access and its strengths in AI integration and manufacturing.
In contrast, Morningstar has taken a more cautious approach, setting a price target of $63 per share, suggesting a 53% decline against the IPO price. Even in the best-case scenario, including unlikely ‘moonshot’ assumptions, their valuation doesn’t exceed $153.50. Their more pessimistic view estimates the stock could be worth as little as $43.10 per share, with a 43% chance that this scenario might unfold.
Other optimistic analysts note SpaceX’s two-pronged revenue model: one segment focuses on its leading launch business, while the other targets the fast-growing but currently profitable Starlink satellite business. They also point out how Musk’s fame positively impacts values across his companies, including Tesla.
On the flip side, SpaceX argues that growth in its AI sector will generate most of its future revenue, cautioning that the company currently isn’t profitable. Critics suggest Musk’s concentrated control over SpaceX could lead to governance issues. Moreover, the influence of Musk could result in added volatility if he spreads his attention too thin across various enterprises.
The Bottom Line
Given the unique characteristics of this IPO and the nature of the company, the first trading day was expected to be unpredictable. As I write this now, just over an hour post-trading, it’s anyone’s guess where the stock will land by the end of the day—or even by year’s end.
History indicates that the opening prices of trending stocks can quickly shift. With SpaceX being one of the hottest stocks currently, it’s essential to avoid letting FOMO drive your decisions. A more prudent strategy might be to observe how the stock settles after the initial excitement wears off.
