Retail will have access
SpaceX is also reportedly planning an unusually large retail investor allocation, leveraging Musk and TSLA’s popular appeal.
While most U.S. stocks have about a quarter of their shares in the hands of individual investors, TSLA’s retail base is closer to half.
Musk has also cultivated an enormous following through his 2022 acquisition of the social media platform Twitter, which he rebranded as X. Musk has some 230 million followers on X now, far more than anyone else.
X now sits within a separate business unit called xAI, which also contains Musk’s AI platform, Grok. IPO investors will have exposure to these businesses as well because xAI was acquired by SpaceX in February of this year.
Normally, mom and pop investors only get allocated 5% to 10% of any IPO, with large funds and institutions getting favorable treatment thanks to their relationship with the underwriters. In the case of SpaceX, retail investors are expected to get more like 30%.
Given the expected size of the offering and retail’s unusually high allocation, it looks like ordinary investors will have plenty of access to this deal through their accounts on major brokerage platforms.
Excitement is clearly building. We have noticed it directly, with 76research subscribers starting to email us with questions about it.
The TSLA IPO produced life-changing gains. Everyone now seems to be asking themselves the same question…
Should I try to get in on this one too?
We have great admiration for Musk’s abilities and accomplishments—and the theoretical potential of the collection of businesses that have been integrated into SpaceX.
We are also not philosophically opposed to paying a premium for future value creation, if it is justified. Nor are we oblivious to the open-ended optionality that characterizes so many tech success stories.
A business like TSLA, for example, started as an electric car company but may end up making most of its money as a robot company.
Amazon (AMZN) started as a a bookseller, but now most of its profits come from providing cloud computing infrastructure via Amazon Web Services.
Yet, at the moment, we are inclined to approach SpaceX with a fair amount of caution.
Our issue with this one is simply math.
The valuation, based on levels being reported, already seems to capture vast future success, suggesting an unfavorable risk-reward profile. And the sheer size of the offering and high degree of retail allocation raise questions as to the capacity of the market to absorb all the new shares.
There is also the question of alternatives. SpaceX is not the only compelling growth stock out there with long-term potential.
The reported SpaceX valuation requires investors to assume an extremely high degree of future business success, orders of magnitude greater than current reality.
Meanwhile, there are other mega-cap tech stocks—SpaceX’s future peers—trading at valuations that seem to price in a sharp deterioration in their current growth trajectories. The contrast is stark.
When and if the IPO takes place—and the final details become known—we may have a more enthusiastic viewpoint, but for now, we think investors are better off focusing on attractively priced growth opportunities elsewhere.
What is SpaceX?
Musk actually created SpaceX in 2002, a year before he joined Tesla, which was a start-up business that he ultimately came to control….
Continue reading SpaceX Is Extraordinary. But Is It Worth Trillions? for our detailed breakdown of the company, valuation analysis and investment conclusion.
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