SpaceX set for world鈥檚 largest stock offering. Who will benefit?
Behind the landmark initial sale of SpaceX stock to the public lies a fairy-tale story about technology, riches, and corporate power.
Starting this week, many investors are poised to buy into the promise that SpaceX founder Elon Musk will make it all come true.
It鈥檚 a moment marking a rare opportunity for the public to invest in one of the world鈥檚 pioneering tech companies, which aims to transform space from a communications medium to a power-generating, data-crunching infrastructure supporting the expansion of artificial intelligence on Earth. Big questions remain whether Mr. Musk can pull it off.
Why We Wrote This
SpaceX debuts on a U.S. stock exchange this week in what鈥檚 anticipated to be a record-breaking public offering, with high stakes for investors and the U.S. economy.
Start with the mind-boggling technological feat he wants to achieve. Instead of artificial intelligence companies struggling to build enough power plants on Earth to power their AI data centers, Mr. Musk says they could use SpaceX to build some of those plants and data centers in space.
Technically, it鈥檚 feasible, experts say. Whether it makes much economic and business sense remains unproven. Beginning Friday, investors will weigh in on that premise.
That鈥檚 when shares of SpaceX are expected to start selling on the Nasdaq stock exchange. If successful, the company would raise some $75 billion. That would make its initial public offering of stock the largest in history.
Another remarkable idea: The IPO will almost certainly make Mr. Musk the world鈥檚 first trillionaire, given his holdings in SpaceX and electric-vehicle manufacturer Tesla. That a single individual should be worth more than the GDP of some 175 nations raises big questions about the concentration of wealth within the hands of a few.
But there is a counterargument. While an IPO raises money for the company and allows early private investors, management, and employees to cash out, it also allows the public to buy in. Giving ordinary investors access to some of the world鈥檚 biggest and most successful companies allows a broader set of Americans to share in the companies鈥� successes. It also means that SpaceX is required to routinely share financial information with shareholders.
SpaceX has gone out of its way to democratize the holding of its shares. The IPO sets aside up to 30%, or $22.5 billion, of its allocated shares for individual investors 鈥� an unusually large portion. And mutual-fund company Fidelity is making SpaceX shares available to customers with as little as $2,000 in their accounts. (Normally, the requirements are 50 times higher or more.)
If successful, the SpaceX IPO is expected to pave the way for other privately held AI companies to go public. On Monday, OpenAI, the firm behind ChatGPT, announced it had taken a step toward an IPO by filing a form with the Securities and Exchange Commission. Last week, another AI powerhouse, Anthropic, also filed with the SEC.
SpaceX seeks to avoid pitfalls of other major IPOs
This year鈥檚 filings continue a rebound of IPO activity after a long trend of companies going private or staying private rather than letting the public buy their shares. Since the 1990s, the number of U.S. companies traded on stock exchanges has fallen by more than half. Reversing that trend would allow more Americans to share in their successes (and failures).
Determining the value of any newly listed company is hard. For SpaceX, it is particularly difficult because the company is trialing a technology that remains unproven. Priced at $135 a share, the IPO values the company at $1.77 trillion. Only a handful of companies are worth more.
The company saw revenues surge by one-third last year to $18.7 billion, much of it due to sales of its Starlink satellite internet service. But the company is running huge losses as it plows more money into AI. It lost $4.9 billion last year and another $4.28 billion in the first quarter of this year.
Moreover, the record is not promising for initial investors in IPOs. Six in 10 IPOs from 1975 to 2021 lost value or didn鈥檛 gain value in their first three years, according to Jay Ritter, director of the IPO Initiative at the University of Florida. Facebook (later Meta) lost one-third of its value in its first year on a stock exchange, though it eventually recovered and prospered. Only a small number of exceptional companies double in value during that initial period.
Whether SpaceX can join that elite group of exceptions will require the convergence of several factors. One is solving the technical challenges of further reducing the costs of SpaceX satellite launches while maintaining much more complex satellites. Another is avoiding a stock market slowdown, which is usually tough on newly listed companies. Then there鈥檚 the future of AI itself and whether the enormous boom in spending will hold up over the next several years.
There are plenty of skeptics. 鈥淚n our view, SpaceX鈥檚 IPO looks more like a way to lure unsuspecting investors into paying off $62.6 billion in debt (78% of expected IPO proceeds), fund an increasingly costly AI race, and lock in a trillion-dollar pay day鈥� for early investors, management and employers, David Trainer, chief executive of research firm New Constructs, wrote in a recent .
But one group, Futurum Research, estimates that if the world spends $3 trillion to expand AI computing capacity by 2030, some $1 trillion could be economically justified going to space-based projects.
鈥淭his is going to become the largest company on the planet,鈥� Ron Baron, who heads his own investment firm, CNBC last month. 鈥淭he company over the next 10 or 15 years is going to be worth $10 trillion, $20 trillion, $30 trillion. And I could be very low.鈥�
