The stock market debut of Elon Musk's SpaceX was not just a stage for what might be the next big business battleground beyond the Earth; it also demonstrated the star power of big names in initial public offerings.
Analysts, however, are urging investors to tone down expectations, pay more attention to the finer details of the fundamentals and, crucially, circle back to one of Big Tech's most controversial IPOs.
"By any measure, this was a historic day for capital markets. But for investors evaluating the opportunity from here, a few things have not changed since the S-1 filing,” said Georgios Bampis, head of equity research at London-based Black Coffee Invesments, referring to the initial step required to go public in the US.
Those "few things” are SpaceX's $4.94 billion net losses last year, $6.4 billion in operating losses for artificial intelligence that appear to be growing, a lock-up structure that may allow billions in shares to sell in the near term and a valuation of roughly 94 times sales, he said.
"History suggests caution. Facebook, Uber, Coinbase and Rivian all experienced significant first-day enthusiasm followed by substantial declines within their first six months of trading,” Mr Bampis said.
"Day one is driven by demand mechanics and enthusiasm. Months two through six are driven by fundamentals and lock-up expirations.”
Too much of Starlink?
SpaceX soared in its Nasdaq debut, sending its value past $2 trillion, as investors jumped at the chance to get a piece of Mr Musk's sprawling empire spanning rockets, internet service and AI after a record-setting initial public offering.
The company's stock jumped 19 per cent and closed at $160.95 – bringing Mr Musk's net worth to $1.1 trillion.
That is a culmination of what is by far a rejuvenated US IPO market: through the end of May, 40 companies had gone public in America, more than double the number seen at the same point last year and the strongest start to a year since 2021, data compiled by Swiss bank Julius Baer shows.
And deal size has increased materially: US IPOs have raised $28 billion year-to-date, the highest amount raised during the first five months of a year since 2021.
"SpaceX has the scale, record of innovation and market position to lead the space economy, and we believe it will be very difficult for anyone to compete against them,” said Ron Baron, founder and chief executive of the Baron Capital US All Cap Focused Growth Fund.
New York-based Baron expects the company's valuation can hit up to $30 trillion in 10 to 15 years, with Starlink alone possibly contributing $1 trillion in revenue, due to the "monumental” size of the addressable market.
"We believe the market is underappreciating SpaceX’s growth potential in orbital data centre … and its AI infrastructure and computing power are in heavy demand globally,” Mr Baron added.
That Starlink could play that huge role, however, could potentially be a concern, said Fabricio Coriolano, a financial analyst based in Sao Paulo.
"Despite the strong debut, concerns remain around valuation, which many view as rich relative to current profitability,” he said, noting that the company would be heavily dependent on Starlink.
"History shows that IPOs of this magnitude often experience an initial euphoria phase followed by corrections of up to 60 per cent before finding a solid base. Short term: caution is warranted [and] wait for volatility to stabilise,” he said.
'Sentiment profile'
Edison Byzyka, chief investment officer of US financial services firm Credent Wealth Management, said SpaceX – a "fantastic” company – is in the honeymoon phase of its IPO.
He warns that the lofty expectations for the company – a staple of firms under Mr Musk's leadership – is, again, potentially déjà vu of what happened to other big-ticket names in their respective IPOs.
The hype surrounding SpaceX's IPO is "likely to drive even higher prices in the near term, or it could take a similar path to what happened with Facebook,” he said.
When Facebook went public in 2012, it was riding on the growing social media wave. But a number of factors went wrong, including excess shares that drove down its stock price and the uncertainty if the company could replicate its desktop advertising cash cow to mobile. That led to investors souring on the company's stock, which slid deeper.
To be fair, Facebook did eventually adapt, its stock recovered and the company has done well: it is currently the 11th-biggest publicly-traded company on a market cap of about $1.44 trillion. Still, analysts widely believe that Facebook botched its IPO.
"The exuberance, the sentiment profile [of Facebook's IPO] was identical to what we're seeing with SpaceX,” Mr Byzyka said.
"From an investment standpoint, caution is warranted. Conflating the company's expected achievements relative to its current sentiment driven valuation profile has the potential to generate immense disappointment.”
Next up: ChatGPT maker OpenAI and Claude developer Anthropic, AI bigwigs. By now, they should have taken lots of notes and are most probably keeping tabs on not just market sentiment, but most especially on SpaceX.
"The characteristics that differentiate successful IPOs have remained remarkably consistent over time. Fast-growing companies with a credible path to profitability have historically generated the strongest returns following their public debut,” analysts at Julius Baer said.
"The implication is straightforward. Investors should focus less on the excitement surrounding a listing event and more on the combination of growth, profitability and valuation. The strongest IPO performers have typically been companies capable of balancing all three.”
