Hello suckers

SpaceX and the "democratisation" of public offerings

Ralph Waldo Emerson had many famous aphorisms but the best was “The louder he talked of his honour, the faster we counted our spoons”. People disguise their true motives and nowhere is this more true than in finance. When I hear talk of the democratising of initial public offerings (IPOs), as with the SpaceX float, I am inclined to keep a firm hold on my wallet.

SpaceX is set to be, by far, the biggest IPO in history, raising $75bn (and potentially as much as $86bn), in its float. That will give the company a market value of almost $1.8 trillion, or 92 times the company’s revenues. Yes, that is revenues, not profits. A valuation of 92 times profits would be regarded as pretty racy. But you can’t value SpaceX on the basis of profits as it is loss-making.

Now it is true that many a successful company has joined the stock market as a lossmaker; investors buy shares on the basis of the potential of future profits. SpaceX has been successful in lowering the cost of getting rockets into space by around 85%. It also has a very profitable subsidiary in the form of Starlink, which uses satellites to provide broadband and internet services.

But SpaceX is planning to use a lot of the launch of the proceeds to invest in its AI business, which it merged with SpaceX in February. One idea is to create data centres in space, which will be cheaper (and may be less controversial) than having them use energy on Earth. SpaceX says that AI comprises over 90% of its “total addressable market”. As the Economist points out, this depends on the unproven technology of its new, huge, Starship rocket, which needs to be both reliable and reusable, and on SpaceX’s data centres outcompeting its terrestrial rivals, which attracted an estimated $500bn of investment in 2025.

So the shares are a huge gamble. They seem like the sort of company that only professional investors have the potential to analyse. So why are retail investors being invited to participate? One reason is the immense enthusiasm shown by retail investors for stocks in recent years, on platforms such as Robinhood. JP Morgan Chase estimated that retail investment flows rose 50% between 2023 and 2025. Elon Musk, the head of SpaceX, has many US fans, particularly those who backed Tesla, his electric car company. But the offering is not confined to America. In the UK, one of my ISA providers has written to me offering the chance to back the SpaceX float.

It may be that retail investors will be less critical than the professionals. Pension funds have expressed concern at the shareholding structure of SpaceX, thanks to a dual class share structure which gives Mr Musk 79% of the votes while owning only 42% of the equity. He cannot be fired. This is a problem given his erratic personality and the fact that he also runs Tesla and is so active on X that he tweets 68 times a day.

Given how much money SpaceX is trying to raise, tapping retail investors seems like a good tactic from the company’s point of view. That doesn’t mean investors should take the bait; no need to be a sucker. Let us think about the valuation. If the float is successful, SpaceX will become the eighth most valuable company in the world (on the latest figures). This is not a case of buying a minnow and watching it grow.

The fact that SpaceX is only offering 4% of its equity is one reason it can have such a high valuation. Had it tried to sell a much bigger proportion (say 20%), investors might have balked. Scarcity value will help. But investors (including Musk himself) do have the right to sell part of their stakes later on, subject to certain conditions. And investors may have to pony up $60bn each for the anticipated floats of Anthropic and OpenAI this year (each of which have rather better AI credentials than SpaceX.

Of course, a lot of us may end up owning a bit of SpaceX by default. Index providers are rushing to let the big three IPOs into their benchmarks earlier than usual; so if you own a US or World index fund, you will have an exposure. At least, providers have moved on from the bad old days of the 1990s when a stock with a small free float could have a full weighting. Nowadays, only the free float counts. That means, according to Victor Haghani and James White of Elm Partners Management, the new IPOs will have a combined weight of just 0.4% in the US index.

Of course, given the media interest, SpaceX’s share price may pop up in the first few days of trading. But recent IPOs have underperformed the market by 3-5% a year and the omens for Space X, given its sky-high valuation and ability of insiders to sell, is a good candidate to follow suit.

If you are not convinced by the investment case, think about the moral one. Do you really want to send money Musk’s way? US readers will have their own views, given his disastrous record cutting public spending and his backing for Donald Trump. Mr Musk is an enemy of UK liberal democracy having declared that the country is heading for civil war and having promoted the views of far-right activists such as Stephen Yaxley-Lennon (aka Tommy Robinson) and Rupert Lowe. He is stirring up trouble again after a recent murder case; the Grok AI (which an investment in Space X would help to fund) falsely identified a female police officer as being involved, even though she left the force before the incident. The poor woman has now gone into hiding. That’s the kind of callous sloppiness you would expect from Musk.

So don’t be a sucker and don’t give money to SpaceX to help Musk spread division and hate and send innocent people into hiding.