When SpaceX pulled back the curtain on its financials last week, some investors were surprised.
The company's space business wasn't generating as much revenue or profit as it had hoped, and losses from xAI, its artificial intelligence division, were surprisingly large.
But some of those skeptics will buy SpaceX stock anyway when the company goes public as soon as next month.
This is because many investors say that they cannot pass on a company with Elon Musk as a major attraction. And they couldn't pass up the first public offering that would shape Wall Street's marquee event.
“A lot of people are biased towards participation because nobody wants to miss out,” said Renos Savvides, head of equity capital markets at mutual fund manager Neuberger.
“When you remember SpaceX and it's running, that's when you can be tapped on the shoulder by your employer and say, 'We need to talk a little bit',” he added. If SpaceX flops, a lot of investors will be hit and no one will stand out, he said.
As Mr. Musk and his investment bankers are preparing SpaceX for one of the largest IPOs of all time, working to create a self-fulfilling prophecy where investors feel the risks of passing on a stock rather than those of buying it.
If this happens, the giant IPO of Mr. Musk — who has raised more than $50 billion and valued SpaceX at more than $1.25 trillion — may succeed regardless of questions about the underlying business. SpaceX lost $4.3 billion in the first three months of this year alone.
The blockbuster SpaceX offering will pave the way for other large stock offerings expected later this year from OpenAI and Anthropic, AI startups positioning themselves as productive technology companies.
SpaceX is a rare IPO that can meet a company's lofty fundraising goals not because of its financial prospects but based more on vibes, investors say.
“There is a lot of interest in this deal, in part because people believe there is interest,” said Craig Coben, former head of global financial markets at Bank of America.
“There are a lot of people who need this to go well,” he added, including banks raising funds for an IPO and early stage investors looking to sell their shares. “It's a steamroller,” he said of the deal.
Mr. Musk did not return requests for comment. SpaceX did not comment.
Mr. Musk, 54, has long enjoyed a status on Wall Street as the embodiment of the Pied Piper who can call everyday people to invest in his companies.
About 16 years ago, these so-called retail investors piled into the IPO of Mr. Someone who bought $1,000 worth of Tesla shares at the company's IPO in 2010 would have seen their value rise to nearly $400,000 today.
SpaceX, founded in 2002, followed a similar trajectory. The rocket maker was worth $1 billion in 2010; $25 billion in 2018; $125 billion by 2022; and $350 billion by late 2024. In February, SpaceX bought xAI and valued it at 1.25 trillion.
Mr. Banks Musk is also counting on retail investors — who are expected to make up about 30 percent of SpaceX's purchases, far more than a typical offering, according to two people familiar with the matter — to help boost enthusiasm for the company's IPO.
SpaceX appealed to the ardent believers of Mr. Musk with big ambitions. In the company's prospectus, it said it had “identified the largest potential addressable market ('TAM') in human history” at $28.5 trillion, equivalent to about 90 percent of current US economic output.
Bankers are doing their part to ensure that retail investors return to Mr. Musk again. Bank of America, one of the banks that helped take the company public, led efforts to tap investors, including its wealthy clients. The company recently welcomed some of those potential investors on a tour of SpaceX's campus in Hawthorne, Calif., to see the technology used to design and assemble rockets, according to two people familiar with the visit. While Mr. Musk has previously organized such trips for friends, family and celebrities, far from the norm for IPOs.
SpaceX also held investors at its Starbase facility near Boca Chica, Texas, and its AI center in Memphis, where it has built two large data centers, according to three people familiar with the matter. In meetings, senior management, including Mr. Musk and Gwynne Shotwell, SpaceX's president and chief operating officer, explained the company's operations and long-term goals.
“The SpaceX auction bid is going to be very, very important,” Mr. Savvides of Neuberger, noting that investors around the world are following the deal.
Charles Schwab, Fidelity, Robinhood and SoFi focus on marketing the deal to retail investors through their online trading platforms. UBS and Deutsche Bank have been asked by SpaceX to tap their networks for individual investors in Europe, the people said.
SpaceX's share price may help after it starts trading. In March, Nasdaq announced that it would require large IPOs like SpaceX's to be included in its Nasdaq 100, an index that tracks the largest non-financial companies on the market, after just 15 trading days.
Previously, the process of adding a company to the Nasdaq 100 took at least three months after the public offering to allow the company's valuation to settle.
The rule change forces investment funds designed to match Nasdaq 100 companies to buy SpaceX shares shortly after they are listed. The company then gains access to a significant source of stock buyers much earlier than usual. Some investors may be looking to buy SpaceX shares before the forced buyout increases their value.
Some factors can fuel buying during the first days of trading.
Some large investors with private shares in SpaceX may be motivated to buy into the IPO to bolster their private equity valuations, Mr. Coben.
SpaceX's bankers are careful not to push the company's value too high in an IPO, which could scare off some buyers. Earlier this year, bankers at Goldman Sachs, the leading firm to take the company public, told SpaceX executives that the rocket maker could be worth about $2 trillion once it goes public, according to a person who has seen bank documents. (Banks usually draft these documents before seeing the company's finances.)
But by late April, expectations had changed. When Goldman's bankers held a cocktail party that month at Beefbar, a Manhattan restaurant, with major investment firms including BlackRock and hedge fund Citadel, the consensus among attendees was that SpaceX's IPO could be worth more at $1.5 trillion than $2 trillion, according to two attendees. A spokesman for Goldman Sachs declined to comment.
Some investors even think that is too high.
“Given all the hype,” Gary Black, managing partner at The Future Fund, which manages hundreds of millions in mutual funds, wrote on social media that SpaceX “could be overvalued”
“We will be very interested if we go down by 50%,” added Mr.
Ryan Mc again Joe Rennison reporting contributed.
