The SpaceX (symbol: SPCX) initial public offering (IPO) arrived on Friday with historic scale and an equally historic level of enthusiasm. Within hours of listing, the company approached a $2 trillion valuation, placing it among the world’s largest companies almost instantly.
The stock was priced at $135 and closed its first day of trading near $161, a respectable one-day gain of over 19%. By most measures, the launch was a success.
There’s no question that SpaceX is a remarkable business. The combination of Starlink’s recurring revenue, reusable rocket technology, and its expanding ambitions in artificial intelligence and orbital infrastructure makes it one of the most ambitious enterprises ever brought to public markets.
But investors need to separate two things that often get conflated during moments like this: a great company and a great investment at today’s price.
At over 100x sales, the current valuation embeds not just success, but near-perfection.
What You’re Really BuyingForm S-1 is the basic SEC “go public” document that a company must file before an IPO, laying out its business, finances, risks, and how it plans to use the money raised so investors can decide whether to buy the stock.
A closer look at the SpaceX Form S-1 tells a nuanced story. SpaceX today is effectively three businesses layered together:
- A strong core: Starlink, generating high-margin, recurring revenue
- A proven enabler: reusable rockets lowering the cost of space access
- A set of long-dated bets: Artificial Intelligence, orbital data centers, and space commercialization
A reasonable sum-of-the-parts framework might justify a valuation closer to $1–$1.1 trillion, even after applying a generous premium for Elon Musk’s track record. The gap between that and the IPO valuation represents something very important: a priced-in call option on the future of space itself.
Roughly 30–40% of the valuation is tied not to current earnings power, but to outcomes that may take a decade or longer to materialize, if they materialize at all.
That is not speculation in a negative sense, but it is speculation nonetheless.
The IPO Reality: Liquidity Event First
Only about 4% of shares were floated (offered) in the IPO. The rest remain with insiders, employees, and early investors, many of whom are sitting on enormous gains.
This matters.
The IPO is not primarily about funding rockets. It is, in large part, a liquidity event that allows early stakeholders to sell into peak demand. Public investors are stepping in at a point where much of the value creation has already occurred in private markets.
History shows this is rarely where the best risk/reward entry point exists.
Mega-IPOs and Market History
The pattern is consistent:
- The largest, most anticipated IPOs tend to debut at elevated valuations
- Early trading is driven by constrained supply and heavy demand
- Over time, as stock lock-ups expire and supply increases, prices often normalize
Recent IPO examples reinforce this:
- Rivian: down ~80% from early highs
- Coupang: down more than 50%
- Lineage Logistics: Down about 50% within two years
- Several recent large IPOs are still below listing prices
Even the “winners” like Airbnb and Snowflake have delivered flat-to-negative returns for investors who bought on day one.
In fact, the majority of recent mega-IPOs have traded below their initial listing price within a year.
Even successful long-term companies often struggle after going public. Tesla, for example, went essentially nowhere for years after its IPO before eventually delivering outsized returns. Facebook also traded below its offering price for an extended period before recovering.
This does not mean SpaceX will fail. It means that the entry price matters.
The key takeaway: timing and valuation matter just as much as the quality of the business.
The Supply-Demand Illusion
Early trading in IPOs can be misleading.
With such a small percentage of shares available, supply is artificially constrained. At the same time, demand is amplified by media coverage, retail enthusiasm, and, in some cases, forced buying from index funds. Underwriters have a vested interest in a successful IPO, so they’ll support the stock price by buying shares for the first few days after the IPO.
This imbalance can push prices higher in the short term, but it is not sustainable. As lock-up periods expire and more shares become available, supply increases significantly, often putting downward pressure on prices.
Tesla, SpaceX, and the Merger Question
One of the most discussed topics right now is a potential merger between Tesla and SpaceX.
Based on the Form S-1, there is no indication that such discussions have occurred at the board level. From a legal and disclosure standpoint, that strongly suggests any transaction, if it were ever considered, is likely years away, not imminent.
That said, the relationship between the companies is real and growing:
- Tesla supplied over $500 million in energy infrastructure to SpaceX’s AI operations
- Joint initiatives include chip development and AI-driven systems
- Tesla has already taken a stake in SpaceX
These are meaningful commercial ties, but they do not equate to a pending merger. For now, think strategic partnership, not consolidation.
Index Inclusion: A Hidden Driver
Another overlooked dynamic is how quickly SpaceX could be added to major indexes.
Nasdaq’s new “fast entry” rules could force inclusion into the Nasdaq-100 within weeks, potentially driving billions in passive buying. At the same time, S&P maintains stricter profitability and seasoning requirements, which could delay inclusion there.
This creates a new dynamic:
- Short-term demand driven by index flows
- Long-term uncertainty around sustained institutional ownership
It also raises a broader issue: index rules themselves are evolving in response to companies like SpaceX, Anthropic, and OpenAI.
Despite its size, SpaceX is not immediately eligible for inclusion in the S&P 500 index due to profitability and trading history requirements. While some indexes may add it quickly, others will not. That distinction matters, as index inclusion can drive substantial institutional demand.
Investors should not assume automatic or immediate support from passive investment flows.
Sector Classification Matters More Than You Think
The S&P 500 is divided into eleven sectors, each with different “weights” in the index. Where SpaceX ultimately lands, Communication Services, Industrials, or even a revised sector structure, will influence how capital flows into the stock.
- The Communication Services sector is the most likely home, driven by Starlink
- The Industrials sector reflects legacy aerospace perception
- The Technology sector is possible, but would further concentrate an already dominant sector
This is not just academic. Sector placement affects ETF and mutual fund flows, institutional allocations, and ultimately valuation support.
A Broader Message for Upcoming IPOs (Including Anthropic and Open AI)
What we are seeing with SpaceX is not an isolated event. It is part of a broader trend:
- Larger companies are staying private longer
- Public investors are gaining access later in the lifecycle
- Valuations reflecting peak optimism at the point of entry
We are seeing similar enthusiasm building around other potential IPOs, including companies like Anthropic and OpenAI. Anthropic, OpenAI, and other AI-driven IPOs are likely to follow a pattern similar to SpaceX’s.
This is a recurring cycle in the markets. Investors become eager to “get in early” on transformative companies, fearing they may miss the next Amazon or Google. But by the time a company reaches the public markets today, much of the explosive growth has already occurred in private hands.
The public market often receives a more mature company, at a valuation that already reflects high expectations.
The risk is not that these companies are poor businesses. The risk is overpaying at the moment of maximum narrative strength.
A More Disciplined Approach
None of this suggests avoiding these companies altogether. SpaceX may very well be a dominant force for decades. The same could be true for leading AI firms.
However, discipline is critical:
- Avoid chasing first or second day excitement
- Let valuations normalize over time
- Watch how the stock behaves after lock-up periods lapse
- Focus on risk-adjusted entry points rather than headlines
There is often a far greater opportunity after the initial hype fades and price discovery becomes more grounded.
Final Thought: Patience Over Participation
The most important question is not whether SpaceX succeeds. It very well may.
The question is whether buying into the initial excitement offers a favorable risk/reward tradeoff.
History suggests that it rarely does.
There will likely be a time when SpaceX, or companies like Anthropic, offer compelling entry points. Those opportunities tend to emerge after the hype fades, after supply increases, and after valuations are tested by reality.
Until then, discipline matters more than enthusiasm.
Although the fear of missing out is a powerful motivator, there is another saying in the investing and trading business:
It’s better to be out of a stock and wishing you were in, than being in a stock wishing you were out.
Sam H. Fawaz CFP®, CPA, PFS is the President of YDream Financial Services, Inc., a fee-only investment advisory and financial planning firm serving the entire United States. If you would like to review your current investment portfolio or discuss any other retirement, college, tax, or financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fiduciary financial planning firm that always puts your interests first, with no products to sell. If you are not a client, an initial consultation is complimentary, and there is never any pressure or hidden sales pitch. We begin with a thorough assessment of your unique personal situation. There is no rush and no cookie-cutter approach. Each client’s financial plan and investment objectives are unique.
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