It’s official. Elon Musk’s SpaceX confidentially filed for an initial public offering (IPO). According to regulatory documents, the satellite is looking to raise $75 billion at a valuation of $1.75 trillion, meaning this is likely to be the largest IPO on record.
Assuming SpaceX does in fact raise $75 billion, that’d be more than double the $29.4 billion raised by Saudi Aramco in its 2019 initial share size, which currently stands as the largest IPO on record. Underscoring the magnitude of the SpaceX IPO, it’s poised to break that record by more than double.
As advisors know, the combination of Musk, space stocks and the aforementioned big numbers is enticing to retail investors, likely including plenty of clients. To his credit, Musk is obliging that enthusiasm as reports indicate SpaceX will set aside up to 30% of the shares to be initially sold for retail market participants. That’s well beyond the 5% to 10% most companies reserve for the “little guy” in their IPOs.
However, there’s a caveat advisors need to be aware of when clients start (if they’re not already) inquiring about the SpaceX IPO.
Some Popular Brokers Are Missing Out on SpaceX IPO
One of the interesting items related to the SpaceX IPO is what brokerage firm is rumored to lead the retail portion of the offering. It’s Morgan Stanley’s E*Trade, implying that the likes of Robinhood and SoFi are being left out in the cold.
SpaceX hasn’t publicly commented on why it’s opting for E*Trade over others to managed the retail slice of its IPO, but – emphasis on this being speculation – Morgan Stanley is one of the investment banks managing the broader IPO. That’s a capability Robinhood and SoFi don’t have.
Not surprisingly, some Robinhood and SoFi clients are apt to feel jilted by SpaceX’s rumored decision to direct the retail portion of the IPO to E*Trade (there’s speculation Fidelity may also be involved, but that’s not confirmed). After all, the stereotypical Robinhood or SoFi client is young and risk-tolerant, making them ideally suited for a stock like SpaceX.
Add to that, it’s not a stretch to say many of those investors fit into one or both of the following camps. To some extent, they’ve embraced Musk by investing in Tesla (NASDAQ: TSLA) shares, options or exchange traded funds heavy on that stock. Second, many youthful market participants are showing a proclivity for buying into space equities, some of which are financially questionable relative to SpaceX.
Speaking of ETFs and SpaceX…
Something else for advisors to keep in mind as it relates to the SpaceX IPO (and possibly those of Anthropic and OpenAI expected later this year) is the ensuing impact on some well-known ETFs. Over time, the number of widely owned, large ETFs that could include shares of Musk’s latest company is likely to be large, but for now, the focus is on the Invesco QQQ ETF (NASDAQ: QQQ) and the Invesco NASDAQ 100 ETF (NASDAQ: QQQM).
Chatter suggests that Musk is promising to list on SpaceX on the Nasdaq provided the exchange operator fast-tracks the stock’s entry into Nasdaq-100 Index (NDX), which is tracked by QQQ and QQQM. Following a consultation with clients, the index provider announced a rules change that paves the way for newly-listed Nasdaq stocks residing in the top 40 by market value to potentially enter NDX after just 15 trading days rather than waiting for the gauge’s normal December rebalancing.
So let’s say SpaceX goes public in June. With the rule change in effect, the stock could enter QQQ and QQQM (likely as a top five or top 10 holding) as soon as July. That’s something for advisors and investors to keep an eye on.
Related: Why Investors Are Ignoring Dividends—And Why That Could Cost Them Millions