SpaceX’s supersized starting valuation could limit future returns
SpaceX aims to raise $75 billion, in what could become the largest IPO in history, according to the data from Renaissance Capital. For Elon Musk, the SpaceX offering comes 16 years after Tesla went public in June 2010. In 2019, Saudi Aramco raised $25.6 billion in its IPO on the Saudi Exchange. The amount placed the oil giant as the most valuable company in the world. Now, seven years later, the rocket and AI company will break that record by raising roughly three times that amount. SpaceX is seeking a valuation of $1.8 trillion , a number that will be put to test when it goes public on Friday. At this valuation, the company would rank immediately among some of the most valuable publicly traded companies such as Alphabet, Apple, Amazon, Microsoft, Nvidia and another of Musk’s companies, Tesla. Saudi Aramco was valued at $1.7 trillion when it filed for an IPO. The state-owned petroleum giant now has a market cap of $6.5 trillion. But unlike Aramco, some of the most valuable companies today entered public markets at comparatively modest valuations. Nvidia, the world’s most valued company, started off with a valuation of $625 million, compared with SpaceX’s estimated $1.8 trillion valuation, which is roughly 2,900 times larger. Apple, too, had a modest valuation of $1.8 billion when it went public in December 1980, but today has a market capitalization of $4.3 trillion, making it one of the most valued companies. Amazon went public in 1997 with a valuation of $438 million. Adjusted for inflation, that equates to less than $1 billion today — a fraction of SpaceX’s proposed valuation. Tesla debuted with a valuation of roughly $1.7 billion in 2010. SpaceX could enter public markets at more than 1,000 times that valuation. High valuation could limit future growth Jay Ritter, a University of Florida finance professor who has extensively studied IPOs compares SpaceX’s starting valuation to Nvidia’s to illustrate how much future success may already be reflected in the price. When Nvidia went public in January of 1999, its market capitalization after the first trading day was roughly $600 million and provided the chipmaker enough room to grow. Today, Nvidia has a market cap of $4.8 trillion, making it the most valued company in the world. SpaceX, by contrast, is already starting at such a high valuation so the percentage upside potential is a lot more limited, Ritter said. Companies going public at unusually high valuations may become more common as highly valued AI firms such as Anthropic and OpenAI move closer to public markets, with valuations of $965 billion and $852 billion, respectively. “These are great companies,” Ritter said. “They’ve got enormous potential for huge revenue growth and high profitability, but the valuations are so high that a lot of things have to go right.” The recent IPO rush also highlights how larger and more mature companies have become before pursuing an IPO. All seven Mag companies held IPOs within the first seven years. In comparison, SpaceX has remained private for 24 years. Historical returns of IPOs suggest that investors should look for clues, especially the price they are paying or willing to pay when investing. Ritter’s research on IPO companies highlights that companies entering the market with exceptionally high price-to-sales ratios have, on average, struggled to meet the optimistic expectations embedded in their valuations. “But the tech industry spends a lot of money now which might result in big future profits and remains optimistic,” Ritter said, “which is why venture capitalists are willing to pay such a high price and give it such a valuation.”
