The SpaceX IPO is bigger than you think

SpaceX is about to become one of the largest listed companies in the world.

The Elon Musk-founded business is expected to raise US$75 billion in its initial public offering (IPO) and debut with the sharemarket ticker code of SPCX and a valuation of almost US$1.8 trillion.

That would place it among the biggest publicly traded companies on the planet from day one.

Whether this valuation is justified is an area of intense debate right now.

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Some see an extraordinary growth story spanning launch services, satellite communications and artificial intelligence.

Others are questioning whether a company that is not yet profitable should command such a lofty price tag.

I think the more interesting story is what the SpaceX IPO tells us about the way financial markets themselves are evolving.

While US$75 billion is a very big number, it’s only 4-5 per cent of that near US$1.8 trillion total value.

SpaceX has talked about allocating a bigger slice than usual to retail investors, but that’s still a smaller total size hitting the market for investors to buy and sell.

This relatively limited supply of shares means the mechanics of lock-up periods, index eligibility and the gradual release of additional shares to the market all become much more important.

It’s especially relevant at a time when some companies are staying private for longer and then arriving on public markets at an unprecedented scale.

It also raises some interesting questions for the providers of major sharemarket indices.

Investors have embraced index funds and exchange traded funds (ETFs) because of their simplicity, instant diversification and low cost.

However, this passive approach to investing still relies on many important decisions being made behind the scenes.

Who should get included in the index? How quickly should new companies become eligible? What role do voting rights and public ownership play?

A mega-IPO like SpaceX has forced index providers to consider issues that simply didn’t exist a decade or two ago.

Russell and Nasdaq have already moved to shorten the time it takes for new companies to enter some of their benchmarks.

S&P Dow Jones considered similar changes too, before deciding against them.

These decisions aren’t made behind closed doors, so it’s not a case of the system being rigged to ensure SpaceX gets slotted in early.

The index providers always consult extensively with investors before making changes, and they’ll have read the room in this instance too.

Another aspect of the SpaceX story that caught my attention is how quickly financial markets have adapted ahead of its arrival.

Before the company has even listed, the industry has already started building an ecosystem around it.

Bloomberg Intelligence has reported that more than 20 SpaceX-related financial products had already been proposed.

Some would provide a traditional exposure to the company, while others would offer leveraged returns or the ability to profit if SpaceX shares fall.

Whether you’d call that evidence of innovation or overkill probably depends on your perspective.

As significant as the SpaceX IPO is, it could prove to be the opening act.

OpenAI and Anthropic are among the private companies widely expected to eventually follow a similar path to public markets.

The businesses we’ve watched drive the AI boom would emerge from the shadows and end up in KiwiSaver accounts and retirement funds across the world.  

This would provide direct exposure to the companies behind the applications that millions of people and businesses now use every day.

Investors could then find themselves evaluating multiple high-profile listings of enormous scale within a relatively short timeframe.

That raises the obvious questions about how much capital is available to support these deals, and what existing investments might be sold to fund them.

I don’t know whether SpaceX will prove to be a great investment or a disappointing one.

The expectations embedded in the current valuation are already very high, but I suspect the business will look much more consequential five years from now.

If I’m investing in a broad market ETF next month or in three months’ time, I’d rather it included SpaceX than didn’t.

The headlines will focus on rockets, the lightning rod that is Elon Musk and some eye-watering numbers.

However, an equally relevant story might be how markets are adapting to accommodate a new generation of mega-companies.

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