Will the SpaceX IPO send retail investors into orbit?

SpaceX is preparing the largest retail allocation ever attempted in a megacap IPO in its anticipated listing later this month, with Elon Musk seeking to reserve as much as a quarter of the company’s $75bn float for individual investors.

Musk reportedly wants ordinary investors cemented near the centre of the group’s ownership straight from blast off, with the billionaire chief known for preferring retail investors to the grandeur of Wall Street.

A new SpaceX IPO website launched on Thursday called retail participation “important” and pointed investors to brokerages, with UK investors also expected to be able to get involved through a ‘UK retail offer’ bucking the long-standing rules locking them out.

Typically, in large-cap IPOs, retail buyers have also historically received five to 10 per cent of the shares on offer, but it was previously reported that up to 30 per cent of shares could go to retail.

While final retail allocation is yet to be set according to people close to the deal, analysts and banks have weighed in on the blockbuster listing, questioning if investors will ultimately benefit from Musk’s step into the stock market or be sent crashing back to Earth.

Morningstar slashes value

The first bump in the road for Musk’s satellite company came earlier this week, after Morningstar analysts slashed its value in half.

The research firm valued the company at $780bn, roughly 48 per cent lower than its private market valuation, with Space X also looking for a valuation between $1.7 trillion and $2 trillion upon listing.

While Musk views his artificial intelligence business as one of his most viral endeavors within SpaceX, Morningstar did not share the sentiment, arguing xAI and social media platform X create economic uncertainty.

Equity analyst Nicolas Ownes and equity director Suryansh Sharma noted that fierce competition from rivals Open AI and Anthropic, both of which are looking to IPO, “poses a material threat of value destruction to the company”.

They wrote: “At present, Grok has not demonstrated significant performance advantages over leading peers, and we believe this has prevented its products from gaining meaningful market share.”

And while investors may be starry-eyed over the idea of orbital data centres, Morningstar took a more practical approach, cautioning that SpaceX’s future success could ultimately depend on unproven technologies and factors outside of their control.

The progress of other players such as Blue Origin also threw its Starlink satellites into the spotlight, as despite being the “undisputed global market leader”, competition could cause cooling interest.

Owens continued: “We think long-term investors eager to participate in SpaceX’s future endeavors and potential success will have opportunities to do so with more margin of safety than the initial offering is likely to provide.”

Goldman Sachs hinges on AI

However investment bank Goldman Sachs argued that its attempt to achieve its wanted valuation hinges on revenues from its AI arm surging by around 100 times by 2030.

Goldman expects revenue from its AI division to rise to $322bn by 2030 from $3.2bn in 2025, according to forecasts discussed by the Wall Street bank.

SpaceX’s total revenue is also anticipated to hit $474bn in 2030, up from $18.7bn.

The lofty projections underscore the aggressive bets being made by big tech firms during the AI boom, which has sent the US stock market to a series of record highs.

But Goldman struck a similar chord to Morningstar on the outlook for its Starlink satellite internet service, projecting revenue to be $144bn in 2030, less than half predicted to be generated by its AI business.

But for the AI growth to be justified Grok will have to be able to meet and then surpass other labs including Open AI, a goal that Morningstar did not have confidence in, in fields including coding, chatbots and cybersecurity.

Blast off or not?

But the questions surrounding xAI arise from past problems, with Musk pushing out of all 10 of his co-founders within two years and delivering an underwhelming performance causing consumer and corporate subscriptions to plateau.

Musk also rented out the Colossus 1 data centre which was created to take on Anthropic, after the 300 mega-watt facility in Tennessee became underutilised after Grok failed to gain serious traction.

Morningstar forecasts are also known for being successful in cutting through market hype surrounding major tech and finance IPOs, and predicting market corrections.

In 2021, analysts issued a cautious fair value estimate of $225 per share for Coinbase, ignoring the crypto craze that had erupted during the covid pandemic, warning investors of its standing as a volatile asset class.

Coinbase’s shares collapsed well below both the initial value price and Morningstar’s fair value in a crypto cooling, and recently announced it would slash 14 per cent of its workforce to manage costs amid market volatility.