Elon Musk's SpaceX is about to attempt something almost as audacious as landing rockets upright: convincing investors to accept a $1.77 trillion valuation without the usual Wall Street haggling.
The day before Friday's listing goes live would normally see pricing of the shares decided, but since Musk has already set a non-negotiable price of $135 a share, today's focus will be on the allocation for underwriters, asset managers and investment platforms.
This will allow investors to know where they are before trading begins, in what is set to be the largest IPO in history, with as much as $75 billion raised for the company's coffers.
Musk wants retail investors to get an allocation of around 30% of the shares in the offer, which is much higher than the usual share of 5-10%.
It is worth noting that the 555 million shares being sold in the IPO represent only roughly 4%-5% of the company's total share count.
In other words, the headline figure may be enormous, but the freely traded stock is relatively limited.
That scarcity could be amplified by index inclusion. While S&P Dow Jones Indices has reportedly indicated it will wait before adding SpaceX to the S&P 500 benchmark, the share will be included in Nasdaq and Russell indices, creating a wave of passive demand.
Reports suggest the offering has been at least four times oversubscribed, with institutions, retail investors and Musk devotees all chasing stock, and the Nasdaq and Russell index funds forced to buy.
Valuation metrics and feeding frenzies
Many investors sitting on the sidelines are concerned about the valuation, with SpaceX having generated $18.7 billion of revenue last year and posted an operating loss approaching $5 billion. This year sales are expected to rise to around $25 billion, with losses anywhere between $4 billion and $10 billion.
At the proposed valuation, investors are being asked to pay around 95 times annual sales. The price is also 56 times future revenues, another huge multiple.
That compares to Nvidia, currently the largest listed company, trading for around 19 times trailing revenues and 13 times forecast sales.
Kenny Polcari, chief market strategist at Slatestone Wealth, said Musk setting the price and encouraging a larger retail allocation is "one of the boldest capital markets experiments we've seen in decades"
By shifting the price discovery process away from the banks and institutional investors, directly towards retail investors and the public markets, Musk is "not eliminating price discovery, he’s relocating it".
"And that may be exactly the point. Because if investors believe the stock is worth more than the offering price, then every share not allocated during the IPO becomes future demand. That’s how you create a backlog of buyers. That’s how you create a feeding frenzy."
Kathleen Brooks, head of research at XTB, agrees that the high retail allocation is to "cash in on Musk’s cult-like status".
However, she notes that the retail trading market is "made up of more than just Elon Musk’s fan club", with non-institutional investors contributing 20-30% of daily volume in major developed markets like the UK and the US.
Why investors are excited
The bull case is easy to understand.
SpaceX dominates the global launch market, controls more than 80% of US rocket launches and has transformed Starlink into a global satellite broadband network serving more than 12 million customers across 160 countries.
For some investors, this is no longer an aerospace company. It is a bet on communications infrastructure, artificial intelligence, defence technology and perhaps even the future architecture of the internet.
Ipek Ozkardeskaya, senior analyst at Swissquote, describes one possible outcome as the "buy the space dream" scenario.
In that version of events, investors embrace not just Starlink and launch services, but the prospect of future businesses ranging from AI infrastructure to orbital data centres.
"The combination of Elon Musk, AI, Starlink, space exploration and index inclusion is simply too powerful to ignore," she says.
What could go wrong?
The obvious risk is that investors eventually rediscover arithmetic.
Michael Field, chief equity strategist at Morningstar, believes the shares are worth closer to $63, less than half the proposed IPO price.
"We believe the business has real strengths, particularly in Starlink, but with so many unknown and untested technologies underpinning much of the valuation price, particularly within the AI business, we think the valuation is extremely speculative," he says.
Even Morningstar's valuation assumes favourable outcomes, including successful commercialisation of technologies that have yet to be fully proven.
There is also the risk that SpaceX creates what Ozkardeskaya calls a "liquidity vacuum". Investors may sell existing holdings, particularly richly valued technology and space stocks, to fund purchases of the new issue.
And history offers a warning, as Dan Coatsworth of AJ Bell notes.
Some of the world's biggest IPOs have surged on day one, only to disappoint later. Facebook's shares jumped when they debuted in 2012 before halving within months. Deliveroo's flotation was even more painful.
The first day of trading may be exciting but might not tell investors much about whether SpaceX is really worth $1.77 trillion.
Wider ramifications
The IPO has potentially important ramifications for the wider tech sector and stock market context, said analyst Dan Ives at Wedbush.
The listing "represents the first major test for public markets after years of muted IPO activity", he said, especially acting as a toe in the water ahead of sizeable planned listings for AI giants Anthropic and OpenAI this year.
He also believes anticipation of the SpaceX float has "caused some added volatility in the market, especially in the tech sector, as traders/investors anticipate the ripple impact of this historical IPO."
The mammoth fundraising may "take away some oxygen" from the tech sector, and semiconductors in particular, as investors rotate into SpaceX, he said, though adding that he believes "this will be a short-term bump in the road as the market adjusts to this new tech titan as a public company".
