“This deal is getting worse all the time,” muttered Lando Calrissian in The Empire Strikes Back, the best of the original “Star Wars” films.
Lando was one of Han Solo’s friends – a fellow smuggler who’d gone straight after taking over an otherworldly mining operation in the space-age Cloud City.
In a dastardly twist, Lando sold Han out to the Empire and made a deal with the proverbial devil (in this case, Darth Vader). But Vader kept altering the terms of their deal … and not in Lando’s favor.
“Star Wars” shows us that the little guy getting hosed on deals is nothing new, even in a galaxy far, far away.
But in our galaxy, in our time, retail investors are about to become bagholders for what could be a $2 trillion blowup: The SpaceX IPO.
Look At the Size of That Thing
On paper, the SpaceX IPO is massive – a corporate Death Star unto itself.
As I quipped last week on Grey Swan Live! with Addison, the “Magnificent Seven” is about to become the Mag 8 as soon as the IPO is completed.
Here’s how SpaceX stacks up against the valuation of other big-name companies when they went public:
Microsoft: $775m (1986)
Amazon: $475m (1997)
Nvidia: $75m (1999)
Tesla: $2B (2010)
Facebook: $100B (2012)
Uber: $80B (2019)
Palantir: $22B (2020)
SpaceX: $2,000B, yes $2T estimated (2026)
Notice anything different about SpaceX? For starters, there’s the fact that it’s going to be 20X more valuable as Meta Platforms (META) – then Facebook – was when it went public in 2012.
Among all these IPOs, Facebook is also the most infamous for having a failed IPO. Shares promptly fell about 30% from their IPO price in the span of a few months.
Typically, an IPO should be priced high enough to raise capital for a company at a high, but not extreme valuation. Investor interest is what takes shares higher – and hopefully serves as a launchpad from there.
Even Palantir, which went public in 2020, managed to triple from around $15 to $45 before it got caught up in the 2022 bear market and shares fell to a low of around $9 before a massive run-up in 2024 to 2025 to $200.
In short, a good IPO leaves some profits on the table for the little guy, not scraps.
But in the case of SpaceX, that may not be the case. And to really drive the point home, regulators are pulling a Darth Vader and altering the deal.
Market Index Providers Are Altering the Post-Dot-Com Deal
Besides the high valuation of SpaceX, market makers are about to shove shares down investors’ throats, whether they want them or not.
Back in the late 1990s, during the dot-com boom, many companies went public years before they even thought they’d report a profit. And market index providers promptly added these stocks to their index – even though that proved to be disastrous.
In 2002, the S&P 500 Index added a profitability requirement to keep investors out of hot stocks with poor prospects.
Sure, SpaceX has revenues now, but they haven’t had a full year of profitability.
That’s a key requirement. And even if a company is profitable the first day it hits exchanges, there’s still a “seasoning window,” typically 90 days, to give investors a sense of how shares will trade.
But for this IPO, the rules designed to protect retail investors are going out the window.
The rules built to protect passive investors are pretty simple:
- The S&P 500 has required 12 months of trading and four quarters of GAAP profitability since 2002. Both waived for SpaceX.
- The Nasdaq cut its inclusion window from 90 trading days to 15.
- Not to be outdone, the FTSE Russell cut its inclusion window to five days.
In short, index providers waived the profitability requirement and cut the seasoning window from three months to one week.
With this move, more than $30 trillion in passive 401(k) and retirement money will have to start accumulating SpaceX shares within a week of the IPO.
Talk about a great deal – for the pre-IPO investors!
Bloomberg Intelligence estimates S&P 500 funds must absorb 19% of SpaceX’s float within six months.
Russell 1000 and Nasdaq 100 funds will absorb 24%.
If you’re already building wealth through a 401(k) plan or with a stock market ETF, congratulations – you don’t need to buy SpaceX shares. You’re going to own them, whether you want to or not.
Pre-IPO Investor’s Moment of Triumph
The real winners of the SpaceX IPO aren’t the retail investors.
It’s the big institutional investors who have been able to rack up substantial gains as SpaceX’s valuation has increased in each of its prior private offerings.
In addition to the seasoning window changes, some changes may be in place to allow pre-IPO investors to start selling shares right away.
Typically, there’s a six-month lockup period during which company insiders must hold their shares.
That’s created an ecosystem that encourages a company to perform well operationally, so shares will be higher – and can absorb insider sales, which can be significant.
During the dot-com boom, and shortly before passing away, legendary value investor Sir John Templeton started going short tech stocks as they approached the end of their lockup window. He made a killing.
After this lockup period, once the big selling is over, is when investors can really start to think about a company’s long-term prospects.
For SpaceX, getting a 100X return is more challenging than Luke Skywalker flying in with his X-Wing to blow up the Death Star.
For SpaceX to deliver the returns for retail investors that, say, Tesla has since its IPO, its valuation will have to move from the $2 trillion mark to over $1 quadrillion.
Can that happen? Sure. To jump franchises from “Star Wars” to Alien, a few megacorporations rule the future universe, such as the fictional Weyland-Utani Corp.
How long would it take to unlock that valuation for SpaceX? Possibly decades.
That’s why the winners of the SpaceX IPO aren’t retail investors who can finally get a slice of the pie. It’s the early investors who can cash out, having already made 100X or 1000X gains. And this time, they may be able to cash out right away, amid a frenzy of mandated institutional buying.
Pretty insidious stuff.
Amazingly, none of this is a dig at SpaceX as a company.
The fact that the costs of launching weight into orbit have dropped 90% thanks to SpaceX is something to be celebrated. I support Elon Musk’s vision that humanity needs to be a multi-planetary species to survive in the very long haul.
But SpaceX’s valuation is priced for perfection. And retail investors are likely to see subpar returns at today’s valuation.
Once SpaceX takes its place as one of the largest holdings in an index ETF, it also bodes poorly for overall market returns.
~ Andrew Packer
P.S. This week on Grey Swan Live!, Addison and I will bring back regular contributor Mark Jeftovic. We’ll be looking at the upcoming Clarity Act and the Fate of the Dollar 2.0.
Crypto has slid in recent weeks, amid skepticism over the space, and as AI stocks have taken center stage for markets. Stay tuned, the crypto market is taking a dive as risk investors go elsewhere – but things could change on a dime.
