Broke all records: SpaceX raised $75 billion

The company sold 555.6 million shares at a price of $135 per share, and raised $75 billion. In doing so, it surpassed by a huge margin the previous record set in 2019 by Saudi Aramco, which raised $29.4 billion in its IPO.

The IPO price gives SpaceX a market capitalization of $1.77 trillion. After weighing options for employees and restricted shares (RSUs), the fully diluted value of the company comes to about 1.8 trillion dollars.

The excitement surrounding the SpaceX IPO continued to break records, as Elon Musk’s company prepared for the largest public offering in history. According to reports, Blackrock submitted an order to purchase shares in the amount of at least 5 billion dollars, while other large asset managers submitted requests in similar amounts. These are unusual orders of magnitude, several times higher than what is customary in traditional issuances.

By comparison, the largest IPO so far this year was that of Cerebras Systems, which raised just $5.55 billion—less than a tenth of SpaceX’s IPO.

The private investors also stormed the offering, with cumulative demands of more than 70 billion dollars. In addition, sovereign wealth funds and family wealth management offices (Family Offices) submitted significant orders, including one request exceeding one billion dollars from a single investor.

The huge volume of demand indicates high expectations for continued growth in the fields of space, satellites and artificial intelligence, but also the fear of investors being left out of one of the most talked about IPOs in Wall Street history.

The order book is closed

As is customary in solicited IPOs, many investors submit orders that are significantly higher than the amount of shares they actually expect to receive, with the understanding that in a “hot” IPO they will not receive the full amount they requested. SpaceX’s order book closed on Wednesday, and now the underwriters are working on distributing the shares ahead of the scheduled start of trading on Friday.

One of the unusual features of the IPO is Musk’s desire to allocate a larger share than usual to private investors, possibly as much as 30% of the total IPO. This is a significantly higher rate than is customary in huge IPOs, where most of the shares are usually allocated to institutional investors.

Musk set a “take it or leave it” price of $135 per share, without an early price range and without a traditional process of updating the price according to demand.

After the IPO, Musk is expected to hold an unusually large level of control, which has drawn criticism from corporate governance experts.

Recall that the company is not yet profitable. The massive valuation of about $1.77 trillion rests largely on expectations for the company’s new artificial intelligence unit, which is still in the early stages of development.

But in the case of SpaceX, it seems that the huge demands outweigh, at least at this stage, the concerns. The fact that institutional investors, wealth funds, wealth management offices and private investors together submitted orders in the volumes of hundreds of billions of dollars reinforces the feeling that this is one of the largest and most intriguing capital events in the history of Wall Street.

History teaches: wait

It’s worth knowing – a study conducted by Eve Bobuch, Kathy Donnelly, Eric Carroll and Kurt Dale, and published in the book “The Lifecycle Trade”, found that more than 90% of IPOs trade at some point below the low recorded on their first trading day. Even when the stock recovers later, the process may take a long time.

For example, after Facebook’s IPO on May 18, 2012, the stock fell 54% from its peak to its lowest, ending the first trading year down 32%. During that period, the S&P 500 increased by about 10%. Spotify, which was issued on April 3, 2018, has struggled to gain momentum. By December of that year the stock had fallen by almost 50% from its peak of $198.99.

Truist Financial’s chief investment officer, Keith Lerner, looked at 30 of the most recent major IPOs and found that returns tend to be negative over both six-month and 12-month periods. In most cases, sharp declines are also recorded during the first year of trading.

What do they say at the polymarket?

Traders on the prediction platform Polymarket are betting that SpaceX stock will end its first trading day sharply higher than the IPO price set at $135 per share.

According to the probabilities reflected in the prediction market: 60% that the stock will close in the range of $150-200, 32% that the stock will close in the range of $100-150, 6% that the stock will close in the range of $200-250, only a low chance of closing above $250 or below $100.

This means that the market gives the highest probability of an increase of about 11% to 48% already on the first trading day.

If we use the midpoint of the most probable range ($175), this is almost a 30% premium over the IPO price. In that case, SpaceX’s market value may approach $2.3 trillion already on the first day of trading.