3 Risks You’re Facing by Investing In SpaceX
Written by
Vance Cariaga
Edited by
Jenna Klaverweiden
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Wall Street is bracing for one of the most highly anticipated initial public offerings (IPOs) in years when SpaceX makes its stock market debut, which could happen as early as June.
The IPO has already created a huge buzz — partly because a larger-than-normal number of individual retail investors will have access to the Elon Musk-led company when it goes public.
Before you decide to invest in SpaceX stock, it’s important to know some of the risks. Here’s a look at three of them.
Also see how much of an investment in the SpaceX IPO is enough to get rich.
Retail Investor Rush
Historically, IPOs are heavily geared toward institutional investors rather than retail investors. Fidelity estimated that the usual split is 90% institutional and 10% retail.
But as Yahoo Finance reported, the SpaceX IPO could involve a “potentially massive” 30% retail allocation.
This rush of retail investors could pose risks you might not normally see in an IPO, according to Chad Cummings, an attorney and CPA at Cummings & Cummings Law who previously worked in finance and tax.
“Retail investors clicking ‘buy’ on the morning SpaceX opens are not ‘early’ — they are the exit strategy for the venture capital and private equity shares, not to mention shares held by Musk himself and other employees,” Cummings told GOBankingRates. “Most folks thinking they are buying in the IPO are really buying in the secondary market at the then-current market price.”
That price could rise quickly and then drop just as quickly amid all the activity. “SpaceX could buck the trend, but investors should factor in the possibility of a 10% or larger drop,” Cummings explained.
High Price
SpaceX’s valuation could reach a whopping $1.75 trillion or more when the stock goes public, according to Bloomberg estimates cited by The Motley Fool. Meanwhile, the company aims to raise $75 billion with its offering, which could push the IPO price above $600 a share.
Much of that price is based on the future potential rather than the current performance of subsidiaries like Starlink and xAI.
This is not a huge problem for deep-pocketed institutional investors who can wait years for the stock to pay off. But it could be a problem for individual investors who can’t afford to wait that long.
The Elon Factor
SpaceX’s current and future valuations are tied so heavily to Musk that Cummings said Musk “is the stock.” This could pose a significant risk to investors, considering how Tesla’s stock has gone up and down based solely on things Musk has done and said.
“His political fights put Starlink’s FCC spectrum and Pentagon contracts in the crosshairs, and those contracts are the revenue,” Cummings said. “A Tesla-style tweet or a fight with the wrong senator moves the share price before you can log in to sell. That creates volatility that most other stocks simply don’t have. Volatility alone is not a bad thing, as it creates upside potential. But of course, that potential also amplifies the downside.”
Editor’s note: This article is for informational purposes only and does not constitute financial advice. Investing involves risk, including the possible loss of principal. Always consider your individual circumstances and consult with a qualified financial advisor before making investment decisions.
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