Should You Buy SpaceX Stock?

0:00Ladies and gentlemen, SpaceX, the leading space company in the world, Elon Musk's biggest company, it begins trading today. The company's raised$75 billion at a$1.77 trillion valuation, all part of the largest IPO in history. But the number one question investors have been asking me in recent days, should I buy SpaceX when it starts trading? Now, before we dig deep into the data and unpack what I found in that work, we should first need to understand what is Elon's vision for this company? Take a listen to how Elon has described what SpaceX is going to become. Well, I think that there's increasingly a convergence actually between SpaceX and Tesla and XAI in that if the future is solar-powered AI satellites, which it pretty much needs to be in order to harness a non-trivial amount of the energy of the sun, you have to move to solar-powered AI satellites in deep space, which somewhat is a complement of Tesla expertise and SpaceX expertise, and XAI on the AI front.

1:07So it does feel like over time, there's somewhat of a convergence there. That's a pretty big vision coming there from Elon. But remember, this has not been an easy road. Elon started this company 25 plus years ago, and he's been working very hard at it. Take a listen to Elon talking about chewing glass and working so hard to make this company successful. Take a listen right here. Starting a company is like eating glass and staring at the universe is that in order to make a company successful, it requires doing a lot of painful work, work that is not fun, working very long hours. And then maybe your company survives, maybe it does not.

1:43And the vast majority of startups fail. So that's why, you know, that's the eating glass and staring at the universe is starting a company. Lots of hard work followed by death is usually what happens when people start companies. That's why I say if people need words of encouragement to start a company, they should not start a company. So Elon, he's been working hard and Elon is now at one milestone, which is taking the company public. Let's get into the data. Should you buy the SpaceX IPO? Now, a company is being valued at about 95x current sales. SpaceX is going public at nearly 5x the NVIDIA multiple and 25x the S &P 500.

2:20Sounds expensive, right? Well, maybe it is. Maybe it's not. That's what we got to try to figure out here. Now, people have been claiming Tesla, Elon's other company, is overvalued for almost 15 years. Since Tesla's IPO, the stock has returned about 25 ,000%, 25 ,000%, or approximately 40 % compounding your growth rate. So it's not bad for a stock that was widely thought to have a catastrophic demise right around the corner. The bears promised you it was going to happen. But SpaceX is not Tesla. You can't extrapolate the returns of one business to another. We know SpaceX has a monopoly on rocket launches.

2:52This has allowed them to service other clients while also launching their own products into space. The most notable is Starlink. They promised to beam the internet down to you, me, and every other consumer. But revenue there is scaling aggressively inside of the company, and so there's quite a bit of promise. But if you put aside the narrative of SpaceX the company, though, what does the data tell us about these types of IPOs for investors? Now, creative planning's Charlie Bollolo, he put together the top 25 IPOs of the last 15 years, and he shows the median return after one year has been negative 31%.

3:22That ain't good. The median max drawdown from the first day closing price has been over 50 % for those same IPOs. So it's not exactly the performance that people are gonna jump out of bed for. Those numbers are from the top 25 IPOs though. What if we look at all IPOs? Peter Malouk highlights that over the last 40 plus years, the average US IPO returned just 6 % annually in its first three years. It's roughly half the return of the broader U.S. stock market. So at least the performance is positive if you look at all IPOs, but it's still not outperforming the market. Stephen Ratner shows that underperformance by writing day one returns are big for those who get an allocation in the actual IPO.

4:01But after the open, investors usually trail the market by negative 4.4 % for the largest public offerings. So why is everyone so excited about the SpaceX IPO? Obviously, Elon's big part of the story, duh. But there's a weird data point that supports the first day interest. For example, IPOs with negative earnings have historically delivered roughly twice the first day return of profitable ones. People love scale too, remember. It dominates headlines. It drives excitement. Elon's one piece, but SpaceX is the biggest IPO in history. There's nothing bigger than SpaceX when it comes to IPOs throughout that history.

4:35This brings us to the crux of the issue. Some investors who are looking at history and data, they may choose to refrain from investing. And frankly, I can't blame them. This would be a rational view to take. History shows that mega IPOs have not been kind to investor portfolios. But this is not a random mega IPO. This is SpaceX. This is Elon Musk. We are talking about the greatest entrepreneur of our lifetime. He has disproved the haters over and over and over again with Tesla. People hated it and they claimed that it was overvalued. They said it would go bankrupt. They promised you not to buy Tesla.

5:07Yet Tesla continued to find success. And there's a lot of investors who are willing to wager their capital that Elon is going to defy the haters once again. They aren't buying SpaceX's current metrics or the current financials. Instead, they're willing to take risk by betting on Elon and the future vision he has for the company. I can't fault those investors for plowing their capital into SpaceX. They're being rational from their perspective too. So this is why SpaceX's IPO has been so heavily debated. Some people are looking at numbers and others are looking at a narrative. Both sides are being rational from the perspective that they're approaching this.

5:40The market is ultimately going to be the referee, not me or not you. You have to decide how you want to invest. Do you follow the math or do you bet on people? Neither is right or wrong. It's simply going to come down to what is your personal strategy. But regardless of your decision, we're watching the biggest show on Wall Street, $75 billion,$1.7 trillion valuation. SpaceX is finally going public after 25 years. Thousands of multimillionaires being created in the process as a win for capitalism, the American economy, and the broader investment community. with the largest IPO that ever and let me tell you if people had told me this was the gonna happen I was like man you must be smoking some really good I think this company's gonna fail I mean I I gave I gave I gave SpaceX less than a 10 % chance of succeeding at all, to be clear.

6:44In fact, I told people this. I said, look, we're probably going to fail, but, you know, we should give it a try, because if we don't, if there's not a new company that enters space, we will never be a truly space-faring civilization. The other aerospace companies, they build good rockets and everything. They were simply not pursuing the technology that's necessary to make life multi-planetary uh to i to to make to make star trek to make uh the the exciting futures that we've read about that's it for today's show thank you guys so much for watching please remember to subscribe on youtube and also get to 1 million subs hit the subscribe button right now to help us out and i'll see all of you live from the desk of anthony pompliano on monday