Elon Musk's rocket and satellite company

SpaceX is expected to go public this

month in one of the most highly

anticipated IPOs of the year.

>> SpaceX is on track to set the record for

the largest IPO in stock market history.

And millions of ordinary investors might

end up owning the stock without ever

choosing to buy it.

Let me explain.

First,

what is an IPO?

IPO stands for initial public offering.

The basic idea is simple.

Picture this. You start a company.

At first, it's private. That means

ordinary people can't just go on an app

and buy shares in it.

The owners are usually the founder,

employees, venture capital firms, early

backers, maybe a few big institutions.

But then, one day, the company decides

to go public.

That means it sells shares on the stock

market, so regular investors can buy a

piece of the business.

That first sale of shares is called the

IPO, or initial public offering. And

this does two things.

First, it can raise money for the

company.

Second, it gives early investors a way

to turn their early investments into

actual hard cash.

SpaceX is expected to raise as much as

75 billion dollars, more than double the

record-setting 29.4 billion raised by

Saudi Aramco in 2019.

This is the biggest IPO of all time. But

this story isn't just about rockets.

It's not just about Elon Musk becoming

even richer.

It's about something much more

fundamental. It's about how the stock

market actually works. If you privately

invested in SpaceX years ago, your

shares might be worth a fortune on

paper, but paper wealth is not the same

as cash. An IPO opens the door.

The early investors can sell

and new investors can buy.

So far, that's totally normal. But,

here's the thing.

With an IPO, the price matters

enormously.

If a company is priced cheaply,

new investors might do very well. But,

if a company is priced too aggressively,

then new investors can become what

people in finance call bag holders.

A bag holder is someone who buys at the

top while someone else cashes out. This

is what happened during lots of the pump

and dump crypto spikes we've seen in

recent years. Early crypto investors

hype up certain coins.

So, regular investors get excited and

buy in,

which pushes the price up.

Then, the early investors cash out when

the price is inflated much higher than

what they initially paid for it.

So, the price tanks

and the regular investors who jumped on

the bandwagon lose out. SpaceX launches

rockets. It sends satellites into orbit.

It has government contracts. It runs

Starlink, which provides satellite

internet around the world. And it's

slowly becoming an AI company planning

to build data centers in space. So, the

question isn't, is SpaceX a valuable

company?

It obviously is. The question is,

just how valuable is it? And this is

where we need to understand valuation.

With SpaceX, investors aren't just

paying for the rockets and satellites

the company has today.

They're paying for a story about the

future.

Maybe data centers in space.

Maybe Mars. Maybe things that don't

exist yet at the commercial scale. And

that's the key point. A great company

can still be a bad investment if the

price is too high. SpaceX's $2 trillion

dollar

means it would have a price to sales

ratio of roughly 87 times. For context,

investors currently value Tesla and

Nvidia at roughly 15 times their annual

revenue.

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therapy. When a company goes public,

it usually doesn't sell all its shares.

It sells a portion of them. That portion

is called the float.

The float is the number of shares

actually available for the public to

trade.

And this matters because stock prices

are driven by supply and demand. If lots

of people want to buy, but only a small

number of shares are available, the

price can shoot up. It's the same reason

concert tickets go crazy when there are

only a few tickets left. Usually, in a

big IPO, most of the shares go to

institutional investors. That means

pension funds, banks,

asset managers, hedge funds, and

insurance companies.

Retail investors, also known as regular

people,

often get a smaller piece.

But SpaceX is expected to give ordinary

investors a much larger allocation,

unusual. Sounds generous, right? But

hang on. Professional investors are

usually more price sensitive.

They have analysts. They have models.

They have teams of people whose job is

to say, "At this price, we're not

buying." Retail investors are often

buying with story.

They know the brand. They know the

founder. They know the dream. And that

can make them easier to sell to at a

very high price. So, when regular

investors are offered a big piece of a

very hyped IPO, the question should be,

are they being given access to great

opportunity, or are they being used as

demand?

That's the uncomfortable question.

Now, we get to the most important part

of the story.

Index funds.

A lot of people own index funds through

their pensions, retirement accounts,

brokerage accounts, or workplace savings

plans.

An index is just a list. For example,

the Nasdaq 100 is a list of 100 of the

largest non-financial companies listed

in the US.

An index fund is a fund that copies that

list. So, if Apple is in the index, the

fund buys Apple. If Nvidia is in the

index, the fund buys Nvidia.

When a company gets added to a major

index,

every fund tracking that index has to

buy it. Just because the rules of the

index fund say so. And that creates

forced demand.

So, if SpaceX enters a major index

quickly after going public,

index funds may have to buy SpaceX

shares.

Now, this is where the story gets

controversial. Normally, new companies

have to trade publicly for a while

before they can enter a major index.

This waiting period is sometime called

seasoning.

And seasoning exists for a reason. When

a company first goes public, nobody

really knows how the market will value

it. So, the seasoning period gives the

market time to figure things out. But,

Nasdaq has introduced a fast entry rule.

Under this rule, a very large, newly

listed company can potentially enter the

Nasdaq 100 after only a short period of

trading. This means millions and

millions of dollars from passive funds,

including retirement accounts, could

flow in automatically, regardless of the

valuation. The concern is that the

machinery of passive investing could

create a huge wave of automatic buying

at exactly the moment early investors

want liquidity. In plain English,

ordinary investors could end up buying

because the system forces them to. Early

investors could end up selling because

the IPO finally lets them, and the price

might be based less on careful analysis

and more on scarcity, hype, and forced

demand.

I've been talking on this channel for a

long time about how I think space is a

massive investing opportunity. This is

the then ARK Space Innovators Fund,

which is a collection of lots of

promising space company stocks. If you'd

invested in this when I spoke about it

last February,

your investment would have almost

quadrupled by now.

You see, the SpaceX IPO will push up the

valuation of the entire space industry,

and there are lots of exciting companies

out there, like Rocket Lab, that

potentially aren't as overvalued as

SpaceX.

Thanks for watching. See you on the next

one.