Want to invest in SpaceX? Here’s what to know before its IPO

SpaceX, Elon Musk’s rocket ship company, plans to sell shares publicly for the first time ever this week. It’s an unusual event in several ways.

The company’s initial public offering would earn it the title of the world’s largest IPO. SpaceX is also giving everyday investors a much larger slice of its shares than is typical for a public offering. And the IPO could create the world’s first trillionaire by increasing the net worth of the company’s CEO, Musk.

Here’s what you need to know before SpaceX’s first day of trading Friday.

An initial public offering, or IPO, is a company’s debut in the stock market. It’s the first time the general public can buy a piece of the company. Firms do this to tap into a bigger pool of capital to help them expand their business.

When a company decides to go public, it works with an investment bank to figure out how much the company is worth and the price at which it should sell its shares.

SpaceX has set its price at $135 a share, which would value the company at $1.77 trillion. Since last week, SpaceX’s bankers have been discussing with prospective investors how many shares they are willing to buy at that price. On Thursday night, all orders for shares will become final, and the offering process will close.

On Friday, the shares will start trading publicly on Nasdaq. After trading starts, the stock price is likely to fluctuate as the shares change hands on the open market. Bankers generally try to price an IPO so that it has room to rise once its shares are public. Some analysts question how much more the value of SpaceX may rise, given its already lofty valuation.

Hundreds of companies introduce their stock on the market every year. But what makes SpaceX stand out is its size.

At a $1.77 trillion valuation, it would dethrone Saudi Aramco — Saudi Arabia’s state-owned oil company, which debuted in 2019 with a valuation of $1.7 trillion — as the largest IPO ever.

“It’s a big deal because it’s literally a big deal,” said Matt Kennedy, senior strategist at Renaissance Capital.

If SpaceX’s IPO flops, it could send a shudder through a market that has been riding a wave of optimism related to artificial intelligence and other technology. The outcomes could include a chilled IPO market or a broader market sell-off.

“If SpaceX does poorly and the rest of the market goes down with it, we’ll all be pointing to that as the sign that the market peaked,” Kennedy said.

Still, it’s possible investors will stick with the company for reasons beyond the “Elon Musk factor” or AI-related exposure, he added.

The immediate beneficiaries of the IPO are those who already own private shares of SpaceX. They include Musk, who owns a majority of the company’s shares and could see his net worth rise to over $1 trillion.

Others include SpaceX employees who have been compensated in company stock, and investors, including venture capital funds. The banks helping SpaceX go public will make money, too, earning a fee of more than $500 million, the largest payout ever.

The banks are also using the IPO as an opportunity to woo clients in their wealth management businesses, giving them access to SpaceX’s initial offering shares.

If shares of the company pop, investors who buy Thursday evening can sell those shares and make a profit.

Over the long term, SpaceX’s stock performance may depend on whether Musk can deliver on his promises to install tens of thousands of new satellites in orbit and develop a viable AI model.

It’s possible for everyday investors to buy shares of the company at its $135 price, though not guaranteed.

When firms go public, they usually reserve a small sliver of their stock for individuals, with the bulk going to giant investors like asset managers and hedge funds.

SpaceX, however, is seeking commitments from individuals for up to 30% of its shares, much larger than a typical offering.

Some of those shares set aside for individual investors will be available under the SPCX ticker on online brokerage platforms like Robinhood, Fidelity, Charles Schwab, and SoFi.

For anyone looking to buy SpaceX shares, the brokerages have said investors may not get the total number that they request, given a limited supply of stock at the initial offering price.

“Here, you ask for 1,000 shares — maybe you’ll get 300; maybe you’ll get 50,” said Jay Ritter, an IPO expert at the University of Florida.

Individuals may find themselves owning SpaceX shares even if they didn’t actively choose to invest.

The Nasdaq-100, a popular index that tracks the top 100 nonfinancial companies listed on that exchange, recently relaxed its rules to make it easier and faster for SpaceX to be included. That will force funds that track the index to invest in SpaceX practically overnight.

Nearly 16 years ago, investors piled onto the IPO of Musk’s electric vehicle company, Tesla, which proved lucrative for those who held on. Someone who bought $1,000 of Tesla shares in 2010 would have seen their value soar to around $400,000 today.

SpaceX is the biggest company in the space industry by a wide margin, which makes it a defining stock to own for those interested in that sector. It has also been around for over two decades and has hosted several funding rounds since then.

“The time for being an early investor in SpaceX has sort of passed,” Kennedy said.

This article originally appeared in the New York Times.