Musk's SpaceX IPO... Loyal Fans and Crowd Psychology

"Musk's SpaceX IPO... Loyal Fans and Crowd Psychology"

NYT: "Inducing individual participation... creating a psychology where 'not buying is riskier'"

As Elon Musk and investment banks prepare for the largest-ever SpaceX initial public offering (IPO) scheduled for this month, they are working to make investors feel that the risk of not buying shares is greater than the risk of buying them, the New York Times (NYT) reported on the 29th (local time).

The NYT reported that if such an atmosphere is created, Musk's mega IPO is highly likely to succeed despite various questions. SpaceX recorded a deficit of $4.3 billion in the first quarter of this year alone.

It also predicted that SpaceX's 'blockbuster' IPO would pave the way for subsequent mega IPOs of OpenAI and Anthropic, expected in the second half of this year.

Investors said that SpaceX's ability to successfully raise large-scale capital, largely driven by market sentiment rather than financial statements, makes it a very rare IPO case.

Craig Coben, Bank of America (BofA)'s head of global equity capital markets, analyzed, "There's a lot of heat around this deal. That's because people actually believe there's heat."

Coben added, "A lot of people want this deal to go well, including banks looking to collect IPO fees and early investors looking to cash out their holdings."

He then described it as being "like a steamroller." It's like a momentum that, once it starts moving, pushes forward with enormous inertia.

When SpaceX disclosed its financial status last week, some investors were greatly surprised. The space business did not generate as much revenue or profit as expected, and the losses from the artificial intelligence division, xAI, were larger than anticipated.

However, the NYT predicted that some investors would still buy shares in the SpaceX IPO anyway.

Many investors said they couldn't ignore Musk's company. They also felt they couldn't miss this IPO, which is attracting Wall Street's attention.

Renzo Savvides, head of equity capital markets at fund manager Neuberger, said, "Nobody wants to miss out. There are far more people who want to participate than those who don't."

Neuberger already holds SpaceX shares through one of its funds.

Savvides explained, "If you decide not to participate in the IPO and the SpaceX investment eventually proves successful, you'll be reprimanded by your boss. If numerous investors are collectively hit by the failure of SpaceX's IPO, an individual investment failure won't particularly stand out."

Musk has long established himself on Wall Street as a unique figure, like a "Pied Piper," who persuades individual investors to invest in his companies.

About 16 years ago, individuals massively participated in the IPO of electric vehicle company Tesla, which brought significant returns to long-term investors. If one had bought $1,000 worth of Tesla shares at its IPO in 2010, their value would now be approximately $400,000.

SpaceX, founded in 2002, followed a similar trajectory.

Its corporate value was estimated at $1 billion in 2010, $25 billion in 2018, $125 billion in 2022, and $350 billion by the end of 2024. In February, SpaceX acquired xAI, valuing the company at $1.25 trillion.

Musk's bankers expect individual investors to once again play a significant role in boosting enthusiasm for the SpaceX IPO.

According to sources, about 30% of the investors in this IPO are expected to be individual investors, a much higher figure than in typical IPOs.

BofA, one of the lead underwriters, recently invited potential investors to SpaceX headquarters in Hawthorne, California, to showcase the technology used in rocket design and assembly.

While Musk has offered tours to friends and celebrities, this was unusual for IPO participants.

SpaceX also invited investors to briefing sessions at its Starbase facility near Boca Chica, Texas, and its AI hub in Memphis. During these sessions, Musk and the top executives explained the company's operations and long-term goals in detail.

Neuberger's Savvides said, "Individual investor participation in the SpaceX share offering will be very important," adding that investors worldwide are watching this deal.

Charles Schwab, Fidelity, Robinhood, and others are focusing on attracting investments from individual investors through their online stock trading platforms.

Additionally, Coben pointed out that early investors in SpaceX might have an incentive to participate in the IPO to support the value of their holdings.