Harry Geels: The SpaceX IPO presents five litmus tests at once
This column was originally written in Dutch. This is an English translation.
By Harry Geels
Last week, SpaceX went public in what was the biggest IPO of all time. This rightly attracted a great deal of attention and sparked controversy. However, if one looks beyond the surface, it becomes clear that this IPO challenges and tests the market and society in five ways at once.
Last week, SpaceX went public with a valuation of around $75 billion, giving it an initial market capitalisation of nearly $1.8 trillion, which soared towards $2 trillion on its first day of trading. Such figures are dizzying, especially when we consider that the company has a turnover of ‘just’ $18.7 billion, with a net loss of $4.9 billion. The definition of a typical company also seems to have imploded: we are, after all, talking about telecoms, space travel, defence, AI and social media (X) all at once.
The discussion on social media centred mainly on Elon Musk and his ‘wealth’ – achieved partly thanks to this IPO. That he was able to add $2 trillion to his fortune – as claimed – is not entirely accurate. By no means the whole company has gone public. Furthermore, there are also debts (particularly in SpaceX). Some people think the IPO is brilliant (a textbook example of ‘creative destruction’), whilst others see the dangers of hegemony, power and wealth. But the deeper story behind the IPO contains five litmus tests.
1) Test of the bull market
The $75 billion raised by SpaceX could, via so-called greenshoes (additional shares), increase the total raised to around $85 billion. That is a lot of money, especially as other major IPOs are planned. OpenAI, Anthropic and Databricks (and a few other AI companies) are also reportedly set to go public this year for substantial sums. The big question is whether investors will actually be willing to commit that much capital. If that risk appetite wanes, it could well create a crack in the positive market sentiment.
2) The test of passive investing
SpaceX will soon be included in various indices, and the same will apply to the other IPOs. This means passive investors will be investing a large portion of their portfolio in a company (or companies) that is likely to remain loss-making for the foreseeable future. Passive investing is sometimes seen as risk-averse due to its broad diversification. However, in recent years, passive investing has mainly meant investing in large US IT companies. Passive investors are far less diversified than they think. With SpaceX, this will only get worse.
3) A test for politics
As mentioned, the SpaceX IPO also constitutes a political litmus test. For critics, it confirms the concentration of power and wealth in the hands of a few companies and individuals; for supporters, it demonstrates the power of capitalism to achieve groundbreaking innovation through private initiatives. The IPO thus exposes a classic but now magnified conflict: is this a failure of the market (particularly the ‘animal spirits’), or rather its ultimate success (after all, large sums of money are flowing into relatively new technologies, particularly those of AI and space travel)?
4) Testing the boundary between state and market
The most fundamental litmus test concerns the blurring of the boundary between state and market, which – as has often been argued – has been underway for much longer. SpaceX relies heavily on government contracts (NASA, defence). Indeed, particularly through Starlink, SpaceX is playing a key role in protecting Ukraine against Russia. This is a new example of public-private concentration of power (sometimes caustically referred to as ‘Corporate Socialism’). In doing so, there is a real risk that profits will be private, but that any risks will fall on the government – read: the taxpayer.
5) Testing the narrative of ‘technology as salvation’
Then comes the most philosophical litmus test: does SpaceX seem to be the ultimate example of how technology is a solution for human progress, a solution to our problems and our seemingly endless needs? SpaceX even offers ‘escape narratives’ (Mars, multiplanetary species). The question then becomes whether investors are investing in cash flows, or in a story. Is SpaceX a company, or an ideology packaged as a share? The latter may explain the interest in the shares. As if we are looking for something more than just money.
In conclusion
Perhaps that is the most important conclusion: the SpaceX IPO shows that the stock market no longer merely values companies, but also stories, expectations, political stances and world views. The question, then, is not just what SpaceX is worth, but what we are prepared to believe is possible. And that makes this IPO less of an end point and more of a beginning. It will also tell us more about the future course of the bull market and the popularity of passive investing. A remarkable sign of the times.
PS: My employer and I are not investing in SpaceX for the time being. We are waiting to see the hard profit figures. The company is currently overvalued.
This article contains a personal opinion by Harry Geels