SpaceX’s initial public offering (IPO) is scheduled for Friday, June 12. The company will list its stock on the Nasdaq exchange under the ticker SPCX. It will be priced at $135 per share, giving SpaceX an initial market capitalization of $1.77 trillion. But that figure could be much larger by the time the market closes.
Institutional and retail investors are ravenous to own a stake in Elon Musk’s company. In fact, demand is so great that CNBC’s Jim Cramer — a former hedge fund manager who earned returns of 24% annually over 14 years — says SpaceX could “end up with a $5 trillion valuation on the day it comes public.” That implies about 180% upside from its IPO price.
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However, Cramer also thinks the SpaceX IPO could be destructive for the rest of the stock market. Investors who want to participate may have to raise money by selling other stocks, and Cramer sees prime targets in Amazon, Microsoft, and Nvidia, three companies that account for nearly 17% of the S&P 500 (SNPINDEX: ^GSPC).
Here’s what investors should know.
The SpaceX IPO could force big investors to sell other stocks
SpaceX hopes to raise a record $75 billion from its IPO, roughly triple the previous record of $26 billion set by Saudi Aramco in 2019. That money needs to come from somewhere, and cash levels among institutional investors and high-net-worth individuals are near historic lows.
In May, institutional investors had just 3.9% of their portfolios allocated to cash, according to a survey from Bank of America. That is just seven-tenths of a percentage point above the record low. At the same time, high-net-worth individuals (i.e., with at least $3 million in assets) had less than 10% of their portfolios in cash, the lowest level since the survey began in 1999.
So what? Fund managers and wealthy individual investors who want SpaceX exposure will need to sell stocks to raise capital. Large stocks like Amazon, Microsoft, and Nvidia are likely outlets for that selling pressure, because many investors already have a big percentage of their portfolios allocated to those companies. That could put downward pressure on the S&P 500.
History says SpaceX will underperform the S&P 500 over the long term
SpaceX plans to raise $75 billion by selling 555,555,555 shares at $135 per share. However, the company will have a market value of $1.77 trillion when it goes public, meaning its float (the number of shares available for public trading) will account for just 4.2% of total shares outstanding.
