SpaceX IPO Could Tap Hordes of Individual Investors
The Takeaway
- The SpaceX IPO could raise $50 billion, a watershed for individual investors
- Musk companies like Tesla have benefited from these investors
- But investment banks tend to prefer mutual funds that hang on to the shares
A potential record-setting SpaceX initial public offering has sent Wall Street into overdrive. Main Street wants a cut of the action.
Bankers and institutional investors who talk to SpaceX executives have been debating how much the company should set aside for individual investors to buy at the IPO price—through brokerages including Robinhood, SoFi and Morgan Stanley’s E-Trade—as well as for wealthy clients who can buy directly through the banks.
That’s in part because they are expecting a surge of interest from the kind of individual investors who stampeded into Tesla, drawn by the outsize internet presence of Elon Musk, CEO of the electric car maker and SpaceX. What’s more, retail brokerages that could benefit from a surge of excitement around the IPO are hoping to get a significant share of the sales.
The investment banks that handle IPOs, on the other hand, tend to prefer offering shares in mutual funds over offering them to individual traders, because they say the mutual funds are more likely to hold on to the stock after the first months of trading.
Nonetheless, the portion reserved for individual investors in SpaceX is likely to be higher than the customary 10% to 15% of IPO shares, say bankers.
The size of the SpaceX IPO may require their buy-in. SpaceX executives have told investors they plan to raise about $50 billion, which would roughly double the largest IPO in history. Many of the largest institutional investors and mutual funds in the world already bought shares while SpaceX was private, potentially limiting their appetite for more.
“For the upcoming megacap IPOs, there’s going to be a need for wider distribution,” said Gregor Feige, co-head of Americas equity capital markets at UBS.
“The trend we’re seeing is much more openness from companies [going public] to allocate globally whether it’s to sovereign wealth funds, family offices, ultra-high-net-worth individuals, and retail investors,” he said.
The extent to which individual investors can participate hangs over what is already set to be a complicated IPO. SpaceX is no longer just a rocket and satellite internet company, thanks to a recent merger with Musk’s xAI, which is trying to catch up with OpenAI, Anthropic and Google in the expensive race to develop AI. XAI’s costs could dampen investor enthusiasm.
Meanwhile, two other major AI competitors, OpenAI and Anthropic, are also taking steps toward huge IPOs that could compete for investors’ attention and dollars.
SpaceX’s ability to raise money directly from individual investors, as well as index funds, is a strong inducement to breaking a nearly quarter-century-long streak of staying private.
Musk has spoken publicly about capital-intensive projects the company plans to take on, like building factories on the moon and launching data centers into space to address potential power and land shortages on Earth.
The public markets “obviously [have] a lot more capital” than the private markets, Musk said on the “Cheeky Pints” podcast last week. “It might not be 100 times more capital, but it’s at least way more than 10 times.”
There’s a long history of consumer companies making sure their long-time users get a chance to buy into an IPO before the first day of trading, when enthusiasm can double or triple the price of the stock. These companies can set aside stock through what’s known as directed share programs.
Airbnb, for instance, reserved up to 7% of its 2020 IPO for U.S. residents who rented their homes on the platform, according to its securities filings. In 2024, Reddit allocated 8% of its shares to users and moderators of its online forums in the U.S.
Executives at retail brokerages have pushed to have more access to the SpaceX IPO before shares start trading. The brokerages argue that these individual investors can benefit the company’s stock performance.
Robinhood CEO Vlad Tenev, for instance, has pointed to the premium valuation companies with heavy individual shareholder bases, like Palantir and Robinhood itself, have seen in recent years of trading.
Individual investors who get shares in the IPO can get burned, however. Crypto exchanges Gemini and Bullish gave individual investors a higher allocation than usual, up to 30% and 20% respectively, last year. But both companies, which surged on their first day of trading, have now dropped more than 50% from their IPO price.
Musk’s Tesla, valued at $1.3 trillion, has leaned on individual investors to keep the stock rising in recent years even as its vehicle sales have declined. The general public owns about 40% of Tesla’s stock available for trading, compared to about 30% for other tech stocks such as Apple, Alphabet and Nvidia, according to S&P Global Market Intelligence.
Musk said in a 2024 interview: “I love retail investors. They have decided to support the company, which is very much appreciated.”