BREAKINGVIEWS-SpaceX IPO will gauge market moxie more than depth

By Sebastian Pellejero

NEW YORK, April 1 (Reuters Breakingviews) - Elon Musk is preparing to recalibrate the appeal of audacity. The billionaire's SpaceX rocket company, which he recently combined with his artificial intelligence venture xAI, may seek to raise as much as $75 billion in what would be the world's largest initial public offering. Despite the eye-popping sum, investors can easily absorb it. How much they are willing to pay will be the more important gauge.

Consider the sheer size. SpaceX is targeting, according to a Bloomberg report last week, nearly twice as much as the $44 billion, in inflation-adjusted terms, that Japanese telecom operator NTT secured in its record 1987 IPO. U.S. equity markets, meanwhile, now turn over $1 trillion of shares every day, according to Cboe Global Markets data. Such depth, suggests the $75 billion is manageable, even if it prompts other companies to postpone market debuts.

The appetite looks clear. A private SpaceX tender offer in December doubled the price set six months earlier. Listed funds providing indirect exposure have spiked. The company also is considering a 30% allocation to individual investors, according to a Reuters report. Index crafters are trying to fast-track the stock's inclusion in major benchmarks.

Price, rather than demand, will be the X factor. SpaceX generated about $8 billion in EBITDA last year on roughly $15 billion of revenue, Reuters reported. At $1.8 trillion, it would be valued at more than 100 times sales.

Some enthusiasm is warranted. Tesla's TSLA.O stock price has gained 234 times since its 2010 IPO, making the electric-vehicle company Musk runs worth $1.4 trillion. SpaceX may even be the better business: it's already profitable, thanks to the Starlink satellite network.

Such great expectations have a habit of disappointing, however. Profitable companies with top lines exceeding $100 million underperformed the market by some 3% during their first three years of trading, according to Jay Ritter, a University of Florida professor who has tracked U.S. IPOs for decades. Even at the dot-com bubble's peak, technology firms listed at a median of 49 times sales.

Since SpaceX set its sights on going public, the Iran conflict has pushed oil prices up and the S&P 500 Index .SPX down. If new investors look past the tumult to enthusiastically back Musk, it will encourage machine-learning giants OpenAI and Anthropic to pursue their own trillion-dollar debuts, further spreading the exuberance premium.

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CONTEXT NEWS

SpaceX has confidentially filed for a U.S. initial public offering, Bloomberg reported on April 1, citing unnamed sources, and it is considering a $75 billion fundraising target, according to a March 25 report by the news service.

Earlier media reports suggested the rocket, satellite and artificial intelligence company started and led by billionaire Elon Musk could seek a valuation of more than $1.8 trillion in its initial public offering.

SpaceX said on February 2 that it had bought Musk’s xAI venture in a deal that valued the combined enterprise at $1.3 trillion.