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SpaceX is expected to appear on the public markets in the United States on Friday in what will be the largest initial public offering (IPO).
Artificial Intelligence (AI) giants OpenAI and Anthropic are also expected to go public soon, and thanks to Nasdaq’s technical regulatory changes, individual investors can own these companies’ stock when it goes public as soon as15 business days following its first day.
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SpaceX is worth approx $1.8 trillion, or $135 per share, beyond Saudi Aramco, which launched in 2019 at $1.7 trillion in what was the world’s largest IPO.
SpaceX’s IPO is creating buzz among retail investors. The company led by Elon Musk is expected to distribute 20 percent of shares to retailers and has taken about $70bn in orders, according to Reuters.
In the past, there is a waiting period between when a company goes public and when it is listed on the Nasdaq-100 index and / or S & P 500. Companies usually have to show profits for the last four quarters of the S & P 500 and three calendar months of the Nasdaq-100, excluding the month of the list. SpaceX asked to leave the so-called mega cap companies.
Musk’s efforts returned mixed results. At the beginning of May, Nasdaq changed the rules that would allow a Texas company to enter the list after only 15 days of trading. S&P Dow Jones Indices, which drives the S&P 500 index, did not change its rules.
Shopping inside
Although there has been a lot of excitement about this IPO and it is written in abundance at a rate of up to four times its offering as reported by the US media, there are also concerns that it may be too expensive and may expose mainly retired investors who invest their pension savings and have no say in the stocks that are chosen.
Analysts at MorningStar, for example, have priced SpaceX at $63 a share, a 53 percent discount to the upcoming IPO price.
On Wednesday, North Carolina’s state treasurer said it won’t buy a direct portion of the state’s pension fund for teachers, firefighters and police because it’s too expensive, but instead will sell the money through a large investment fund.
“Ultimately we will participate in SpaceX through our positions in our company,” Treasurer Brad Briner told CNBC.
Pension funds are tied to funds that are linked to the performance of stocks in the S&P 500 and others in the Nasdaq-100, among others. This means that consumers who have a pension, will not have the option of opting in or out.
Instead, the grace period allows companies to ensure that the stock is not overpriced, and provides protection to investors who may have index funds on behalf of their clients.
“They must buy the stocks in the index according to their weight within the index. As a result, they will all be forced to buy these companies at the same time, and this may be very unnecessary,” Aleksander Tomic, associate director of strategy, innovation and technology at Boston College, told Al Jazeera.
Except one company may want to create a new fund.
“If SpaceX enters the Nasdaq, these fund managers can’t just choose not to comply because they have a regulatory obligation,” Colin Clark, managing director and head of analytics at Northwestern Mutual, told Al Jazeera.
“If you want to say it’s anything, it’s the only platform, where Nasdaq may be breaking the rules to allow entry faster than normal,” adds Clark.
These changes also set the stage for the OpenAI and Anthropic IPOs.
Monday, OpenAI privately listed its IPO. Although the AI giant did not disclose the details, it is known that they want to calculate the amount of $ 1 trillion. Earlier this month, Anthropic successfully filed for its IPO in an undisclosed amount. Like OpenAI, it is expected to be worth around $1 trillion.
The methods of governance are flawed
As part of the upcoming IPO, SpaceX explained how the company will be controlled. This has raised concerns among public fund managers who manage pension funds.
Under the new plan, SpaceX will give Musk greater control and weaken the board’s accountability. In theory, wood can remove large adults. But under the proposed arrangement, Musk would control up to 85 percent of the voting power despite owning 42 percent of the equity.
“The dismissal of the company director, as a matter of mathematics, would require his own vote – especially to prevent him from being threatened without his consent,” a written letter and Thomas DiNapoli, New York state attorney general; Mark Levine, New York City manager; and Marcie Frost, CEO of the California Public Employees’ Retirement System, said in May.
“This level of accountability is not well understood among all other major U.S. corporations whose governing documents predict shareholder accountability for these reasons.”
This control system will limit the ability of the owners to have a say in the company.
But this control strategy means that it will be more difficult for the group to remove Musk if necessary, a process that Tesla explored, the Wall Street Journal reported last year. The electric car maker denied the reports.
This means that shareholders, including investors who invest on behalf of investors and large pension funds, cannot fire him if he does not fulfill his commitments.
Tomic of Boston College warns that SpaceX, and possibly OpenAI and Anthropic, may be too valuable. If their calculations fail, especially because of the recently repealed Nasdaq rules, it raises concerns about the loss of pension funds, retirement accounts, and university funds, among others.
“The most difficult thing is the 15-day rule because there is not enough time to see how the IPO will do,” said Tomic.
SpaceX also has access to the university. The University of North Carolina system, for example, has 10 percent of its capacity connected to SpaceX, according to The Wall Street Journal, as do both Washington University in St Louis and Stanford University in Palo Alto.
Musk’s bet
Musk has also made ambitious, futuristic promises for SpaceX in the coming years, including big bets on the future of AI, such as plans to build data centers in space. But those promises have been overshadowed by Musk’s long history of overreaching and under-delivering.
A New York Times analysis found that he fulfilled promises on time, if at all, for 19 percent of the nearly 600 promises he made.
In 2016, he said that humans will live on Mars by 2025. This did not happen. He also failed to deliver on his 2025 promise that Tesla’s robotaxi would be autonomous by the end of the year. And more ambitiously, while leading the Department of Public Works, he promised $2 trillion in budget cuts. That didn’t happen either.
SpaceX reported a loss of $4.9bn last year on revenue of $18bn, up from $14bn the previous year.
Much of the growth is driven by the rapidly expanding Starlink network.
“When we drive a car, we look at the front mirror, not the rear mirror, so if you are a manager of institutions like us, you look ahead and ask what the company can achieve. We like to be investors for the long term,” Michael Monaghan, managing partner at FounderETFs, told Al Jazeera.
“For a name like SpaceX, we are looking at least two or three years ahead. We are asking what SpaceX can do in 2030 without stretching ourselves. We think they can do $50bn in Starlink and $50bn in defense (in money).”
Starlink has more than 10 million subscribers and is a profitable part of the company. It is growing and represents between 50 and 80 percent of its income.
SpaceX launches rockets faster than any other space program, with a rocket launched about every two days. The Falcon-9 in particular completed 165 launches last year alone.
Monaghan also said that the company has the opportunity to build a moonbase, which is very important to the US Department of Defense.
“There is only one company that can build, ship, and deliver,” he said.
Morgan Stanley and Goldman Sachs are matching Monaghan’s position. Morgan Stanley says it expects that by 2030 the investment will exceed $330bn, and Goldman says $470bn in the same period.
A ripple effect
But as SpaceX increases its bet to build data centers in space, there are concerns that the AI sector is a bubble that could burst.
“There is so much that can be done in a space company, especially as we learn more about space and the complexity of the support along with the increase in the need for computing, so that field is open to interpretation,” said Clark.
Because of the AI sector’s strong correlation, weak performance can bring down multiple stocks at once — and by extension, the market at large amid growing concerns about an AI bubble.
“On the one hand, anyone who wants to be exposed to AI will be able to get that information by buying the company’s stock. Having said that, good or bad, there are big feelings … that a bubble is forming, and it would not be a good time to be exposed to AI,” said Tomic.
If the bubble bursts, that affects companies, and consumers have no choice if this is a risk they want to take.
“The difference between the IT bubble in the 1990s and the AI bubble today is that the top 10 companies in the S&P 500 today are much higher than they were in the 1990s,” Torsten Slok, an economist at Apollo Global Management, said in a statement last year.
Among them is Nvidia, which has major investments and partnerships with OpenAI, SpaceX and Anthropic. Microsoft, which invested in OpenAI, also earlier this year announced a partnership with SpaceX’s Starlink.
The 10 stocks in the index — all technology companies except Berkshire Hathaway Inc — represent 40 percent of its weight. This is even before SpaceX, OpenAI or Anthropic enter the list.
