SpaceX IPO Fever Meets Market Reality: Most Blockbuster Listings Fail to Beat the S&P 500
By Noel Randewich
May 26 (Reuters) - Wall Street is gearing up for what could be the biggest IPO in history: SpaceX, Elon Musk's rocket and satellite company, is expected to go public next month with a valuation that could top $1.75 trillion. But investors hoping to cash in on the frenzy should take note: history shows that most hot IPOs end up underperforming the broader market.
A Reuters analysis of the 50 highest-valued IPOs over the past five years found that buying an S&P 500 index fund would have generated better returns roughly three-quarters of the time. The data highlights a stubborn reality: by the time a company reaches its public debut, much of its growth potential is already priced in, leaving little room for early retail investors to profit.
An investor who purchased each of the IPOs tracked by Reuters at their offering prices would have gained an average of 27% through May 21. That compares with an average gain of 53% for the S&P 500 over the same periods. The analysis assumes the buyer could acquire shares at the IPO price—a privilege often reserved for institutional investors—or simply buy the broad-market index. Returns for those buying on the first day of trading were even worse.
“It’s difficult to make money unless you’re in the early stages and buying before the IPO,” said Dennis Dick, a proprietary trader at Triple D Trading. “The hype attracts a lot of retail money, but the odds are stacked against them.”
SpaceX’s debut, expected under the ticker 'SPCX', is set to be followed by IPO filings from OpenAI and Anthropic, riding the wave of AI enthusiasm that has pushed U.S. stock markets to record highs. The company filed its prospectus on Wednesday, with a potential share sale as early as June 11. Musk has made some shares available to retail investors through platforms like Robinhood and SoFi, allowing them to buy at a lower price—a rare move that could amplify retail participation.
Yet the valuation itself is staggering: at $1.75 trillion, SpaceX’s price-to-sales ratio would be nearly 100, compared to AI heavyweight Nvidia’s ratio of 24. The company lost nearly $5 billion last year, adding to the risk. University of Florida professor Jay Ritter, who studies IPOs, noted that companies with extremely high valuations tend to fare the worst over the long run. “Every one of these companies where investors are willing to pay a very high price-to-sales ratio has a compelling story for why the future could be really bright,” Ritter said. “But, you know, stuff could go wrong.”
The performance of recent blockbuster IPOs is mixed at best. AI-related chip designers Astera Labs and Arm Holdings have been the biggest winners—Astera surged over 700% since its 2024 IPO, while Arm has soared about 400% since its 2023 debut. But these are exceptions. On the other end, Chinese ride-hailing giant Didi Global was delisted from the New York Stock Exchange in 2022 after its oversubscribed IPO, and its shares now trade over-the-counter down 74% from the $14 IPO price. Electric car maker Rivian Automotive has slumped 82% since its 2021 IPO, burning roughly $1 billion in cash each quarter. Design software firm Figma nearly quadrupled in its first trading session last July but has since fallen 35% from its $33 IPO price as investors worry about generative AI commoditizing its technology.
Even Alibaba, the largest U.S. IPO by valuation in 2014, has seen its shares double since listing—but the S&P 500 returned over 300% over the same period. The pattern is clear: for most investors, patience with the broad market beats the rush to get in on the next big thing.
As the countdown to SpaceX’s IPO begins, the question is whether this time will be different. With a dominant position in satellite internet and deep ties to NASA, SpaceX’s story is undeniably compelling. But as Ritter warns, the market’s capacity to price in future success often leaves latecomers with little upside—and plenty of downside risk.
(Reporting by Noel Randewich, editing by Colin Barr and David Gaffen)