Wall Street is currently abuzz with the impending blockbuster debut of Elon Musk’s rocket and satellite maker SpaceX next month. However, a recent Reuters analysis indicates that few of the biggest initial public offerings (IPOs) in recent years have truly paid off for investors who bought shares at market. This data on 50 top-valuation IPOs over five years underscores the difficulty in finding bargains, as company valuations often surge long before their market debut. Investors who bought each of these IPOs would have seen an average gain of 27% through May 21, notably less than the average 53% gain recorded by the S&P 500 over the same periods.
SpaceX is a space exploration company that designs, manufactures, and launches advanced rockets and spacecraft. It also develops and operates satellite internet constellations. The company is expected to target a formidable $1.75 trillion valuation, poised to dwarf all previous Wall Street stock listings. Its anticipated June 11 debut under the ticker ‘SPCX’ will likely be followed by other high-profile AI-related offerings. While founder Elon Musk intends to make some shares available to retail investors, University of Florida professor Jay Ritter cautions that companies with particularly high valuations, especially by price-to-sales ratios, often fare the worst. SpaceX’s projected valuation would yield a price-to-sales ratio near 100, significantly higher than AI heavyweight Nvidia’s 24.
The Reuters analysis further revealed that an investor buying shares during a stock’s frenzied first day of trading typically fares even worse. Despite this, some recent IPOs have performed strongly, particularly within the AI sector. AI-related chip designers Astera Labs and Arm Holdings have been notable winners, with Astera surging over 700% since its 2024 IPO and Arm soaring about 400% since its 2023 debut, both significantly outperforming the S&P 500. Conversely, significant disappointments include Chinese ride-hailing giant Didi Global, down about 74% from its IPO, and electric car maker Rivian Automotive, which has slumped 82% since its 2021 offering. “It’s difficult to make money unless you’re in the early stages of these things and buying these things before the IPO,” commented Dennis Dick, a proprietary trader, highlighting the challenge for later investors.
