It was around a year ago that X (formerly Twitter) was merged with xAI, the artificial intelligence (AI) start-up begun by Elon Musk to take on OpenAI and ChatGPT. Then, a month ago, another company in the Elon Musk empire — SpaceX — absorbed X and xAI at a valuation of $1.25 trillion.
Now, Musk wants to take the combined company public through an initial public offering (IPO), perhaps within a few months. It could be the largest IPO in history, and investors couldn’t be more excited. Sourcing has it that 30% of the IPO will be allocated to retail investors as well.
But does that mean you should buy shares of SpaceX at the IPO?
The largest IPO in history
Reports have been swirling for months that SpaceX is finally going public. The exact details are unknown, but reporting says it aims for a valuation of $1.75 trillion and $75 billion in fresh capital to help fund xAI’s and SpaceX’s growth plans.
So much money is being raised in order to take on an ambitious new project: AI data centers in space. Elon Musk believes that AI data centers would be much better served by operating in orbit to take advantage of potential energy-saving benefits and wants SpaceX to launch the equipment needed to do so. In theory, these data centers would power xAI’s services, including its ChatGPT competitor, Grok.
It may seem far-fetched, but it is all part of Musk’s latest master plan, which now includes Terrafab, a new semiconductor manufacturing facility that will produce chips for both SpaceX and Tesla. It is unclear how it will all play out, but no matter what happens, it will require significant up-front spending, underscoring why SpaceX is looking to raise such an ambitious amount of money.
Image source: Getty Images.
Should you buy the SpaceX IPO?
A SpaceX IPO will be a monumental event in stock market history. Not only could it raise the largest amount of capital ever, but it may also immediately become one of the top 10 largest companies in the world by market capitalization.
That’s exciting. But it doesn’t mean you should buy shares if you care about portfolio performance. Last year, SpaceX reportedly generated revenue of around $16 billion. Combined with xAI, this may rise above $20 billion, but that would put the business at a price-to-sales ratio (P/S) of approximately 100.
It is virtually impossible for a business to generate good forward returns for shareholders when buying a stock at a P/S ratio of 100, let alone one with high capital intensity such as SpaceX. It will be fun to follow SpaceX’s IPO, but don’t chase the stock if it debuts at a market cap of $1.75 trillion. Your portfolio will thank you in the long term.