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SpaceX IPO
Comments
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The rapid inclusion of SpaceX in indices is highly contentious - both NASDAQ and S&P are, or are contemplating, changing their rules to get a quick entry. Great for those who currently hold shares privately - there could be a forced purchase on an enormous scale.
Elon Musk’s Plan to Make You Invest in SpaceX - The American Prospect
Musk might sell those shares, too. One reason why, despite the ludicrous valuation, is that stock indices are changing their rules to allow SpaceX to join almost right away and with fewer conditions, thus forcing investors who follow a passive strategy, like index funds and many pension funds, to buy the company’s shares.
The NASDAQ stock exchange used to require a company to have at least 10 percent of its stock publicly traded, and see it traded for at least three months, before being able to join. Those rules are now gone; SpaceX will be eligible after just 15 trading days and with less than 5 percent of its stock available to the public. The S&P 500 reform now under discussion is removing the requirement that companies be profitable (as SpaceX is not, as will be seen below)—but only for the largest 100 companies.
“Historically, the function of IPOs has been to allow insiders to cash out,” said economist J.W. Mason, co-author of the recent book Against Money (for which, full disclosure, I provided a blurb). Thanks to these rule changes, a large fraction of the bag holders will be passive investors—which is to say, basically everyone saving for retirement. “It will be impossible to not own them … This will be really helpful for demand,” one adviser to the deal told the Financial Times.
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It’s obvious what is happening here, because we’ve seen it dozens of times before. Musk has to say something wild to build hype in the market, and at least for the moment, it seemingly doesn’t matter how many of his past promises have not come true.
People party to this deal will admit the economics of it are nuts. “From a strict corporate finance perspective, the valuation makes no sense. But Elon is great at getting people to dream,” another adviser to the deal told the FT. This combination of greed and hype likely explains the rush to get SpaceX into the important indices. Musk has produced several hot stocks in the past, and everyone wants in on the latest one.
The difference with stock manias of the past is that this one is significantly driven by the mechanics of the market itself. The point of index funds is that because almost everybody is provably bad at picking stocks, the smart investor simply buys a representative sample of the market. Except it turns out that doing that cedes a great deal of power to the people who make the rules about what is allowed into the index. If you’re a cynical CEO with a notoriously credulous cult of retail investors, you might trust that enough of them will buy your latest pig in a poke to make the price pop, and as a result the immense passive investment players—BlackRock oversees assets worth $12.5 trillion—will have to buy as well, pushing the price up.
Though no one can say when, however, nobody can escape the accounting gods forever. “These giant deals often happen at the very top of the market,” said Mason. Perhaps someday, financial investment will once again consider questions like “Does the business make any money?” A man can dream.
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I'm connected with the semi-conductor industry and myself and my colleagues simply rolled our eyes at Musk's Terafab announcement. It really is fantasy - like something from one of his favourite sci-fi novels. The interesting thing is I read and enjoyed many of the same novels as a child, but took away very different lessons.
And so we beat on, boats against the current, borne back ceaselessly into the past.3 -
Shame Neil Woodford isn't still around. Sounds right up his street. Stick a cold fusion generator on the side made by his top pick, Industrial Heat, and it would be golden.
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When Altman proposes using fusion to power AI centers I know that it's a bad investment. Fusion is so difficult that no body should be including it in their plans.
And so we beat on, boats against the current, borne back ceaselessly into the past.0 -
Elon intends to put the data centres in space to benefit from solar power and to radiate the heat into space
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A proposal is a long way from a reality. The resources to get that much hardware into orbit would be more than enormous and with GPU lifespans of a few years it would be an ongoing expense…and that assumes that AI etc. is actually worth the hype. It’s more “pie in the sky”.
And so we beat on, boats against the current, borne back ceaselessly into the past.2 -
The OP asked if/how they could participate in the SpaceX IPO, not inviting opining on whether they should.
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They won't get any help from me other than to point out the risks and advise that they "sit on their hands". It's Woodford ↑↑↑↑3 times the risk of that fund.
And so we beat on, boats against the current, borne back ceaselessly into the past.1 -
It's the nature of the forum that discussions go beyond simply answering a stated question, for the benefit of others who want to discuss the issue. If the forum was reduced to the simple Q&A format seen elsewhere, I imagine its usefulness in the eyes of some contributors and hence participation would drop. After the OP got some good answers to their specific question, I learned in the following discussion that S&P intend to drop their profitability filter for the largest companies from their flagship index, which has wider reaching implications beyond the subject company being eligible for inclusion. I've now seen it reported elsewhere, but I saw it here first. Since a S&P500 ETF is my largest single holding, it gives me something to ponder - as does the potential pump & dump mechanics that could occur with this constituent as a result.
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Patrick Boyle has a couple of good videos on SpaceX. The main takeaways are that its proposed valuation is mad, a great deal of it relates to Grok - which isn't very popular - and the rushed inclusion into the Nasdaq index looks to be an attempt to pump demand for a small share float and push the shares onto passive investors. Also, it's harder to cool things in space than you'd think. Starlink is the bright spot.
SpaceX prospectus:
SpaceX general IPO discussion:1
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