By Nigam Arora
Editor’s Note: This is one of a series of posts and podcasts previously made available to paying members of The Arora Report to help them with the SpaceX (SPCX) IPO.
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While there is understandable exuberance about the SpaceX IPO, prudent investors need to carefully understand both the potential rewards and the meaningful risks because this is likely to be among the largest, most anticipated, and most emotionally charged IPOs in modern market history, and when excitement reaches extraordinary levels, outcomes often become more binary than investors initially appreciate.
Here are the key points:
- The probability of a meaningful post-IPO rise appears favorable, and at this time our assessment is approximately a 60%–70% probability of a strong move higher after the IPO, although investors should understand that probability is not certainty and that even exceptional companies can experience difficult starts in public markets when expectations become overly elevated.
- There is approximately a 20% probability that the stock may become range-bound after the IPO rather than experiencing the type of explosive appreciation that many investors appear to be expecting, especially if institutions temporarily digest valuation, enthusiasm cools, or broader market conditions become less supportive.
- There is approximately a 20% probability that the stock could disappoint relatively quickly and trade below the IPO price, not necessarily because the company lacks long-term merit, but because market mechanics, investor psychology, excessive leverage, and forced selling can overwhelm fundamentals in the short term.
- SpaceX appears expensive on traditional valuation metrics at roughly 90x sales, not earnings, and by conventional Wall Street frameworks such a valuation would appear extraordinarily difficult to justify; however, history also teaches that transformational companies often look extremely expensive before becoming dramatically larger, particularly when investors believe future revenue growth may ultimately justify current enthusiasm.
- Investors should think carefully about whether SpaceX is simply a launch company or whether it may ultimately become something substantially larger, including a global communications company, a broadband infrastructure provider, a national security and defense platform, a dominant launch provider, and perhaps most importantly, one of the leading direct-to-device connectivity companies in the world through Starlink.
- Starlink optionality may be far larger than many investors currently appreciate because direct-to-device satellite communication has the potential over time to pressure traditional wireless assumptions, while improvements in speed and latency may also gradually challenge portions of the broadband market presently dominated by traditional providers, although how quickly this develops and how competitive Starlink ultimately becomes remain uncertain.
- The partnership with T-Mobile should not automatically be assumed to remain static because technology partnerships frequently evolve over time, and while partnerships can deepen, history also shows that competitive dynamics often shift in unexpected ways as technologies mature.
- Jamie Dimon and JPMorgan appear to be leaning unusually constructively into the IPO, and investors should pay attention when arguably the most risk-aware CEO in major banking appears willing to commit significant reputational capital with top clients because JPMorgan’s long-term success has historically been rooted in careful risk management rather than speculative enthusiasm.
- It is worth remembering that Elon Musk and JPMorgan have had periods of tension and litigation historically, making JPMorgan’s current posture toward SpaceX particularly notable because institutions generally do not risk client relationships lightly unless they believe the probability-adjusted opportunity may be favorable.
- Some investors are discussing extremely aggressive upside scenarios, including prices as high as $400, although our own expectations are more restrained and at this time a move closer to approximately $135 appears more reasonable under a favorable scenario, while recognizing that manias can sometimes carry prices materially beyond what appears rational.
- This IPO is likely to create unusual supply-demand dynamics because institutions receiving large allocations often do not immediately sell if they wish to preserve strong relationships for future IPO access, employees may face lockups restricting selling, and some brokers discourage or penalize immediate retail flipping of IPO shares through future access limitations.
- At the same time, investors should understand an important underappreciated risk: enormous capital must come from somewhere, and there are early signs that some investors may already be selling semiconductors, space stocks, speculative stocks, and momentum names to prepare for SpaceX allocations, meaning weakness in other areas of the market may indirectly affect SpaceX trading after the IPO.
- Margin calls remain an important risk scenario that many investors are underestimating because if broader markets weaken materially, particularly in highly leveraged areas such as semiconductors, space, momentum technology, or speculative growth names, some investors may be forced to liquidate positions regardless of long-term conviction, and when forced selling begins, psychology can shift much faster than investors expect.
- Investors should remember the Facebook IPO experience, now META, where enthusiasm initially appeared overwhelming and expectations were extraordinarily high, only for psychology to shift rapidly after momentum weakened, illustrating that even exceptional companies can experience difficult public-market starts when excitement becomes excessive; Facebook stock briefly rose after the IPO but then quickly lost more than 50% of its value.
- Allocation size the evening before trading may offer useful information because unusually small allocations can sometimes indicate exceptionally strong demand, while unusually generous allocations may suggest softer demand than initially anticipated, although this signal should never be viewed in isolation.
- Depending on your broker, you may not necessarily need to accept your full allocation, as some firms permit partial acceptance while others operate on an all-or-none basis, making it important for investors to understand their broker’s rules in advance rather than making emotional decisions at the last moment.
- Investors who receive allocations should carefully review stop levels previously provided because preserving capital remains paramount, and in general, for most investors it is better to lose the privilege of receiving future IPO allocations than to suffer significant losses, although reasonable investors can differ on this point based on their own goals, risk tolerance, and preferences.
- Some brokers discourage immediate IPO selling and may impose temporary restrictions on future IPO participation for clients who immediately flip shares, sometimes for periods ranging from fifteen to thirty days, but investors ultimately must decide whether preserving future IPO access outweighs protecting capital if a trade begins moving materially against them.
- Members may wish to monitor indications from markets such as Hyperliquid where tokenized SpaceX-related trading reflects real money changing hands, not because such indications perfectly predict IPO outcomes, but because they may offer useful clues regarding changing sentiment and how sensitive SpaceX appears to broader market conditions.
Be sure to set stops as previously provided because in an IPO driven as much by psychology and positioning as by fundamentals, protecting capital is every bit as important as participating in upside.
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This post was published on June 7th in ZYX Buy Change Alert.
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Nigam Arora
Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.
