As SpaceX prepares for its highly anticipated IPO in June, concerns have been raised about the potential impact of founder and CEO Elon Musk’s influence on the company’s stock prices.
The “Elon Musk Effect”
According to University of Florida finance professor Jay Ritter, the “Elon Musk effect” could significantly impact SpaceX’s valuation, driving heightened long-term volatility. Ritter notes that stocks tied to Musk tend to swing more sharply than the broader market, which could lead to divergent and volatile performance for both SpaceX and Tesla, Inc.
Divergent Performance
Ritter expects Tesla and SpaceX to have different performances due to various factors. Tesla faces competitive pressure from Chinese rivals, while SpaceX benefits from investor optimism around its cost-efficient satellite and cargo launch capabilities.
Substantial Downside Potential
Ritter warns of “substantial downside potential” if SpaceX goes public at a valuation of $1.5 trillion or more. This could result in Musk receiving shares that give him more voting power than other shareholders. Additionally, even if SpaceX’s Starlink generates “tens of billions of dollars per year in profits,” these gains could be “squandered” on sending people to Mars rather than directing the money to shareholders.
Broader Market Concerns
The concerns around SpaceX’s IPO come amid a broader discussion about the state of the IPO market. Some experts, such as CNBC’s Jim Cramer, have warned that SpaceX’s public debut could inflate valuations to dangerous levels, potentially creating a bubble. The company’s rapid rise from roughly $350 billion to a reported $1.75 trillion-$2 trillion IPO target has also been highlighted as a sign of a growing imbalance in modern markets.
Bullish Investors
Despite these concerns, some investors remain bullish on SpaceX. Baron Capital CEO and founder Ron Baron, for instance, has expressed his intent to buy $1 billion more SpaceX stock at IPO, adding to his fund’s already substantial holding in the company.
Conclusion
As SpaceX gears up for its IPO, investors and experts are closely watching the company’s valuation and potential impact on the market. With Elon Musk’s influence and the company’s rapid growth, it remains to be seen how SpaceX’s stock will perform in the long term.