Elon Musk, through grand narratives like "Mars Migration" and "AI Future," has successfully ignited retail enthusiasm. He has not only significantly increased the allocation ratio for retail investors and lowered subscription thresholds, but also leveraged the Nasdaq's rapid inclusion mechanism to bring this "faith-based trading" to average investors across America.

Written by: Zhang Yaqi

Source: Wall Street Journal

The largest IPO in history is about to debut. Musk plans to raise nearly $75 billion through SpaceX's public offering, pushing the valuation of this continuously losing company to approximately $1.77 trillion and potentially making it the world's first trillionaire. Supporting this feast is a belief cultivated by Musk among retail investors—rather than traditional financial fundamentals.

According to a report from The Wall Street Journal on the 10th, SpaceX shares are expected to officially list on Friday, with a target issue price of $135 per share. Musk has reserved approximately 20% or even more of the IPO shares for retail investors, far exceeding the industry norm of 5% to 7%. Major brokerage firms generally expect subscription demand to greatly exceed supply. Nasdaq has agreed to create a fast track for SpaceX, allowing it to be included in the Nasdaq 100 Index just 15 trading days after its listing; however, the S&P 500 Index rejected a similar application on Thursday citing profit requirements.

The core contradiction of this IPO lies in the fact that SpaceX suffered a net loss of $4.9 billion last year and further widened its losses in the first quarter of this year, yet based on the target issue price, the company's price-to-sales ratio is as high as approximately 93.6 times, far exceeding the overall level of around 3.3 times for the S&P 500. Supporting this exorbitant valuation are Musk's visions of interstellar migration and artificial intelligence, rather than current financial figures.

The rapid track to the Nasdaq 100 means that SpaceX stock will almost immediately enter index funds held by tens of millions of ordinary households across America. At the same time, a phased unlocking arrangement will cause more shares to flow into the market earlier than usual, potentially putting downward pressure on the stock price. Professional investors warn that the most enthusiastic retail subscription frenzy in history is building up for a highly volatile post-listing market.

The Rise of Retail Investors: A New Pricing Force in the Market

In the past five years, retail investors have risen from the margins of the market to become an undeniable pricing force. According to data from Citadel Securities, trading volume of retail stocks and options reached historical highs in May this year.

The rise of this force has historical context. In 2013, Robinhood launched a commission-free trading app, allowing average investors to participate in the stock market with a very low threshold. During the pandemic, home isolation combined with government subsidy funds gave rise to a new generation of day traders, culminating in a "meme stock" craze that drew Wall Street's attention—stocks like GameStop were pushed to astonishing heights by retail investors banding together, a movement that also caught Musk's high interest.

Now, the influence of retail investors has spread to the IPO market. Robinhood CEO Vlad Tenev stated this spring that the company previously had to "beg" issuers to allocate shares for its IPO access projects, but now "almost every significant large IPO has appeared on the Robinhood platform." After the SpaceX prospectus was made public on May 20, the number of visits to Charles Schwab's IPO page immediately tripled. Mike Treacy, chief market analyst at Apex Fintech Solutions, described the current situation as a "perfect storm of retail frenzy."

Musk's Retail Enthusiasm: From Commitment to Fulfillment

Musk knows how to spark retail enthusiasm. At Tesla, retail investors account for about a third of the shareholder base, and this belief and enthusiasm support Tesla's market value exceeding the combined value of the 30 largest automakers in the world—despite it ranking only 12th in U.S. automotive sales.

In 2020, Musk tweeted:

"I am a superfan of small retail investors. (If SpaceX or Starlink goes public,) I will ensure they receive the highest priority allocation. You can take my word for it."

In this IPO, Musk has at least partly fulfilled that promise. To further lower the entry threshold, Robinhood has not set a minimum account balance requirement for the SpaceX IPO; Fidelity, which typically requires account balances of $100,000 to $500,000 to participate in an IPO, has lowered its threshold to $2,000 for this round.

Financial institutions have also sensed an opportunity. According to media reports citing informed sources, Merrill Lynch's Houston branch held an information session for clients regarding the SpaceX IPO last week, and attendees received baseball caps featuring the SpaceX logo.

The Mystery of Valuation: Faith Supporting the Exorbitant Price

There is a striking gap between SpaceX's financial profile and the valuation the market assigns to it. The company reported revenue of $18.7 billion last year, with a net loss of $4.9 billion, and this year's first quarter losses have further widened. Based on the target issue price of $135, the company is valued at approximately $1.77 trillion, corresponding to a price-to-sales ratio of about 93.6 times, whereas the overall price-to-sales ratio for the S&P 500 is only about 3.3 times.

The core logic driving the valuation comes from visions of the future. According to previous reports by The Wall Street Journal, Morgan Stanley's analysis predicts that SpaceX's revenue could reach $3.4 trillion by 2040.

Several Wall Street veterans point out that retail investors are unlikely to study price-to-earnings ratios or cash flow analyses in detail before clicking "buy," and they are more moved by Musk's long-term vision—rockets, robots, AI, and space data centers. Deen Noory, a 41-year-old fintech entrepreneur, has decided to buy on the listing day, stating:

"This is an industry with Elon Musk at the helm, infinitely vast—what's there to think about?"

Fast Tracking into the Index: Risks Entering Every Household

The fast track Nasdaq has created for SpaceX compresses the waiting period from the usual maximum of one year to only 15 trading days. This means that SpaceX stock will almost immediately appear in various index funds held by ordinary households across the United States.

The S&P 500 Index rejected a similar application on Thursday, insisting on maintaining its profit requirements—SpaceX, which has a net loss of $4.9 billion, currently does not meet the selection criteria.

Furthermore, SpaceX has established a phased unlocking restriction arrangement, meaning that more shares will enter the market earlier than usual, potentially adding extra pressure on the stock price. The current market environment is also unsettled: the rapid reversal of semiconductor stocks last week led to a 4.2% one-day drop in the Nasdaq Composite Index, the largest single-day decline in over a year.

Institutions Profiting, Retail Investors Taking Over?

During its more than twenty years of private operation, SpaceX has undergone several rounds of financing, with institutional investors—including the world's largest asset management firms, mutual funds, and large endowments—having already entered the scene in significant numbers. The company's valuation has grown by over 2000% in the past few years, while ordinary investors have been almost entirely absent from this wealth accumulation process. Critics argue that the period of easy appreciation is over, and institutional investors are now looking for buyers.

"I think most retail investors should stay away from this stock like it’s the plague," said veteran fund analyst Dave Nadig, predicting that the stock price will be extremely volatile in the weeks following the listing. Historical data collected by retired University of Florida professor Jay Ritter shows that about a quarter of IPO stocks lose at least half their value within three years of listing.

Maryland-based financial planner Jeff Judge bluntly stated:

"Most of the interest is emotionally driven, that's just the truth. People just want to own a piece of Elon Musk's rocket company."

The contradictory mindset of retail investors is reflected in two starkly different voices. Josh Hill, a sales manager in North Carolina, plans to sit in front of Robinhood on the listing day but admits, "I probably won’t buy unless the price drops." Meanwhile, 70-year-old retired doctor Randal Brown has made up his mind: "Musk is a superstar. Everything he touches will succeed."