SpaceX IPO: What We Learned. The Real Story is Investor Expectations

Three Key Takeaways

• A great company doesn’t automatically make a great investment. The price you pay often matters more than the company you buy.
• Markets reward companies that exceed expectations—not simply companies with exciting stories. When expectations become unrealistic, even outstanding businesses can disappoint investors.
• This isn’t really a story about SpaceX. It’s a story about investor expectations. History has seen this movie before—from the dot-com era to Tesla’s early years—and the lessons haven’t changed.

OPENING

Good evening, everyone. This week’s topic is SpaceX and it’s recent IPO.

But before we begin…I want to make something very clear. This isn’t really a story about SpaceX. It’s a story about investor expectations. It’s a story about IPO investing and getting caught up in the swirl or excitement of whats “hot”.

I’ve been managing money for about 35 years, Charles on our investment team probably close to 40 years. Between the 5 OHFG investment team members, We’ve seen a lot of economic and investing cycles in our times.

We’ve learned one lesson that has probably saved us more money than any valuation model. A great company doesn’t automatically make a great stock.

These are quite often two completely different things. In fact…many of history’s greatest companies have also been terrible investments…if you bought them at the wrong price.

Cisco in 2000.Amazon during parts of the dot-com era, it’s stock declined around 95% before fnding its footing and becoming the company and stock its grown into.Tesla after periods of tremendous enthusiasm.

And today…perhaps SpaceX..This isn’t about criticizing innovation..or the company. How many jobs has Elon Musk created in his business lifetime vs me?  That’s an easy answer, We all know who wins that award.

SpaceX may become one of the greatest businesses ever created.  And hopefully to public shareholders, it becomes one of the rare multi decade stock return compounders,

Because that’s The question investors should always ask. Am I paying too much for a business? Because in investing…expectations often matter more than excitement.

 

POINT ONE

THE COMPANY MAY BE GREAT…BUT EXPECTATIONS BECAME EVEN GREATER

Let’s begin with valuation. Less than two years ago…private transactions valued SpaceX at approximately $350 billion. Less than a year before the IPO, private investors valued it less than half its IPO value and Just months before the IPO…the merger with xAI established another valuation reference point of roughly $1.25 trillion.

Then came the IPO. By agreeing to price the IPO with a predetermine $135/s, public market investors valued the combined company at approximately $1.77 trillion, and shortly afterward, when the stock traded over $200/s for a few days, the market capitalization approached $2,5 trillion.

Think about that. The business didn’t become five times better in eighteen months.

The expectations became five times bigger.  At roughly $20 billion of annual revenue, investors were paying more than 100 times sales, not earnings.

Compare that to the top 5 or 10 S&P 500 companies in the market.

Hundreds of billions in aggregate lifetime cash flow. Decades of proven profitability. Yet investors briefly assigned Spacex with top 10 market value.

History tells us that while extreme, this isn’t unusual. During the dot-com era…

many internet companies were valued on what investors hoped they might become…

not what they were. Sometimes those companies eventually succeeded.

But shareholders who paid unrealistic prices often waited years just to break even.

Again…this isn’t really a story about SpaceX. It’s a story about IPO investing and investor expectations.

 

POINT TWO

GREAT BUSINESSES STILL NEED GREAT CASH FLOW

Looking a Spacex business itself. SpaceX has three major operating engines.

The first…Starlink. This is clearly the crown jewel. It generated approximately 61% of company revenue in 2025 and remains the company’s primary source of profits and cash flow. The second…Launch Services. Rockets. Falcon 9 and next generation Starship. No one questions SpaceX’s leadership in rockets and commercial space business.  They literally invented many businesses in this industry.

It dominates commercial launches. But many of those launches are supporting Starlink’s own satellite network rather than generating incremental third-party revenue. Yet.

The third…Artificial Intelligence. This is the one in the prospectus that is the newest, least profitable, requires the most capex, and is probably 5-7 years behind industry leaders.

Yes, Following the XAi acquisition…SpaceX owns an enormous AI opportunity. The key word is opportunity.  The prospectus calls it “TAM”, short for total addressable market. But this segment also has enormous AI capital requirements.

Today, AI consumes cash much faster than it is producing it. Starlink is effectively funding much of the company’s broader ambitions while the newer AI and exploration businesses remain loss-making. XAI is losing so much money investing in its TAM, that Spacex has already borrowed tens off billions of $$ to fund expansion.

This is where investing becomes difficult. Revenue can grow. The story can improve.

The technology can be revolutionary. But if billions of dollars must continually be reinvested…with free cash flow remaining under pressure for established players like Google, MSFT, META or AMZN, and a massive negative multiyear funding deficit for the likes of Spacex.

Eventually…investors stop asking, “How fast is the company growing?” They begin asking,

“When do shareholders actually receive cash?” When do we reach that Jerry Maquire moment? When does a company, “Show me the money”!

https://www.youtube.com/watch?v=IpwSXWq1wwU

 

POINT THREE

SOMETIMES THE IPO STRUCTURE BECOMES PART OF THE STORY

The third lesson has very little to do with rockets. And for those not around during the Dot.com bubble, it’s probably a new lesson to learn. It has everything to do with market structure. It has everything to do with Wall Street, bankers, and value “maximization” for the company.

Following the IPO…only about 4% to 5% of SpaceX shares were available for public trading. Think about what that means. 95% of the company’s shares weren’t available to buy or sell.

When supply is that limited…it doesn’t take much buying to create enormous price moves.

Couple this with the fact that there were special index-rule changes made in some large indexes to create billions of dollars of mechanical buying by passive funds and ETFs shortly after the IPO, independent of the company’s underlying fundamentals.

The last time I heard of this level of restriction in an IPO was way back at the end of Dotcom with a little company named WebVan.  Yes, the original public home delivery grocer service wasn’t Instacart but another restricted float IPO almost 30 years ago, that went out of business just a few years.

History teaches us a great lesson. Low float doesn’t last forever. Employees eventually receive unlocked shares. Early venture investors gain liquidity. Insiders gradually sell.

SpaceX has adopted a staggered lock-up schedule extending over the coming year, increasing the effective public float over time. Yes, they are trying to smooth the process,

But We’ve seen this movie before. As I said During the dot-com boom…

small public floats often created spectacular early rallies.Pets.com amongst other shooting stars, but eventually…more shares became available. The excitement fades.

Fundamentals take over.

Again…this isn’t really a  video about SpaceX. It’s a story about investor expectations in IPO investing.

THE BIGGER INVESTING LESSON

Great Company does NOT automatically equal Great Investment

Every investment deserves two separate questions.

Question number one. Is this a great business? How much cash is required to generate a cash return. SpaceX may very well become one of the greatest businesses of the next generation. Time will tell. Remember it took Amazon nearly 10 years as a public company for its stock to catch up to IPO expectations. The company went public in 1997 had a huge run into the Dotcom top, decline 95% as they invested for the future but the economy went into a recession, and the stock never exceeded its Dotcom high until late 2009, almost exactly 10 YEARS to the month of its dotcom peak.  10 Years, not quarters or months.  And of course this has become one of the biggest secular growth stories in the last 40 years.

Question number two. Am I paying a reasonable price?

That’s where investing becomes difficult. The best investors learn to admire a company…

without falling in love with its stock.

CLOSING

History has a remarkable way of repeating itself. The names change. The technology changes. The excitement changes. But investor psychology rarely does. During the dot-com era…people believed the Internet would change the world. It did.

Many investors still lost money. Tesla transformed the automobile industry.

Early buyers at the wrong valuation still endured years of volatility.

Now SpaceX may transform communications, space exploration, and artificial intelligence.

It may ultimately justify much of today’s optimism. Or it may not.

Time will tell. But regardless of the outcome…the investing lesson remains the same.

This isn’t really a story about SpaceX. It’s a story about investor expectations.

Because after 35 years in this business…I’ve learned that investors don’t lose money simply because they buy bad companies. More often…

they lose money because they pay the wrong prices for extraordinary stories at the wrong time.  I’ve done it, Charles has done it, almost everyone who has invested publicly has done it. The best investors stay disciplined.  Our team decided to pass on the Spacex IPO because it didn’t exhibit the characteristics our investment methodology looks for at the time of the deal.

We chose to separate admiration from valuation on this one at this time.  That isn’t to say that one day Spacex wont exhibit the things are team is looking for for our clients and if the price is right, we might make it a holding.

But please remember there can be a big difference between a great business…and a great investment. I’m Chris Perras. Thank you for watching. I’ll see you next week.