It was about a year ago that X (formerly Twitter) merged into xAI, an artificial intelligence (AI) startup started by Elon Musk to compete with OpenAI and ChatGPT. And a month ago, SpaceX, another company in Elon Musk’s empire, absorbed X and xAI at a valuation of $1.25 trillion.
Musk now hopes to take the combined company public through an initial public offering (IPO), likely within the next few months. This could be the biggest IPO in history, and investors couldn’t be more excited. Sources said 30% of the IPO will also be allocated to retail investors.
But does that mean you should buy SpaceX stock at the IPO?
Biggest IPO in history
Reports have been circulating for months that SpaceX would finally go public. Exact details are unclear, but the company reportedly has a valuation of $1.75 trillion and is seeking $75 billion in new capital to fund xAI and SpaceX’s growth plans.
A huge amount of funding is being raised to tackle an ambitious new project: an AI data center in space. Elon Musk believes AI data centers would be much better served by operating them in orbit to take advantage of potential energy savings, and he wants SpaceX to launch the equipment needed to do so. In theory, these data centers would power xAI’s services, including ChatGPT’s competitor Grok.
It may seem far-fetched, but this is all part of Musk’s latest master plan, which includes Terrafab, a new semiconductor manufacturing facility that will produce chips for both SpaceX and Tesla. It’s unclear how that will play out, but whatever happens, it will require a significant upfront investment, highlighting why SpaceX is seeking to raise such an ambitious amount of funding.
Image source: Getty Images.
Should you buy SpaceX IPO?
SpaceX’s IPO will be a monumental event in stock market history. Not only will it raise a record amount of capital, it could quickly become one of the world’s top 10 companies by market capitalization.
That’s exciting. But that doesn’t mean you should buy stocks if you care about portfolio performance. Last year, SpaceX reportedly made about $16 billion in revenue. Combined with xAI, this could exceed $20 billion, which would give the business a price-sales ratio (P/S) of around 100.
If you buy stock at a P/S ratio of 100, it is virtually impossible for a company to generate good future returns for shareholders, let alone a highly capital-intensive company like SpaceX. It would be fun to follow SpaceX’s IPO, but don’t chase the stock when it debuts with a market cap of $1.75 trillion. Your portfolio will thank you in the long run.
