The $1.75 Trillion Launch: Is SpaceX's IPO a Generational Buy -- or the Ultimate Bubble?

Key Points

Mega-IPO winners of the past include Meta Platforms and Arm Holdings.

Big losers following mega-IPOs include Alibaba (eventually) and Rivian (almost immediately).

SpaceX appears to share more in common with Meta and Arm than it does Alibaba and Rivian.

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History is about to be made. SpaceX plans to go public within the next few months at an astronomical valuation of $1.75 trillion. This market cap will make SpaceX the biggest IPO stock ever -- by far. The current record holder is Alibaba Group Holding (NYSE: BABA), which went public in 2014 at a market cap of roughly $169 billion.

Is SpaceX's IPO a generational buy? Or could it be the ultimate bubble? Perhaps the best way to answer these questions is to look back at previous monster IPOs.

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When mega‑IPOs become mega‑winners

Meta Platforms (NASDAQ: META) is easily the most successful mega-IPO to date. The company, then known as Facebook, went public in May 2014 with a market cap of around $81 billion. However, success seemed anything but guaranteed early on. Facebook's share price plunged more than 50% in the four months following its IPO.

What happened? Many investors viewed Facebook stock as overpriced. Some thought the company was overhyped. Mobile advertising was still a new market for Facebook at the time. There was considerable uncertainty about how well the company would be able to monetize the mobile opportunity.

In hindsight, any worries seem silly. Facebook went on to generate billions of dollars in mobile advertising revenue. Today, the company's core platforms command a daily audience of 3.58 billion people worldwide. The stock has delivered a lifetime return of roughly 1,640%.

Arm Holdings (NASDAQ: ARM) is another mega-winner among mega-IPOs. The British semiconductor and software design company got off to a much better start than Facebook. After its IPO in Sept. 2023 at a market cap of $54.5 billion, Arm's stock surged, then pulled back, but finished the year up 47%.

To be sure, Arm's shares have been highly volatile, with multiple huge up-and-down swings over the last two and a half years. However, the stock has more than quadrupled since its IPO. The secret to Arm's success is that it has benefited from seemingly insatiable demand for AI chips. The company's chips also dominate the smartphone market. As edge AI (where AI systems operate on local devices) adoption increases, Arm could benefit tremendously.

When mega‑IPOs eventually implode

However, some mega-IPOs eventually become mega-losers. For example, shares of reigning IPO champion Alibaba soared more than 200% between its Sept. 2014 IPO and August 2020. By mid-2022, though, the Chinese e-commerce stock had given up nearly all of those gains. Alibaba has rebounded since then, but it's still nowhere near its peak.

One major challenge for Alibaba was the political risk of operating in China. The stock's big sell-off that began in 2020 was in large part due to increased Chinese regulatory scrutiny.

Other mega-IPOs quickly implode. Rivian Automotive (NASDAQ: RIVN) is the most striking example. Immediately after its IPO in Nov. 2021 at a market cap of around $61 billion, the electric vehicle (EV) stock skyrocketed. However, the euphoria soon evaporated. Rivian promptly nosedived and remains more than 80% below its high mark.

Rivian's problems are numerous. The company has lost a lot of money. Competition in the EV market has increased significantly. Rivian has experienced production delays. Combined with an initial valuation that, in retrospect, was based largely on hype, it's not surprising that the stock has plummeted.

Generational buy or ultimate bubble?

Let's return to whether or not SpaceX is a generational buy or an ultimate bubble. The verdict could hinge on which past mega-IPOs the space stock is most like: Meta and Arm or Alibaba and Rivian?

Just as Meta dominates social media, SpaceX dominates satellite internet service and orbital launches. Like Meta, SpaceX has optionality. For example, the company owns AI contender xAI and has secured an option to acquire Cursor AI, a developer of AI coding assistants.

Both Arm and SpaceX have long-term secular tailwinds. Arm is riding the massive wave of AI and mobile computing. SpaceX stands to profit from the commercialization of space.

However, SpaceX also has some similarities with Alibaba and Rivian. For example, SpaceX has some political risk (albeit not the same as Alibaba's). The space company depends heavily on NASA and U.S. Department of Defense for its launch revenue. SpaceX founder Elon Musk's views are polarizing. It isn't out of the question that Musk's relationship with the company could hurt it if Democrats regain control of the executive and legislative branches. Like Rivian, SpaceX operates in a highly capital-intensive business.

I think that SpaceX shares more in common with Meta and Arm, though, than it does with Alibaba and Rivian. That doesn't necessarily mean that the stock will be a mega-winner rather than a mega-loser. If I had to wager, I'd bet on SpaceX as a generational buy. But history might not be a reliable guide with an IPO stock sporting a $1.75 trillion market cap.

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Keith Speights has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.