What a SpaceX IPO could mean for the faltering S&P 500

From the narrow, and selfish, perspective of financial markets the war in the Middle East is, at the very least, checking the momentum of America’s previously all-conquering S&P 500 index. The conflict comes on top of nagging doubts about the long-term impact of President Trump’s tariffs, political pressure on the US Federal Reserve and whether the boom in spending on Artificial Intelligence will turn to a bust.

This combination leaves the S&P 500 back where it was September and forming the sort of pattern that some might argue represents the gradual forming of a peak, in keeping with the old market saying that while market bottoms are an event, market tops are a process.

Only time will tell, but reports that Space X is about to file the regulatory documents that could means an Initial Public Offering (IPO) on the US stock market is imminent. The company designs, makes, and operates the partially reusable Falcon 9 space rockets and the Starlink satellite internet network, while it also owns X (the social media platform once known as Twitter) and chatbot and AI platform xAI.

With rival AI developers Anthropic and OpenAI also thought to be considering a stock market flotation, the putative SpaceX deal is interesting for three reasons.

First, SpaceX’s founder and leading shareholder is Elon Musk. Some investors love him. Some investors do not. He is also the boss and driving force behind Tesla, the world’s tenth biggest company by stock market valuation. Its share price is now sliding and back to where it stood nearly five years ago as car deliveries falter and competition catches up. Shareholders are hoping that robotaxis and Optimus Robots take up the slack, and they might, but they may need to do so quickly when the firm’s $1.4 trillion stock market capitalisation is three hundred times its forecast net profits of $5 billion in 2026. Sceptics will argue Mr Musk is saying, ‘move along, nothing to see here,’ as Tesla’s shares skid, while bulls will counter by point to Tesla’s technology roadmap.

Second, Tesla is one of the so-called Magnificent Seven US technology companies, along with Alphabet, Amazon.com. Spend less. Smile more. , Apple, Meta Platforms, Microsoft, and NVIDIA. Between them, they represent 35% of the S&P 500’s total value and, by extension, 21% of the FTSE All-World index, thanks in the main to investor enthusiasm for all things related to AI (Apple may be the outlier here).

There have been similar periods in the past when one sector, or select grouping of stocks, drove US and global equities to new highs. These include the ‘onics and ‘tronics (technology) names of the late 1960s, the Nifty Fifty in the early 1970s and then the technology, media, and telecoms (TMT) sectors in the late 1990s. All were very profitable for shareholders on the way up and providers of equal amounts of pain on the way down.

This is because narrow markets are prone to toppling over, especially if valuations prove stretched, earnings forecasts unattainable, and sellers start to overwhelm would-be buyers, especially when those getting out first are those on the inside, in the form of early-stage finance providers, such as venture capitalists, or management and staff.

Third and finally, this is where IPOs and new stock market listings are important. There is another market saying that bull markets end when the money runs out, and there are plenty of historic examples where a deluge of IPOs meant sellers eventually swamped buyers. The bursting of the tech, media, and telecoms bubble in 2000 is one instance and the surge in new listings in 2020 and 2021 helped to put the brakes on the S&P 500, at least temporarily, in 2022.

It was not for nothing that Warren Buffett once tartly described the process thus: “First come the innovators, who see opportunities that others don’t. Then come the imitators, who copy what the innovators have done. And then come the idiots, whose avarice undoes the very innovations they are trying to use to get rich.”

So far, though, there have been no blockbuster IPOs during the AI boom. The Space X, Anthropic and OpenAI could be about to change that, the war and market conditions permitting, and this is why these deals could be a key test of sentiment for the tech sector and US equities more generally, especially given their putative price tags and their first-mover status as innovators.

The deal will be important on this side of the Atlantic, too. The Scottish Mortgage Investment Trust has some 15% of its assets in SpaceX, for example, so its share price would welcome a successful listing.

The growing range of AI and Space-related investment vehicles will also no doubt look on with great interest and there are a good few of these are now listed here in London.

When it comes to the SpaceX IPO specifically, and the research necessary to decide whether the reported $75 billion offering and total $1.5 trillion price tag for the company offer the right balance between downside protection and upside potential, investors can apply the helpful four-point checklist provided by Warren Buffett’s long-time business partner Charlie Munger and his timeless piece, ‘Poor Charlie’s Almanack’:

Do I understand the business?

Does the business have intrinsic value, and a strong competitive position within its industry that it can protect and develop?

Does management have integrity and are management’s interests carefully and clearly aligned with those of shareholders?

Does the company come at a fair price?

If the answer is “no” to any of these four questions, then the investor may need to resist the fear of missing out, or FOMO, and walk away, hard as that can be, especially in this case where the limited 5% free float could make for a share price squeeze.

The last point, valuation, is the most important of those four questions in the long term, regardless of what happens in early trading after a flotation. It was not for nothing that Peter Lynch, the fabulously successful manager of Fidelity’s Magellan Fund, said “IPO should actually stand for ‘It’s Probably Overpriced.’