SpaceX, IPOs, and the Danger of Buying the Story

SpaceX, IPOs, and the Danger of Buying the Story

By Anthony Criscuolo, CFP®

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Every generation eventually convinces itself that one company is simply too extraordinary for valuation to matter. SpaceX investors beware.

In the 1970s it was the Nifty Fifty. In the late 1990s it was Cisco and the internet. More recently it has been artificial intelligence and the handful of companies leading that revolution. Today, many investors view SpaceX through a similar lens. The excitement is real – the IPO is imminent.

SpaceX has transformed the economics of space launches, built a rapidly growing global communications network through Starlink, and established itself as one of the most strategically important private companies in the world. It has achieved things that many experts once considered impossible and continues to push the boundaries of technology and innovation.

As a business, SpaceX may very well become one of the defining companies of the twenty-first century. But investing has never been about identifying great companies alone. Investing is about identifying great companies at great prices. That distinction becomes especially important whenever a highly anticipated company approaches the public markets. Investors inevitably begin asking a familiar question: “What if I could have bought Amazon at the IPO?”

The question sounds reasonable. After all, Amazon, Apple, Nvidia, and Tesla created enormous wealth for early investors. The problem is that investors are asking the wrong question. A better question is: “How many IPOs over the last thirty years failed to become the next Amazon?” That list is much longer.

As investors, we tend to remember the spectacular winners and forget the countless disappointments. We remember the companies that changed the world. We forget the hundreds of businesses that generated enormous excitement, commanded lofty valuations, and ultimately produced mediocre returns. That tendency becomes particularly important when discussing the future SpaceX IPO.

History teaches a simple lesson: the more enthusiasm surrounding an investment opportunity, the more important valuation discipline becomes. Let’s dive into IPOs and consider how investors should be thinking about SpaceX in the context of a broader IPO history.

Why Companies Go Public

Initial Public Offerings are often presented as opportunities for investors to participate in the future growth of innovative businesses. While that is certainly one outcome, it is important to remember what an IPO actually represents. An IPO is fundamentally a liquidity event.

Founders, venture capital firms, private equity investors, employees, and early stakeholders own shares that have appreciated significantly while the company remained private. Going public creates a marketplace where those shares can be sold and where new investors can provide additional capital. There is nothing wrong with this process. Public markets play a critical role in allocating capital and helping businesses grow. However, investors should recognize the incentives involved.

Companies generally do not choose to go public when valuations are depressed and investor demand is weak. They tend to go public when conditions are favorable, investor enthusiasm is high, and buyers are willing to pay premium prices. The same logic applies to real estate. If you own a home, you would likely prefer to sell during a seller’s market rather than a buyer’s market. Companies and their shareholders often make similar decisions.

Academic research has consistently shown that IPO activity tends to cluster during periods of elevated investor optimism. The timing often benefits existing shareholders who are selling shares. That does not necessarily mean it benefits new investors purchasing those shares. This reality does not make IPOs bad investments. It simply reminds us that every transaction has both a buyer and a seller, and understanding why the seller is selling is often just as important as understanding why the buyer is buying.

Great Companies and Great Investments Are Not the Same Thing

One of the most important concepts in investing is understanding the distinction between a great company and a great investment.

Investors frequently assume these are the same thing. They are not. A company can have exceptional leadership, dominant market share, innovative products, strong profitability, and enormous future growth potential. Yet if investors pay too high a price for that future growth, returns can still disappoint. The investment outcome depends not only on what a company becomes but also on the price paid to participate in that future. There is no such thing as a good stock or a bad stock – only expensive and cheap. This distinction becomes particularly important when discussing a company like SpaceX.

Few would argue that SpaceX is not a remarkable business. The more important question is whether investors will eventually be asked to pay a reasonable price for that business. Those are very different conversations. Investing is not simply about identifying great companies – it’s about identifying great companies at valuations that leave room for attractive future returns.

Perhaps the greatest risk surrounding a future SpaceX IPO is not competition, regulation, technological disruption, or execution risk. The greatest risk may be valuation. Whenever a company captures the imagination of investors, there is a tendency to believe the future is so bright that traditional valuation metrics no longer matter. History suggests this is precisely when investors should become most cautious.

Consider Cisco Systems during the late 1990s. Cisco was not a speculative company with no earnings and no business model. It was one of the most important technology companies in the world. Its networking equipment formed much of the infrastructure powering the growth of the internet. The company was profitable, growing rapidly, and fundamentally successful. In many ways, investors were correct about Cisco.

The internet transformed the global economy. Cisco remained a successful company. The problem was not the business. The problem was the price investors paid. At the peak of the dot-com boom, Cisco briefly became the most valuable company in the world. Expectations became so elevated that years of strong business performance were insufficient to justify the valuation investors had assigned to the company. See for yourself in the table below just how well Cisco did from 2000 to 2020, a 21-year period that saw massive internet and technology expansion.

A similar pattern has appeared repeatedly throughout market history. During the early 1970s, investors became enamored with a group of dominant businesses known as the Nifty Fifty. These were outstanding companies with powerful brands and attractive growth prospects. Investors became convinced they were so exceptional that valuation no longer mattered. Many of those businesses continued to grow. However, many investors still experienced disappointing returns.

More recently, we have witnessed similar enthusiasm surrounding artificial intelligence. AI may very well become one of the most transformative technologies in modern history. Yet even if that proves true, it does not automatically follow that every AI-related investment will produce attractive returns from current valuation levels. The future can be bright while investment returns disappoint – both things can be true simultaneously.

The Problem with Trillion-Dollar Expectations

Much of the recent discussion surrounding SpaceX has focused on valuation estimates that could place the company among the largest public companies in the world immediately upon listing (around $1.8 Trillion with a “T”). That fact alone should cause investors to pause.

A trillion-dollar valuation is not simply a reflection of today’s business. It is a reflection of enormous expectations about tomorrow’s business. At that valuation, investors are likely already pricing in years (perhaps decades) of continued success.

They would be assuming:

• Continued dominance in launch services
• Significant growth from Starlink
• Expansion into new commercial markets
• Strong profit margins
• Manageable competition
• Favorable regulatory environments
• Successful commercialization of future technologies

Some of these assumptions may prove correct. Perhaps all of them will. The challenge is that when expectations become extraordinarily high, almost everything has to go right. At some point, every great company reaches a valuation where future success is already largely reflected in the stock price. When that happens, investors are no longer betting on whether the company succeeds – they are betting on whether it succeeds even more than everyone already expects. This is a much more difficult bet to win.

The Historical Reality of IPO Performance

The public perception of IPOs is often shaped by dramatic first-day gains and media headlines celebrating early successes. The reality is considerably less exciting.

Decades of academic research by Professor Jay Ritter (who happens to be a professor at the University of Florida – my alma mater) and others have documented a consistent pattern: while some IPOs become extraordinary success stories, IPOs as a group have historically underperformed seasoned public companies over longer holding periods. In other words, the “average” IPO has not become the next Amazon. This does not mean every IPO performs poorly. Some become transformational businesses. But the average IPO does not do better vs. comparable public companies over a longer period as shown in Jay Ritter’s research presented below.

The challenge is that investors do not know in advance which companies will become exceptional winners and which will struggle to meet expectations. The distribution of outcomes is highly skewed. A small number of spectacular successes drive much of the long-term wealth creation while many others produce mediocre results. This creates an important behavioral trap. Investors become attracted to IPOs because of the exceptional outcomes while ignoring the broader statistical reality. Successful investing requires focusing on probabilities rather than possibilities.

The Myth of Being Early

One of the most persistent myths in investing is that wealth is built by getting into great companies before everyone else. Reality is more complicated.

Even when investors correctly identify a future winner, they still face an enormous challenge: staying invested. Amazon provides a useful example here. Investors often focus on the extraordinary long-term returns Amazon generated after its IPO. What they forget is that Amazon lost more than 90% of its value during the dot-com collapse. Many early investors who identified the opportunity correctly still failed to capture the long-term outcome because they sold during periods of extreme uncertainty and huge losses.

Identifying great companies is difficult. Holding them through decades of volatility is often even harder. This is another reason why concentrated bets on highly anticipated IPOs can be dangerous. Investors frequently overestimate their ability to withstand the volatility that accompanies even the most successful businesses.

The Behavioral Trap of “Hot” IPOs

IPOs often arrive at exactly the moment when investor emotions are most vulnerable. The combination of media attention, compelling narratives, charismatic founders, and recent success creates fertile ground for behavioral mistakes.

Investors become susceptible to fear of missing out (FOMO). They anchor on stories of previous winners. They focus on what could happen while paying less attention to what must happen to justify the current price. SpaceX embodies many of these characteristics. It combines a visionary founder, breakthrough technology, global relevance, and a genuinely compelling mission. Those attributes make for a great story.

The challenge is that stories and investments are not the same thing. Great stories attract attention – great investments require discipline. The more compelling the narrative becomes, the more important it is to focus on valuation, risk, diversification, and expected returns.

Diversification Is the Easier Way to Win

One of the most overlooked aspects of major IPOs is that patient investors often gain exposure without doing anything at all. When SpaceX eventually becomes a publicly traded company, it will likely find its way into major stock market indexes. Over time, investors holding diversified index funds and broadly diversified portfolios will gain exposure automatically as the company becomes part of the broader market.

This is one of the great strengths of diversified investing. Investors do not need to identify every future winner before everyone else. They do not need to predict which technology will dominate or which entrepreneur will be most successful. They simply need to own a broadly diversified portfolio and allow successful companies to become part of that portfolio over time.

There is less excitement in this approach. We are not anti-IPO, and we are not anti-SpaceX. We are certainly not dismissing the possibility that SpaceX could become one of the most successful companies of the next generation. However, we remain skeptical of concentrated bets driven primarily by excitement and optimism.

We believe diversification remains one of the most reliable risk-management tools available to investors. We believe valuation matters. We believe taxes, behavior, and portfolio structure matter as much as returns. And we believe successful investing is less about finding the next great stock and more about building a portfolio capable of succeeding through multiple market cycles.

Final Thoughts

Every generation has its “can’t miss” investment – the railroad boom, the Nifty Fifty, the internet, artificial intelligence, and now commercial space exploration. Many of these themes ultimately change the world. Some create extraordinary businesses. Yet history suggests the greatest risks often emerge when investors become convinced that a great story guarantees great returns.

Putting it all together, the image below provides a good overview and reminder of the investment principles discussed in this article. Print it and pin in on your wall and read through it every time you get overly excited by the next “hot” IPO.

SpaceX may become one of the defining companies of the next several decades. It may justify a valuation that seems extraordinary today. It may become a permanent fixture in major stock market indexes and a meaningful component of diversified portfolios. Or it may become another example of a wonderful company purchased at an unreasonably high price. We simply do not know – and you do not know either.

What we do know is that successful investing has never required identifying every future winner before everyone else. Most long-term wealth is built through discipline, diversification, tax efficiency, patience, and a willingness to avoid the emotional temptation of chasing whatever opportunity happens to be generating the most excitement. The irony is that the best investment decisions are often the least exciting ones.

A broadly diversified investor who patiently holds great companies over a long period of time may not have the most interesting story to tell at a cocktail party. History suggests they often end up with the better outcome. And when excitement surrounding an investment reaches extraordinary levels, that is often the moment when discipline and investment structure matter the most.

Anthony Criscuolo, Senior Wealth Manager

Sources:

• AMZN source for 90% drop during dot-com days: https://www.forex.com/en/news-and-analysis/amazon-share-price-history-under-jeff-bezos/
• Initial Public Offerings: Updated Long-run Statistics Jay R. Ritter Director, The IPO Initiative Eugene F. Brigham Department of Finance, Insurance, and Real Estate Warrington College of Business, University of Florida 352.846-2837 voice April 7, 2026: chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://site.warrington.ufl.edu/ritter/files/IPOs-long-run-returns-on-IPOs.pdf
• Jay Ritter’s IPO research: https://site.warrington.ufl.edu/ritter/ipo-data/

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