Is the SpaceX IPO a Great Opportunity or a Great Story?  
with Adam Phillips, Managing Director, Investments 

One of the most common questions we’ve received from clients recently is whether they should invest in the upcoming SpaceX IPO.

The interest is understandable.

SpaceX has become one of the most influential private companies of the last two decades. Led by Elon Musk, the company has transformed commercial space launches, rapidly expanded the Starlink satellite network, and positioned itself at the center of future technologies ranging from artificial intelligence infrastructure to space-based data systems.

The excitement surrounding the IPO is expected to be enormous. Reports suggest SpaceX could debut at a valuation approaching $2 trillion, potentially making it the largest IPO in history.

But while the company itself may be extraordinary, investors should remember an important distinction:

A great company is not always a great investment.

Valuation Matters

One of the biggest factors investors should consider is valuation.

According to recent filings, SpaceX generated approximately $19 billion in revenue last year while also reporting roughly $5 billion in losses as the company continues investing heavily in future growth initiatives.

Because the company is not yet profitable, traditional valuation metrics like price-to-earnings ratios are less useful. Instead, investors often look at price-to-sales ratios.

At its expected IPO valuation, SpaceX would trade at nearly 100 times sales.

For perspective:

• The S&P 500 currently trades at just under 4 times sales
• The broader technology sector trades around 11 times sales
• Profitability
• Sustainable business momentum
• Clear long-term catalysts
• Reasonable valuation support
• A demonstrated track record operating in public markets

That enormous gap reflects what many analysts describe as a “scarcity premium.” Investors have waited years for access to SpaceX shares, and demand is expected to be extremely high once the company becomes publicly traded.

That enthusiasm could certainly drive strong short-term performance. However, over time, the company will need to prove that its long-term business results can justify such elevated expectations.

IPO Excitement Doesn’t Always Lead to Long-Term Success

Historically, many high-profile IPOs perform very well initially.

Research from University of Florida finance professor Jay Ritter found that IPOs between 2011 and 2024 experienced an average first-day gain of approximately 23%.

That early excitement often fuels headlines and investor enthusiasm.

However, the same research found that over the following three years, those companies underperformed the broader market by an average of roughly 25%.

In other words, short-term excitement does not always translate into strong long-term investment outcomes.

A Long-Term Perspective Matters

At EP Wealth Advisors, we believe investors should approach opportunities like SpaceX thoughtfully and within the context of a diversified long-term investment strategy.

There is no question that SpaceX represents an innovative and potentially transformational business. But there is also a meaningful amount of speculation surrounding the stock at its expected valuation.

When evaluating investments for client portfolios, we look for:

For newly public companies, time often provides greater clarity. As SpaceX begins reporting quarterly earnings, participating in analyst calls, and operating under the scrutiny of public markets, investors will gain a more complete understanding of how the business performs relative to expectations.

For now, we believe patience and perspective remain important.

If you have questions about how opportunities like SpaceX fit within your long-term financial plan, we encourage you to speak with your financial advisor.

 Often quoted in major national media, Adam is a Chartered Financial Analyst (CFA^®), a CERTIFIED FINANCIAL PLANNER™ (CFP^®), and has been included on the Forbes NextGen Best-in-State Wealth Advisors 2019 list. He is a member of the CFA Society of Los Angeles and the CFA Institute. Adam helps establish asset allocation strategy as a member of the EP Wealth Investment Committee, which supports all EP Wealth Advisors and their clients. The Committee’s top-down approach to portfolio construction begins with an outlook on the economy’s likely direction, followed by the implications for different economic sectors and asset classes. This culminates in strategic selection of the individual stocks, bonds, mutual funds or other investments deemed most appropriate for each individual client’s portfolio. 

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Video Transcript: 

Adam Phillips:

Hi, everyone, and welcome to this week's market update. This week I want to talk about a topic we've been hearing a lot about from clients. A lot of clients have been asking us, "Should I invest in the SpaceX IPO?" And this is not all too surprising. This is arguably one of the most important private companies we've seen over the last two decades.

This is a company that's led by Elon Musk, who's arguably the closest thing that we have to Steve Jobs these days. He's a visionary. He is a polarizing figure when it comes to his visions and really making them a reality. So we understand the hype around SpaceX.

It's a company that, over the last several years, has revolutionized commercial space launches. It has built Starlink into one of the fastest-growing commercial satellite businesses in the world. And going forward, it's expected to be at the forefront of this artificial intelligence revolution by helping to build data centers in space.

So we get it. We get the interest, and we understand why, after being private for about two decades now, why so many are clamoring for access to these shares, and why we think that this IPO is going to be so popular.

SpaceX is going to be the largest IPO in history, and there are a couple more that are coming in the next weeks and months, including OpenAI and Anthropic, so other artificial intelligence plays. But we really start with SpaceX, and this is going to be a big one. It is going to be going public at a valuation close to $2 trillion, which would put it, I believe, at the number eight position in terms of the largest companies in the S&P 500.

Now, in terms of free float, what it's actually going to issue in terms of shares at its IPO, it's going to issue close to $80 billion, but the valuation on this company is going to be close to $2 trillion. So that is very significant.

So what is our perspective? The first thing I would say is that a great company is not necessarily a great investment. Those are two different things. And so when we're looking at SpaceX and the information that was provided in their filing a couple weeks ago, we look at a couple different metrics.

The first one is valuation. As I said, this is a two trillion-dollar company, and in 2025-- so last year- this company generated about nineteen billion in revenue. But they're also not profitable. Last year, they had about five billion dollars in losses. Now, sure, a lot of this is because they're investing a lot in their business, but that means that the pressure is really going to be on them to actually see some benefit and pay off from these ongoing investments.

And so they're going to have this burden of proof right out the gate, especially if they come out at this valuation. Since they're not yet profitable, a normal price-to-earnings ratio does not really help us. And so if we look at things on a price-to-sales basis, then we see that they are trading at the assumed IPO price.

They're trading at a valuation that is close to a hundred times sales, which is extremely high. Um, and, and I-if we look at things just to provide some additional context around that, the S&P 500 trades just shy of four times sales, while the technology sector trades at close to 11 times sales. So a hundred times sales really tells you how much people are paying for access to these shares.

And so it really does have what many have called this scarcity premium here. Because it's been private for so long, a lot just want to get access. And that's why we think that at least over the short term, we wouldn't be too surprised to see this stock see a, a bounce because we know so many are clamoring for shares.

But over time, this company is going to need to justify these valuations, and that's when investors are really going to start to focus on whether their vision is actually turning into a reality.

The other thing I would mention for long-term investors is that when we talk about IPOs, and specifically widely anticipated IPOs, a lot of us are focused on near-term performance. What does that first day, first week, first month of trading look like? And historically, it looks pretty good.

But what about the longer the longer-term story? How do these companies actually do? And here, I think it's really important to focus on some of the research that we have actually from Jay Ritter with the University of Florida. He produced a report that looked at historical IPOs. And if we look at the just over 1,700 IPOs in the US market between 2011 and 2024, we see that on average, these companies have seen a first-day bounce of 23%, which is great, and I think that's why we see a lot of hype around these IPOs.

SpaceX is no different. But if we actually move forward and fast-forward three years, we find that these companies, on average, underperform the broad index by about 25% on a three-year basis in their first three years of trading. And so I think that's why it's really important to keep perspective here and, and not every company is a great investment.

So from our standpoint, this is something that we're going to watch. We think that this is- we certainly see the opportunity in a company like SpaceX, but we also see the speculation here as well. And we're going to-- we're not going to

When we are looking at potential investments for our portfolios that we manage on behalf of clients, we're looking for companies that, number one, are profitable, that have a catalyst, which I could certainly argue SpaceX has, but we want to make sure they have some history. And I think that with this new company, it's not unlike other IPOs where we want to see this company settle in a little bit with the market as they start to be held accountable for their results in the coming quarters, and they start to participate in these quarterly earnings calls with analysts.

We're really going to be getting a full picture of just how this company is doing. So we're going to be waiting to make sure that we are making a more informed decision, a thoughtful decision for how this company might trade within a more diversified portfolio. So I'll leave it there for now. If you have any questions, please don't hesitate to reach out to your financial advisor.

I'll see you next week.