Why the Most Exciting Stock Isn't Always the Best Investment
Over the last quarter, many clients asked us about the SpaceX initial public offering. It was the largest IPO ever, by a significant margin, and it made a trillionaire of its founder, Elon Musk. Shares started at $135 per share and surged past $200 in early trading, briefly pushing SpaceX's total value from $1.8 trillion to above $2.6 trillion, making it one of the most valuable companies in the world. This was the kind of debut that gets everyone talking.
What does all this mean for the markets and investors? Is it the entry point for one of history’s great companies, or part of an overhyped mania? Should investors buy in no matter the cost?
The Valuation Problem
The short answer: no one knows yet. Only time will tell whether today’s investors will be rewarded or if it will take many years, if ever, to recoup their initial investment. Here is what we do know: based on current earnings, SpaceX is considered pricey by most market commentators. The easiest way to judge this is to compare the company’s earnings to its current share price and then compare that ratio to other similarly sized companies. SpaceX has sales of “only” $19 billion, while its current market value is $2.3 trillion. That value is similar to Amazon or Microsoft – companies with $743 billion and $318 billion in sales, respectively. In other words, SpaceX has relatively meager sales but is trading like well-established companies with far more significant earnings. Its share value currently far exceeds its sales, which will likely be the case for many years to come.
Learning from IPO History
Historically, the initial rush of an IPO high does not typically translate into positive long-term returns for investors. According to data on the 15 largest U.S. IPOs since 2006, the average stock declined 50% at some point during its first year as a public company. On average, these mega-IPOs finished their first year 33% below their IPO price. Buyer beware.
The Problem with Following the Hype
Investor caution shouldn't stop at mega IPOs like SpaceX. While the SpaceX offering has dominated recent headlines, it's worth remembering how quickly market darlings can fade. Gold, once the focus of intense attention, is now down 25% from its January highs. Bitcoin, down 50% from its October 2025 peak, tells a similar story. The same goes for the Magnificent Seven (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla), which captured headlines and investor capital for years. Yet in the first half of 2026, all seven collectively fell –2%, while the S&P 500 finished up 10%.