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Two weeks ago, SpaceX went public with the biggest stock market listing in history. It valued the company at nearly $2 trillion, and it's been on a wild ride since. At one point, its share price had rocketed so far that it was worth nearly $3 trillion. At one point, it had fallen by about a third. Since then, it's been all over the place. All of this is a sign that investors enthusiasm for artificial intelligence is really hitting a manic phase in markets. You say it's been a wild ride, but those are wild numbers. Who's actually making money out of this? A lot of people. Just after the IPO, Elon Musk, SpaceX's founder, became the world's first trillionaire. The investors who bought the newly issued
shares on the IPO date saw a massive pop. So it popped by 20% on its first day of trading, another 20% the next day. At one point it was trading at over 60% above its IPO price. So obviously if you had sold then you would have immediately made a lot of money having just bought those shares. A lot of investors buy when it's issued and then sell after that first pop. On kind of day three of SpaceX's trading, there were stories about investors who regretted having sold on day one or two because it popped up even further. But since then, we should say since that peak, um, at one point it had fallen by about by nearly a third. So investors who had bought at that peak would have
actually lost quite a lot of money. When you have a massive IPO like this, what effect does it have on the stock market more generally or those of us normal people who really aren't doing anything to do with SpaceX? A lot of normal people actually did buy this stock. So unusually for SpaceX uh 20% of the shares that were issued in its IPO were issued to what the industry calls retail investors. That means ordinary investors like y individuals not fund managers or institutional investors. So some of them would be involved for the stock market as a whole. There are a few things this means. SpaceX almost immediately followed up its share issuance with a debt issuance. It raised $25 billion by
issuing bonds and other big tech companies are issuing follow-on shares and bonds themselves. There are other massive IPOs being planned. What all of this means for markets is that the supply of new assets, shares and bonds is increasing. The amount of money that companies are asking for from their investors is increasing. So a stock market that previously threw off lots of cash as these big tech giants made lots of money is increasingly sucking in cash instead. And that's a kind of sea change for markets. Is it a problem that people are investing in inherently risky stocks?
You talk about a mania. We don't know where all this is going. Yeah. Well, markets are there to price risk. So in a way it's a good thing that investors are taking risks in general. That doesn't mean that every risk that investors are taking is going to pay off or is necessarily wise. One of the weirdest things about this SpaceX IPO is SpaceX has actually never made a profit. Last year it made revenues of $20 billion. It lost $5 billion. Obviously, investors are betting that's going to change. You would you wouldn't bet on a company that you expected to lose money forever. But a lot of what SpaceX is doing is untested stuff that, as you say, is very risky. It's got XAI, an artificial
intelligence company under it. that's expecting to make money in kind of as yet semi unknown ways from deploying artificial intelligence. Data centers in space is another big SpaceX thing. You know, we don't know whether that's going to work. We certainly don't know whether it's going to be commercially viable um or how profitable it might be. And obviously, uh the big one, how you make money from launching rockets and potentially taking people to Mars, I think you'd have to be pretty bullish to not describe that as very risky. So where does the $3 trillion valuation come from? That feels almost plucked out of thin air.
Usually the way an IPO works is that the company and its bankers go out and do a road show. They call it a road show. They go in front of lots of institutional investors, show the company plan, kind of test appetite for its shares and work out, you know, by asking investors what they'd be willing to pay roughly where the shares should price. This one didn't work like that. Um it involved Elon Musk essentially saying a few weeks in advance, these shares are going to sell for $135 each, which gave you the valuation. Um the even weirder thing is that the market then digested that uh that is the price that they were sold at um and even popped afterwards. So there are a couple of interpretations of that. You could
say this was all showmanship. The real secret road show did happen. Elon Musk tested what the appetite was. it was $135 and so that's what he sold it for. That could well have happened. Um I prefer the sort of Elon Musk distorting markets theory which seems to be that this kind of unique individual can kind of make markets work as he wants them to work and we've certainly seen that in this case. Isn't there something of a disconnect though because Musk strong and powerful and leading as he does is not the same as SpaceX the whole company and he cannot lead it forever. So then how do you value what's actually there?
Nobody can forecast a company's earnings more than a few years into the future in markets as in everything else. So a lot of the time what investors are really doing is trying to figure out short term whether it's going to go down or up. And you need to take way more into account to work that out than just what the company's future earnings will be. The charisma and kind of reality distortion field around Mr. Musk is key for this because it determines whether people are going to be buying those shares a few days down the line, a few weeks down the line. Now none of this is to say that there aren't fundamentals. They don't matter. But kind of trying to pass the uh the confusing, sometimes seemingly
irrational behavior of other investors is a key part of what valuing a company means these days. So what you're saying is it is more sophisticated than witchcraft. It's not a science. At what point do we say that the markets sort of know actually how much this is valued at? At what point can we say after this current volatility, this is where it's at? Well, I would hesitate to pick a point if I'm honest, but for example, the big index providers that decide when to include um a newly issued stock in their indices, they tend to allow for a seasoning period to allow this sort of thing to happen. So, it used to be a lot longer
than it is now. For a couple of the indices, for including SpaceX, for example, the seasoning period is only five trading days or 15 trading days. So, right now or very soon, it's getting included in some indices. we have to say the very sort of biggest and most tracked index uh the S&P 500 uh index of American shares they're going to wait a year before they include uh new newly issued stocks uh in their index. So if you want to take the most conservative view maybe wait for about a year before you think like you know investors really have a firm handle on this. And if we're thinking about those big indexes, then if we're thinking about pension funds, things we may not think we're investing
in SpaceX, but actually all of us will be. Is that right? Eventually, pretty much. Yes. So once uh SpaceX is included in all of the indices, especially as I say that the S&P 500, which is very widely tracked, uh index funds will automatically begin to buy it. It's important to say they won't buy massive amounts of it at first because not many of its shares have been sold to the public so far. So at the moment we're talking about fractions of a percent. Um in a year's time we might be talking about a few percent of the index. Index funds are invested in by enormous amounts of people. Lots of people uh put their savings in index funds. I certainly do. Um even if you don't do it consciously, your pension is likely
invested in lots of index funds. So it's not quite true that people are forced to buy shares like SpaceX. But in practice, unless you go to quite a great effort to avoid it, most of us will be buying shares in SpaceX. So, we're all invested in Musk's vision. We all need to uh take a view on whether it's really going to Mars. Josh, thank you very much. Thank you, Rosie.
