SpaceX Stock Hit $2 Trillion on IPO Day. History Says a $10,000 Investment Will Be Worth This Much in a Year.

Elon Musk's Space Exploration Technologies (NASDAQ: SPCX) went public at $135 per share on Friday, June 12. The company's initial market value of $1.8 trillion made it the largest IPO in history, and the stock gained more than 20% on the first trading day, carrying its valuation above $2 trillion.

Large IPOs have historically underperformed during their first year on the market. In fact, history says $10,000 invested today will be worth less than $5,300 by June 2027. Here are the important details.

Image source: The Motley Fool.

History says SpaceX will decline during its first year on the market

IPO stocks that go public at large valuations have often performed poorly during their first year on the market. The chart below lists the 15 largest U.S. IPOs since 2006 (by market cap at the IPO price), and shows their one-year returns and maximum drawdowns during the first year.

Data sources: First Trust, Bloomberg.

As shown above, among the top 15 U.S. IPOs since 2006, the average stock declined by 50% at some point during the first year, and it finished its first year as a public company 33% below the IPO price.

What does that mean for a $10,000 investment in SpaceX? If its performance matches the historical average, the stock will decline 50% from its IPO price to $67.50 per share at some point during the first year. That implies 60% downside from the current share price of $171, meaning $10,000 invested today would be worth about $4,000.

Also, the stock will finish the first year at $90 per share (33% below its IPO price) if its performance aligns with the historical average. That implies a 47% downside from the current share price of $171, which means $10,000 invested in SpaceX today would be worth less than $5,300 by June 2027.

SpaceX stock trades at an absurdly rich valuation that leaves plenty of room for downside

SpaceX brings together the launch capacity, satellite connectivity, and artificial intelligence expertise required to build and deploy orbital AI data centers. While operating data centers in space would certainly come with challenges, it would address the power and cooling issues that trouble terrestrial data centers.

SpaceX is uniquely positioned to capitalize on that opportunity. Its registration statement (SEC Form S-1) states:

"We believe we are the only company with a commercially viable path to building orbital AI compute at scale. This is underpinned by our unique ability to launch substantial mass into orbit efficiently through reusable rockets, and manufacture secure, reliable, and high performance satellites at low cost and high volume."

Importantly, while SpaceX may have tremendous growth prospects (albeit highly speculative ones), that does not excuse its current valuation. Sales totaled $19.3 billion over the last four quarters. With a market value of $2.2 trillion, SpaceX stock trades at an absurdly expensive valuation of roughly 115 times sales.

For context, Palantir Technologies currently has the highest valuation in the S&P 500 at 59 times sales. SpaceX is 95% more expensive, and that premium is unsustainable. Very few companies have ever traded above 100 times sales, and none have ever maintained such a high multiple indefinitely.

Here's the bottom line: Large IPOs have generally performed poorly in their first year on the market, and SpaceX is especially vulnerable to a drawdown due to its rich valuation.

Trevor Jennewine has positions in Palantir Technologies and Visa. The Motley Fool has positions in and recommends Airbnb, DoorDash, Kenvue, Meta Platforms, Palantir Technologies, Rocket Companies, Snowflake, Uber Technologies, UiPath, and Visa. The Motley Fool recommends Coinbase Global, Coupang, and General Motors. The Motley Fool has a disclosure policy.