SpaceX vs. S&P 500 ETF: Here's Which One History Says Is More Likely to Outperform

After months of hype, Space Exploration Technologies (NASDAQ: SPCX), better known as SpaceX, went public last month. Despite its record-breaking debut as the largest initial public offering (IPO) in history by market cap, the stock is currently down nearly 21% from its peak on June 16.

While some investors are still optimistic that SpaceX will skyrocket after it finds its footing, others are not convinced that it has what it takes to thrive over time.

Nobody can say for certain where SpaceX will be in a decade or two, but if it's anything like previous mega-IPOs, history suggests the humble S&P 500 ETF could be a more lucrative option.

Image source: Getty Images.

Most major IPOs underperform the market, history says

Eight of the top 10 largest U.S. IPOs in history have underperformed the S&P 500 (SNPINDEX: ^GSPC) since going public, according to data from FactSet Research. It's not a particularly close race, either. Collectively, these 10 stocks have fallen short of the index by a median of 127 percentage points since they began trading.

Early performance also isn't a strong indicator of where a stock is headed, historically. Meta Platforms is one of the two companies that have outperformed the S&P 500, and its stock price rose just 1% on its first day of trading. Coinbase Global, on the other hand, surged by 31% on its first day and has since underperformed the S&P 500 by 136 percentage points.

Of course, that doesn't necessarily mean SpaceX is destined to fall short of the S&P 500. Anything could happen in the coming years, and each stock is unique. But if history shows us anything, it's that larger IPOs don't always have a leg up when it comes to long-term performance.

Is an S&P 500 ETF the better buy right now?

Where you choose to invest will depend mostly on your risk tolerance.

SpaceX is far riskier than an S&P 500 ETF, as there are still many unknowns. The company isn't yet profitable and is already overvalued based on key financial metrics. Also, some of CEO Elon Musk's goals -- such as building data centers in space and creating a colony of a million humans on Mars -- are lofty, to say the least.

If SpaceX does succeed in its goals, it could be a lucrative investment. But not all investors will be comfortable with that level of uncertainty, and the near term is likely to be volatile.

^SPX data by YCharts

The S&P 500 ETF is a more stable option, as this investment has decades of history earning positive total returns despite short-term volatility. Also, because SpaceX is not yet listed in the S&P 500 (and won't be for at least a year, assuming it's profitable by then), it can be a smart choice for investors looking specifically to avoid this company.

Nothing is ever guaranteed in the stock market, but for investors seeking consistency, it's hard to go wrong with an S&P 500 ETF.

Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FactSet Research Systems and Meta Platforms. The Motley Fool recommends Coinbase Global. The Motley Fool has a disclosure policy.