SpaceX Is Attempting an Unprecedented IPO With a High Bar to Clear. But The Space Pioneer Is Also Holding an Ace Up Its Sleeve

SpaceX and its founder, Elon Musk, are attempting to do something that has never been done.

The company is hoping to raise at least $75 billion at a valuation of at least $1.8 trillion, which would make it the largest initial public offering of all time. Furthermore, the company is really asking investors to give it the benefit of the doubt. SpaceX only grew revenue by about 33% year over year in 2025.

While the company runs some incredibly compelling businesses, such as its Starlink satellite internet service, which has over 10 million users and is currently powered by over 10,000 low-Earth-orbit satellites, space is a relatively new frontier, at least in the way SpaceX is attempting to operate. Investors aren't normally ones to take such risks.

The SpaceX IPO has a high bar to clear. Luckily, at least in the beginning, the company is also holding an ace up its sleeve.

Image source: Getty Images.

The IPO float should be absorbed

Musk gives SpaceX a lot of weight with investors. Not only is Musk the richest man in the world, likely to become the first trillionaire, but he's also founded a number of incredible companies whose stocks trade at a premium valuation and have made many investors a lot of money.

For instance, Tesla, Musk's electric vehicle and robotaxi company, trades at an enormous valuation, and many investors are simply willing to go all in on Musk and his vision.

But SpaceX is a different bear because its financials in some of its businesses, like artificial intelligence, are unimpressive, and space carries many risks that investors likely aren't yet aware of. Investors have already seen the first crack after Bloomberg reported recently that SpaceX has cut its IPO valuation from over $2 trillion to $1.8 trillion.

Now, a $75 billion raise or more at a $1.8 trillion valuation would still be an incredible feat. But if SpaceX is able to achieve this, that's roughly only 4.2% of the company's total float.

The company has an interesting lock-up policy that is somewhat staggered, so employees and insiders holding shares can sell a certain amount of their shares at various times, such as 20% right after the company reports second-quarter earnings, and an additional 10% if the stock is up 30% from the IPO price. After that, 7% tranches can be sold 70, 90, 105, 120, and 135 days following the IPO.

Normally, this might put pressure on a stock at these times because many employees are about to become millionaires, and many insiders are poised to make extraordinary amounts of money.

The ace SpaceX holds

Luckily for early investors, SpaceX is holding an ace up its sleeve: It's going to be included in many major market indexes early in its public life, which will force funds tracking these indexes to buy and absorb the company's float as well as some shares coming onto the market at various times.

In recent months, some of the most popular stock market indexes, many of which are passively owned by investors, have added fast-entry clauses to allow SpaceX to join earlier than usual.

Others are considering waiving profitability requirements.

SpaceX will likely be in most of the market's major indexes within its first three weeks of trading, according to investment manager Jacob Friedman of Focused Wealth Management.

The broader benchmark, the S&P 500 index, is not in this group, but is currently considering changes that would allow SpaceX to join the index in six months, rather than a year, so SpaceX could enter the index as soon as December. The S&P 500 is also considering waiving profitability requirements.

If the S&P 500 does approve these rule changes, the index, along with the Russell 1000 and Nasdaq-100, would need to buy an estimated 24% of SpaceX's public float, Bloomberg Intelligence estimates. Including passive funds that track these indexes, nearly half of the float will be absorbed by the cohort of passive investors.

SpaceX is also reportedly allocating 30% of its offering to retail investors, potentially adding another way to drum up demand and create more hype. These factors should offset some of the selling pressure as insiders and employees offload shares in the early months.

However, SpaceX can only play this card once.

The real test will come about six months after the IPO, when all lock-up provisions for insiders and employees, excluding Musk, expire, and SpaceX is already in most major indexes.

The company will have to perform after this period, and there won't be as many mechanical factors supporting shares. I personally wouldn't consider buying SpaceX stock until then.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.