1 Reason to Buy the SpaceX IPO and 3 Reasons to Avoid It

2026 is set to become the biggest year for IPOs in history. Massive AI companies are planning their public debuts, and that starts with SpaceX (NASDAQ: SPCX).

SpaceX will offer about 556 million shares at $135 each, raising approximately $75 billion. An abnormally large chunk of those shares, about 30%, could be held for retail investors. And many online brokers have significantly reduced the barriers to receiving shares at the initial public offering (IPO) price. Given the massive size of the IPO, investors have a good chance of receiving shares of the highly anticipated stock.

Here are one reason to buy the SpaceX IPO and three reasons to avoid it.

Image source: The Motley Fool.

Here's what you can expect from SpaceX's debut

The top reason to buy SpaceX at its IPO price is that it'll likely experience a first-day pop. It's very common for underwriters to leave some money on the table, and a successful IPO usually results in the stock trading 10% to 25% higher on the first day of trading.

A first-day pop isn't guaranteed, however. Some stocks trade pretty close to their IPO price once the market digests the new issue. However, investors considering buying shares to capitalize on the potential pop could monitor pricing on Hyperliquid, a market for perpetual futures (futures that never expire). The price for SpaceX futures on the market is about $155 as of this writing, implying about 15% upside from the IPO price.

Investors may be able to flip the IPO for a quick profit, but that's a risky investment with minimal upside. Here's why it might make sense to take a wait-and-see approach with SpaceX.

Should you avoid the IPO?

There are several reasons why avoiding the SpaceX IPO may be your best option.

The company looks overvalued

SpaceX is a highly speculative investment that requires investors to make big guesses about how the future will unfold. But even optimistic outlooks indicate that $1.75 trillion may be way overvalued.

Aswath Damodaran estimates SpaceX's enterprise value at just $1.22 trillion but admits a $1.75 trillion valuation is within the realm of possibility based on his outlook. That said, his outlook already looks very optimistic, with the company capturing a significant share of the enterprise AI market and the entire space-launch industry growing rapidly over the next decade.

Morningstar analysts put a $780 billion fair value on the company, but even under their most optimistic scenario, it's worth only slightly more than the IPO price. If the company successfully scales its rapidly reusable Starship and the economics of orbital AI compute prove valuable to hyperscalers, it could be worth $2 trillion, according to Morningstar's estimates.

The market could be flooded with shares within six months

SpaceX's 556 million shares represent just over 4% of the entire company. While SpaceX is planning a staggered lockup period to avoid adding too much selling pressure on the stock at once, each tranche could still trigger a major selling event. Even if it doesn't, the market will likely anticipate it and sell-off shares ahead of the actual liquidity events.

That will create some significant volatility in the stock over the next six months. And with more shares likely to enter the market as early investors cash out, there will likely be more sellers than buyers even with the preferential treatment SpaceX is receiving from indexes, forcing passive investors to buy shares from sellers. That will put some significant downward pressure on the stock price.

The track record for IPOs

Recent IPOs have underperformed the rest of the market. From 2011 through 2024, the 1,724 stocks making their public debut have produced a weighted-average return of -1.7% in the year following their first day of trading. The record for extra-large IPOs is even worse. The more mature and well-known a business is, the more likely it is to experience returns that severely trail the market average. SpaceX is a 24-year-old business generating tens of billions of revenue, so the odds are against it.

Overall, investors are likely better off waiting to invest in the SpaceX IPO. Buying at the IPO price could provide an opportunity to capitalize on the first-day pop, but that's outweighed by the uncertain medium and long-term outlooks and the track record for large IPOs.

Adam Levy 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.