Should You Buy SpaceX on Its First Day of Trading?

Technology and growth stocks have led gains in the S&P 500 over the past few years. Investors have piled into players such as artificial intelligence (AI) chip leader Nvidia and electric vehicle giant Tesla, for example. Those stocks have climbed 400% and 70%, respectively, over the past three years.

Today, investors may continue to win with these market giants -- and they may turn to new opportunities, including tech and industrial giant SpaceX. This Elon Musk-owned company is on track to launch the biggest ever initial public offering as soon as June 12. It follows an IPO by AI chip company Cerebras Systems, and it precedes operations by AI labs Anthropic and OpenAI -- they both recently submitted confidential IPO filings to regulators.

SpaceX has wowed the market with its IPO intentions -- aiming to reach a valuation of more than $1.7 trillion -- as well as its position in the growth markets of rocket launches, AI, and satellite internet connectivity.

Should you buy SpaceX on its first day of trading? Let's find out.

Image source: Getty Images.

Elon Musk and innovation

It's clear that SpaceX is an exciting company. Like Tesla, it's led by Elon Musk, who is known for his focus on innovation and for (excuse the pun) reaching for the stars. Musk, for example, at the helm of Tesla, aims to lead in autonomous vehicles, and at SpaceX, his goals range from installing data centers in space to creating a city on Mars. Some of Musk's goals may be attainable, but others may never become a reality. Still, a Musk-led company may be successful even if he doesn't reach every goal.

SpaceX today, through its three businesses, offers investors certain key elements. One of them is diversification -- this limits risk to a certain degree because if one particular area struggles, another may compensate. These businesses are also complementary, with gains in one benefiting the others. For example, progress on reusable rockets will make it cheaper and easier for SpaceX to pursue its various space-based projects, such as launching materials for its Starlink internet service.

And speaking of Starlink, this business is the company's revenue driver as it works to build up its other units. Last year, Starlink delivered $4.4 billion in income from operations.

SpaceX comes with some risk

All of that is positive, but it's important to note that SpaceX still comes with a fair amount of risk. The AI business requires significant investment, and that's weighing on overall earnings. Capital expenditures in that unit totaled $12 billion last year, and that pushed SpaceX to a loss. Meanwhile, the company's valuation is high. In fact, Morningstar says the company is worth $780 billion -- that's less than half of its private market valuation of $1.5 trillion.

Now, let's return to our question: Should you buy SpaceX on IPO day? It's important to note that SpaceX already has set a fixed price, at $135 a share, for its stock, but it's very likely that the stock won't open at that price. If it follows in the footsteps of Cerebras, it could open considerably higher. Cerebras priced at $185, opened at $350, and then gained 68% during that first day of trading.

Based on all of this -- the positive and negative points I've mentioned above -- I wouldn't rush to get in on SpaceX on IPO day. Though the company offers an exciting growth story, the current valuation is high, and it seems likely that in the weeks or months to come, investors may find a better entry point on the dip. By letting some time pass, investors will also have the opportunity to review additional earnings reports and consider the company's progress toward at least some of its goals -- and monitor the capital expenditure levels.

So, I wouldn't rush to get in on SpaceX right out of the gate and potentially pay a premium for the stock. Instead, I would wait to get in on this player at a later date -- with additional financial information available and at a better price.

Adria Cimino has positions in Tesla. The Motley Fool has positions in and recommends Nvidia and Tesla. The Motley Fool has a disclosure policy.