The SpaceX IPO Is Just Days Away. History Says the Stock Will Do This When It Starts Trading.

Key Points

• SpaceX will be the largest IPO in history; the stock will have an initial market value of $1.77 trillion when it starts trading on Friday, June 12.

• The 10 largest U.S. IPO stocks on record have collectively underperformed the S&P 500 by 96 percentage points since listing shares.

• SpaceX’s IPO price puts the valuation above 90 times sales, 48% more expensive than the most richly valued stock in the S&P 500.

• 10 stocks we like better than S&P 500 Index ›

SpaceX, the rocket and satellite company founded by Elon Musk, will hold its initial public offering (IPO) on Friday, June 12. The stock will be listed on the Nasdaq Exchange under the ticker symbol SPCX.

SpaceX has officially priced its IPO at $135 per share. With about 13.1 billion total shares outstanding, that gives the company an initial market capitalization of $1.77 trillion, making it the largest IPO on record.

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Investment banks underwriting the IPO are reporting immense demand, but history says SpaceX is likely to underperform the S&P 500 (SNPINDEX: ^GSPC) in the long run, which means investors would be better off buying an S&P 500 index fund instead of participating in the IPO.

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SpaceX stock may rocket higher initially, but history says it will underperform the S&P 500 in the long run

IPO stocks frequently jump on their first trading day. Between 2016 and 2025, over 1,100 companies listed shares on U.S. exchanges, and their stock prices increased by an average of 25% on day one, according to Jay Ritter, director of the IPO Initiative at the University of Florida.

However, the initial excitement eventually fades, and selling pressure increases as lock-up periods expire, giving insiders an exit strategy. That trend is particularly evident with larger companies. The chart below lists the 10 largest U.S. IPOs (as measured by market value at the IPO price) on record; it also shows how each stock has performed relative to the S&P 500 since going public.

Data source: Barron’s, YCharts. The chart shows how the 10 largest U.S. IPO stocks (i.e., excluding foreign issuers) have performed relative to the S&P 500 since listing shares.

As shown above, the 10 largest U.S. IPO stocks have underperformed the S&P 500 by 96 percentage points since listing shares. The lesson for investors is crystal clear: Rather than participate in those IPOs, it would have been more lucrative to buy an S&P 500 index fund. And the same is probably true of the SpaceX IPO.

SpaceX will go public with a very expensive valuation of 92 times sales. For context, Palantir Technologies is currently the most richly valued stock in the S&P 500 at 62 times sales. But SpaceX stock will be 48% more expensive when it starts trading, leaving plenty of downside.

Morningstar analyst Nicolas Owens estimates SpaceX’s fair value at $780 billion, implying 56% downside from its IPO valuation of $1.77 trillion. That does not mean the stock will crash immediately. CNBC’s Jim Cramer thinks the company’s market value could rapidly climb to $5 trillion following the IPO.

Here’s the bottom line: SpaceX, with an initial valuation of $1.77 trillion, will be the largest IPO on record. The stock may initially rocket higher, but history says it will underperform the S&P 500 over the long run. That means investors would be better off buying the Vanguard S&P 500 ETF (NYSEMKT: VOO) on June 12.

The Vanguard S&P 500 ETF returned 12.3% annually over the last 15 years

The Vanguard S&P 500 ETF tracks the S&P 500, an index of 500 large U.S. companies. It includes growth and value stocks from every market sector, and covers about 80% of domestic equities and 50% of global equities by market value.

In short, the Vanguard S&P 500 ETF is a ready-made portfolio that offers exposure to many of the most influential companies in the world. The five largest positions are listed below:

1. Nvidia: 7.8%
2. Alphabet: 6.5%
3. Apple: 6.4%
4. Microsoft: 4.9%
5. Amazon: 4.1%

The Vanguard S&P 500 ETF has a very low expense ratio of 0.03%, meaning shareholders will pay just $3 per year on every $10,000 invested. Additionally, the index fund returned 475% (12.3% annually) over the last 15 years, compounding at a pace that would have turned $500 per month into more than $230,000.

Purchasing an S&P 500 index fund lacks the excitement of participating in the SpaceX IPO, but history says it’s the more prudent investment. However, investors should still keep SpaceX on their watchlists. “We think the company has been significantly overvalued and investors will have opportunities to buy the stock at more attractive levels after the IPO,” Morningstar analysts led by Nicolas Owens wrote in a recent note.

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Trevor Jennewine has positions in Amazon, Nvidia, Palantir Technologies, Vanguard S&P 500 ETF, and Visa. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Kenvue, Meta Platforms, Nvidia, Palantir Technologies, Uber Technologies, United Parcel Service, Vanguard S&P 500 ETF, and Visa. The Motley Fool recommends Coinbase Global, Coupang, and General Motors. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.