Markets and Tech Sector Brace For SpaceX IPO

Elon Musk's space venture is set for the largest IPO in history on Friday amid a surge in tech optimism, but also a surge in share issuance that could test the market's pockets.

The Key Factors That Could Affect the Market

• SpaceX to debut under the SPCX ticker on Friday, with an IPO priced at $135 and a valuation that puts it immediately in the top 10 largest US companies.
• Investors worry that the highly speculative stock will draw funds from adjacent tech firms and shake up the AI stock ecosystem amid a large surge in stock offerings.
• Hype has driven interest with an unusually large allocation to retail traders, but conditions could lead to particularly high volatility that could affect markets.
• SpaceX could be included in the Nasdaq by early July and disrupt ETF allocations.

The Largest and Best IPO for Retailers

SpaceX will officially price its initial public offering (IPO) of shares on Thursday and begin trading under the SPCX ticker on Friday. However, it's widely known that it will offer around 555.6 million shares at $135 each, raising up to $75 billion, the largest initial offering ever (and close to Alphabet's recent $80 billion, the largest share offer ever). That would give the company a valuation of around $1.8 trillion, immediately putting it in the top ten largest companies in the US. The first immediate concern is around the valuation, as SpaceX reported revenue of $18.7 billion and a net loss of $4.9 billion last year, giving it an enterprise value-to-EBITDA of around 260x. For comparison, the benchmark S&P 500 averages an EV/EBITDA ratio of around 15x, and AI leader Nvidia's has historically been around 48x. The space and tech company is seen as highly speculative, but with strong interest from retail traders. SpaceX allocated around a third of its offering to retailers, which is unusually high for an offering this size.

Traders will be closely watching the IPO's impact on broader markets, as it comes just after the US CPI came in hotter than expected, which could lead to a more hawkish Fed. Under Nasdaq's fast-track rules, the company could be included in the premier tech index in just 15 trading days (by July 3rd), prompting buying of ETFs. Usually, shares pop after an IPO but often struggle to maintain those gains. There seems to be solid interest in SpaceX as its shares are reportedly oversubscribed by 4x. Some analysts are concerned that the IPO will drain capital from the tech sector, with investors likely to trim existing positions in large tech firms and other tech-adjacent stocks like Apple, Microsoft and Nvidia to fund SPCX buying. Musk's other tech venture, Tesla, could bear the brunt of this as supporters shift their focus to the more tech-centred space venture rather than the struggling EV company.

Hype and Volatility for the Market

The timing of the IPO offers risks and opportunities, as the tech sector has led stocks higher over the last couple of months, suggesting strong investor interest. But companies in the sector have taken note and are coming to market with share offerings, including Google, Strategy, Meta, and the expected IPOs from Anthropic and OpenAI later in the year. Already, tech stocks and ETFs are under pressure as traders worry that supply could exceed demand and dent or reverse recent sector gains. This could lead to significant volatility in the market, as investors pre-position ahead of SpaceX's inclusion.

QQQ ETF At VWAP Support, But Can It Bounce?

PowerShares QQQ Trust Series 1 is likely to hold SpaceX, and its movements might be volatile given the typical post-IPO reaction. As it trades at the bottom of its VWAP near $690, a breakdown could open the door to the next major support of $635, while a bounce exposes the upper VWAP near $750 and brings into focus sideways price action. The ETF is already down ~9% since it peaked amid RSI divergence, and another drop could push it into correction territory, with the indicator initially finding potential support at the 30 level.

Source: SpreadEx | PowerShares QQQ Trust Series 1, Daily Chart