Money Stuff: SpaceX Priced Already

The normal thing to say is that SpaceX’s initial public offering “is set to price June 11” — today — “and trade the following day.” SpaceX’s bankers have been marketing its shares to investors for the past week, and this afternoon, after the market closes, they will get together, review the demand for the IPO, and “price” the IPO, that is, decide the price at which SpaceX will sell shares to investors. Then they will decide how many shares each investor will get and tell the investors what they’re getting. Then, sometime tomorrow, the stock will open for trading: Some people who got shares in the IPO will put in orders to sell, [1] people who didn’t get shares in the IPO (or who want more) will put in orders to buy, the stock exchange will take a few hours figuring out how to match up those orders, and eventually the orders will be matched and the stock will start trading. That’s the normal approach.

SpaceX, though, started with a price. SpaceX launched its IPO marketing by saying that it is selling 555,555,555 shares at $135 per share. The deal is “pricing” this afternoon, in a formal sense, and I suppose it’s possible the price or size might still change, but probably the real pricing happened a week ago. (The “offering has attracted demand for more than four times the available shares” at that $135 price, Bloomberg reports, and the order books closed yesterday.) The Financial Times reports:

Elon Musk’s lossmaking rockets-to-AI group is expected to make its market debut on Friday following what is set to be the biggest IPO on record, offering shares at $135 each, a set price that several people involved in the deal said left underwriters with less flexibility than is typical in a conventional listing. …

“Elon just came in and said what the price was . . . there was no price discovery,” said an executive at a large US hedge fund.

Is that right? Here are four possibilities:

1. Musk picked an arbitrary price that is way off-base, and the stock will fall 50% or go up 300% tomorrow. 
2. Musk picked a price that was precisely correct, because he is a genius, and the stock will go up 20% tomorrow. (Twenty percent is the perfect IPO pop, making money for investors without leaving too much on the table.)
3. Musk picked an arbitrary price, but because of his reality-distortion powers, it became the precisely correct price. “If Elon Musk says the IPO price is $135 then that’s the perfect IPO price,” everyone will say, and there will be a perfect 20% IPO pop tomorrow. It doesn’t matter what anyone else thinks SpaceX is worth; it matters what Musk says.
4. Actually there was some price discovery, and SpaceX is going public at roughly the market-clearing price. It just didn’t need an IPO roadshow process to figure out that price.

Obviously No. 1 is the funniest possibility, and No. 3 is most consistent with my Elon Markets Hypothesis, but my guess is that No. 4 is closest to being correct. (Not investment advice!) That Financial Times story goes on:

Musk and his team were testing their $135 per share target with investors long before the official roadshow began last week, according to a person familiar with the process.

“[$135 per share] is what Elon wants to sell it at and they’ve road-tested it with enough people that they think they can get it done,” the person said.

Elon Musk has a long history of (1) raising a lot of money from investors and (2) making a lot of money for those investors. Presumably he has good well-developed instincts for what sort of valuation he can get away with, and also, like, the phone numbers of investors he can call to ask. 

Also, though, “private markets are the new public markets,” and there has been secondary trading in SpaceX shares for a while now. Hiive, a private-stock marketplace, shows a chart of SpaceX prices. These prices are somewhat theoretical (a “model-derived indicative price estimate … calculated daily using a time-decayed, volume-weighted blend of (a) confirmed transactions and (b) the bid/ask midpoint, weighted in favor of bids”), but Hiive shows a price of $136.18 as of June 3 (the day before the IPO roadshow launched) and $149.02 as of early this afternoon. The former price is consistent with “we are launching the IPO at the market-clearing price”; the latter is consistent with “there will be a modest IPO pop.” Forge, another private-stock marketplace, stopped trading in SpaceX after it filed for its IPO in May, but its most recent ( also model-derived) price was $128.84. Pretty close. 

There are also betting markets, where people trade not SpaceX stock but rather bets on the future price of SpaceX stock. We talked last week about pre-IPO perpetual futures, which are essentially crypto-based betting markets on SpaceX’s stock price. These exist in a somewhat gray area legally, and are not generally available to US investors, but so what. CNBC reported yesterday:

Crypto traders in the SpaceX pre-IPO perpetual futures are expecting a big first day for Elon Musk’s much-hyped space company.

The perpetual future contract is currently trading around $162 on the Hyperliquid trading platform, a market dominated by highly active, leverage-seeking crypto traders. That’s about 20% above its fixed IPO price of $135 per share, but down sharply from the peak levels exceeding $220, reached shortly after its May launch. SpaceX perpetual futures on Binance were trading at a similar level.

A perfect 20% IPO pop. Last week, TD Securities market structure analyst Reid Noch and his team put out a research note on perpetual futures, noting that they are pure speculative bets not linked to the underlying shares:

A pre-IPO PERP functions differently from a standard PERP. A normal PERP references a live spot market, futures price or index. A pre-IPO PERP has no public stock price to reference because the company has not listed yet. Instead, the market prices themselves are solely based on supply and demand. Once the stock begins trading, the contract can then anchor to the listed equity price. Until that point, it acts more like a leveraged, continuous prediction market than a substitute for owning the stock.

But also that they work:

Cerebras is the best example so far. The company priced its IPO at $185 per share, but opened around $350 on Nasdaq, an 89% premium to the IPO price. Before the stock was available for regular public trading, the Hyperliquid ecosystem had already started pricing in that move. Its CBRS pre-IPO PERP traded mostly in the high-$200s to low-$300s before the listing, then moved sharply higher the night before the open.

The key point is that Hyperliquid largely predicted the post-IPO pop without offering true exposure to the underlying stock and without a public reference price to anchor the contract. Traders did not own Cerebras shares, receive IPO allocation rights or have any claim against the issuer. They were trading a cash-settled derivative on where the market believed the stock would open. …

SpaceX is now the next major test. SpaceX PERPs are trading meaningful volumes on Hyperliquid despite the most popular provider offering no true equity exposure. If the market is directionally accurate again, institutional and retail interest in pre-IPO PERPs will likely continue to grow.

For that matter, regular betting markets also price SpaceX. We talked last month about Polymarket offering binary betting markets on private company valuations. Polymarket has a “SpaceX IPO closing market cap above ____” market, which this afternoon shows an 84% chance of closing above $1.8 trillion (roughly the IPO price) and a 45% chance of closing above $2.2 trillion (roughly a 20% IPO pop). Again:

• pure bets, not actual transactions in SpaceX stock, and
• not technically open to US investors, and tiny volumes relative to the size of the IPO, but nonetheless perhaps informative.

Traditionally, an IPO is a dramatic event, because it is a phase change in a company’s existence. Before the IPO, there is no real market price for the company. In the IPO, the company’s bankers conduct an imperfect price-discovery negotiation with select potential investors, getting a loose sense of how much the market thinks the company is worth, and using that sense to price the IPO. After the IPO, the stock starts trading and the market tells you how much it actually thinks the company is worth. The transition is abrupt and uncertain, and companies will get it wrong. Sometimes a company will market an IPO in a price range, and investors will tell it “actually you should charge much less” or “actually you should charge much more” or “lol no bid,” and the IPO will price above or below the company’s planned valuation range. Sometimes a company will price an IPO, and the next day the stock will trade up 300% or down 50%, because even the best efforts of the company and the bankers and the IPO investors couldn’t find the right price.

But possibly that is over? Possibly the giant private companies can go public without much drama, because their shares already trade, and because the modern merger of financial markets with betting markets creates efficient price discovery. If the market last week said that SpaceX was worth $135 per share, then it should go public this week at $135 per share, and there is nothing much to think about. The pre-IPO trading and betting markets are different from, and not especially integrated with, the post-IPO public markets. [2] But that doesn’t mean they don’t work; they might come to roughly the same conclusions about the value of SpaceX as the public markets will. Public markets might not tell us much about SpaceX that we don’t already know.

Or completely not! If SpaceX trades to $60 tomorrow, or to $600, we — Elon Musk, Goldman Sachs, Morgan Stanley, Polymarket, Hyperliquid, me — will all look pretty dumb. Betting markets tell you what people think will happen, but SpaceX has to actually do the IPO to find out.

It’s SpaceX day and there’s a lot of stuff. Bloomberg News reports that “retail investors bidding for shares in SpaceX’s initial public offering have submitted more than $100 billion in orders,” and Bloomberg’s Jordan Fitzgerald and Natalia Kniazhevich talked to some of them:

Anna Watts, a 33-year-old public relations manager in New York, has stashed away $6,500 to buy SpaceX stock after it hits the market Friday. If she had her way, she’d buy even more. She tried to borrow $5,000 from her best friend and applied for a bank loan, too, but both turned her away. …

“The more, the better,” Watts said. “There is no such thing as too much when it comes to investing in one of the most ambitious companies that’s ever existed.” …

Bryan Mitchell, in Indianapolis, is among those planning to buy. The 48-year-old marketing executive intends to invest several thousand dollars in the IPO. He has also poured tens of thousands into Baron Partners Fund, which holds a stake in SpaceX.

“This feels like the appetizer. You have to believe in Elon,” he said. “I’m willing to overpay for it just to say I’m part of the thing.”

I sometimes say that Tesla Inc. was the original meme stock, and arguably Mitchell’s reasoning is the definition of a meme stock: A meme stock is one that retail investors knowingly overpay for, “just to say I’m part of the thing.” It is probably not entirely fair to say that SpaceX is a meme stock — “SpaceX IPO Draws At Least $5 Billion Order from BlackRock,” reports the Wall Street Journal — but surely that is part of what is going on.

Meanwhile Elizabeth Warren agrees with Mitchell that investors are overpaying:

In a letter to SEC chair Paul Atkins, the Massachusetts lawmaker — and ranking member of the Senate banking committee — Warren writes that she has “extreme concern[s]” about the upcoming SpaceX IPO that comes down to three main points. First, the fact that the company is offering stock at approximately 100 times 2025 revenue, which does not appear to have any basis in reality. (Warren cites analysts who have called it “nonsensical” and “smoke-and-mirrors accounting” and told the New York Times’ DealBook “The idea of having Elon negotiate with Elon and decide that the value of this company is some astronomical number makes market analysts laugh — or maybe cry.”)

It would be interesting if the SEC was a valuation regulator, and prohibited companies from offering stock at 100 times revenue, but that is not the world we live in. As I wrote the other day, if you think SpaceX is overvalued, the solution is not to buy the stock. Oh, sure, you want to stop other people from buying the stock, but the market doesn’t work that way.

Elsewhere: I used to have a job in which I cared a great deal about the difference between a “passive bookrunner” (okay) and a “co-manager” (shameful), but now I don’t. Some people do though:

Some of the banks listed on the lower lines in the SpaceX filing were informed in recent weeks that they had been appointed as co-managers, the lowest rung of broker on an initial public offering, the people said, asking not to be identified because the matter is private. The banks that were notified include Societe Generale and Mizuho Financial Group Inc., the people said. …

Minor roles as co-managers generally don’t come with the same bragging rights for such a blockbuster listing. Some of these banks had assumed they would have snagged the role of passive bookrunner, which comes with more prestige, the people said.

Like, really marginally more prestige. But you do get to count it for league tables!

Some big equity market structure news dropped late this morning, on SpaceX IPO day, so I do not have time to really address it but it’s worth mentioning:

The Securities and Exchange Commission today proposed amendments to rescind Rules 611 and 610(e) of Regulation NMS.

“After two decades of Rule 611, it is high time that the Commission review its unintended consequences that have hindered — rather than enhanced — the long-term growth of our markets,” said SEC Chairman Paul S. Atkins. “This proposal is intended to simplify market structure and reduce costs for market participants while allowing competition, innovation, and other market forces to shape the continuing evolution of our equity markets. I look forward to reviewing public comments as we take a careful, deliberative approach to avoid repeating the same mistakes that brought us here.”

The Commission’s proposed amendments would:

• Rescind Rule 611 of Regulation NMS, which contains the trade-through prohibition for national market system stocks.
• Rescind Rule 610(e) of Regulation NMS, which contains restrictions on locking and crossing quotations in national market system stocks.

Basically: The US has a bunch of SEC-registered “national securities exchanges” where stocks can trade, including the New York Stock Exchange, Nasdaq, IEX, the Long-Term Stock Exchange, the Texas Stock Exchange, etc. Regulation NMS — for “national market system” — regulates how they interact, and Rules 610 and 611 say, approximately, that stock orders have to to go to the exchange with the best price. If a stock is offered at $20.01 on the Texas Stock Exchange, you are not supposed to buy it for $20.02 on NYSE. This has all sorts of consequences, including:

• Brokers and trading firms need to pay for high-speed connections to, and data feeds from, every stock exchange, to satisfy their obligations to route to the exchange with the best price.
• This sort of subsidizes starting a new exchange: If you start a stock exchange, everyone has to pay to connect to you, even if you’re not very good.
• Regulation NMS constrains brokers’ tactical decisions in executing large orders: You essentially have to buy the cheapest shares first, which requires being careful about information leakage.
• Various exchange innovations — most famously IEX’s “speed bump” — are controversial, because traders who don’t like them don’t really have the freedom to avoid them: If a speed-bump exchange shows the best price, you might have to route there.

My sense is that a lot of people in the market-structure world strongly agree with Atkins that the trade-through rule creates a lot of clunky unintended consequences and has been bad for competition and innovation. But I am going to get a lot of emails disagreeing with that, and perhaps we will revisit this next week.

Saba Capital Management, Boaz Weinstein’s hedge fund, does a lot of closed-end fund activism. The gist is:

1. You find a closed-end fund that trades at a big discount to net asset value, as many do.
2. You buy some shares of the fund.
3. You run a proxy fight, trying to persuade other shareholders to vote to kick out the fund’s manager and make you the manager instead.
4. Then you do stuff to try to close the discount to net asset value. Most simply, you could liquidate the fund (at NAV) and return money to shareholders.

The managers of closed-end funds do not like this, for fairly obvious reasons. (The cynical reason is that they get fees from running the funds, and lose the fees if they are liquidated; the stated reason is that “closed-end funds are often desirable investments for investors, like many retirees or people approaching retirement, who seek the long-term stability of dividend-producing assets,” and “long-term investors can’t reap the long-term benefits that attracted them to the closed-end fund in the first place if the closed-end fund is commandeered and forced to implement short-term investment strategies.”) Therefore, they do stuff to try to stop Saba from taking over their funds.

The state of Maryland, where many closed-end funds are incorporated, has a “control share” law designed to limit the power of activist investors. Companies can opt in to a provision saying that, if an investor acquires more than 10% of the stock of a company (including a closed-end fund), that investor can’t vote its shares above 10%: You can’t take over a closed-end fund by buying a lot of stock in the open market. Many closed-end funds have opted into this provision, to prevent activists like Saba from acquiring voting control.

Saba sued an assortment of closed-end funds, arguing that this is not allowed under federal law. The Investment Company Act of 1940, which regulates closed-end funds, requires that “every share of stock hereafter issued by a registered management company ... shall be a voting stock and have equal voting rights with every other outstanding voting stock.” Saba argued, fairly straightforwardly, that adopting the Maryland provision cutting off voting rights for 10% shareholders violates the ICA: If you can’t vote some of your shares, then those shares do not “have equal voting rights” with the other shares. [3]

A district court and a court of appeals agreed, and the funds appealed to the US Supreme Court. Today they won:

The US Supreme Court shielded funds from some investor lawsuits, ruling that an 86-year-old federal statute doesn’t authorize shareholders to sue over bylaws and management decisions.

Voting 6-3, the justices on Thursday blocked activist investors from suing 11 closed-end funds, including some affiliated with FS Credit Opportunities Corp. and BlackRock Inc. The suing investors, led by hedge fund manager Boaz Weinstein’s Saba Capital Master Fund, were seeking more control over the funds.

Here is the opinion. It’s just a weird case? The Supreme Court doesn’t even worry about whether the funds are violating the Investment Company Act. (“The Court did not rule that these closed-end fund managers followed the law,” Weinstein said in a statement.) Instead, the ruling is that Saba can’t sue over this: There is no “private right of action” to enforce this provision of the Investment Company Act, so even if Saba is right that the control-share provision is illegal, it can’t stop it. Only the US Securities and Exchange Commission can enforce the one-share-one-vote provision, and if it doesn’t want to — if, for instance, it thinks that limiting closed-end-fund activism is perfectly legitimate [4] — then nobody else can. (“This decision puts the burden squarely on the SEC,” says Weinstein.) Saba might be right that its voting rights are being illegally limited, but it doesn’t matter.

I got an email from a reader named Marius Marcu that I will pass along to you because it is excellent, though not — not — because it is investment advice:

At the end of 2024, I found myself feeling quite disappointed with the Romanian stock market. One evening, I was listening to Kraftwerk's live performance of “Numbers / Computer World” from 2004). As I watched the visuals flash on the screen, a thought occurred to me: why not pivot my strategy and invest exactly in the categories mentioned in the song?

So, I built my portfolio around the exact words flashing behind the band: Business, Numbers, Money, People, Communication, Time, Medicine, and Entertainment (along with Data and Memory). I allocated my funds strictly across telecommunications, healthcare, media, tech/semiconductors, and finance.

Surprisingly, the Kraftwerk strategy worked perfectly. Over the past year and a half, that specific allocation took my portfolio from a few thousand lei to a few hundred thousand lei.

I don’t entirely understand the process here, but intuitively if you were trying to extract investment advice from a Kraftwerk video you’d probably end up overweight tech, which would have worked out well for you over the last few years. Oh boy is this not investment advice.

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