Musk's $106bn fundamental-defying IPO lands on Nasdaq

SpaceX has raised US$75 billion ($106.8bn) in the biggest-ever stock market debut, valuing Elon Musk's rocket and satellite company at US$1.77 trillion.

It floated 555 million shares at a price of US$135 per share.

"The valuation being ascribed to SpaceX is, by any conventional measure, extraordinary. There are currently only 13 publicly listed companies worth more than $1 trillion," Ninety One technology analyst Anton du Plooy said.

"SpaceX would arrive at a multiple well above what comparable businesses trade at today, and the mental gymnastics required to justify that number on fundamentals alone are considerable."

Du Plooy noted the bigger issue may not be valuation at all, but market mechanics.

Index providers have scrambled to update their rules, he said. Nasdaq has revised its eligibility framework to admit new mega-cap listings to the Nasdaq-100 after as little as 15 trading days, down from the previous requirement of at least three months of trading.

"When companies of this scale enter benchmarks, passive capital can create a powerful feedback loop: index inclusion drives buying, rising prices create performance pressure on active managers, and that in turn attracts even more passive flows. At a certain point, price action can become increasingly detached from the underlying fundamentals," Du Plooy said.

"What makes the broader dynamic uncomfortable, however, is the position it puts certain investors in regardless. Large asset allocators who hold significant passive exposure would be forced buyers due to fast-track index rule changes, despite SpaceX not meeting many of their minimum governance practices."

S&P Dow Jones Indices, however, has rejected a proposal to fast-track SpaceX, Anthropic, and OpenAI into the S&P 500, keeping its 12-month seasoning requirement and profitability hurdle in place.

Multiple passive investment managers including Global X and Betashares have recently debuted space ETF's on their platforms.

Du Plooy said Tesla has, for years, defied the gravity of its own delivery record relative to its Magnificent 7 peers, and yet its valuation has remained at a premium due to elevated retail participation.

"Given Elon Musk is the key figure in both, it may be that this dynamic will apply to SpaceX too. It doesn't make it intellectually satisfying for a fundamental investor, but it is the market environment in which we are operating," Du Plooy said.

He added this will also impact how active mangers make their portfolio decisions, driven by benchmark risk and not investment fundamentals.

"A lot of active managers will end up buying into these listings not out of conviction, but for index-hugging reasons. Buying for all the wrong reasons, in other words," he said.

"It is a fair charge. If these businesses maintain their market capitalization, they will in time become material in major benchmarks. In this event, benchmark risk, not investment fundamentals, will be driving the decision. That is not what active management is supposed to be."