Why is the SpaceX IPO expected to be a once-in-a-century harvest?

Source: Lawrence Fossi, lawyer and industry analyst; Translation: Golden Finance xz

A fantasy-filled S-1 document, insiders about to cash out millions, and index companies changing rules without permission: this is destined to be a recipe for robbing ordinary people’s wallets.

As the SpaceX IPO approaches, this article will offer some observations and predictions:

1. From a business perspective, SpaceX will be a spectacular failure

In essence, all of SpaceX’s value proposition is built on the Starship project. And by “Starship,” I mean a version far more capable than the one we see today.

Launching heavier third-generation (Starlink V3) Starlink satellites requires Starship.

Making these launches (and other launches for third parties) more economical requires Starship—a reusable starship.

The promised orbital data centers require Starship.

Fulfilling SpaceX’s obligations to NASA’s Artemis program requires Starship.

Any lunar or Mars colony will need Starship (SpaceX’s IPO registration statement predicts “new trillion-dollar markets on the Moon, Mars, and beyond”).

However, while Starlink satellites operate in orbit about 300 miles from Earth, the maximum altitude reached by Starship (the latest third version launch, with both booster and upper stage lost) is only 121 miles. From 121 miles to 300 miles, there’s a long distance in between, requiring much more fuel. Will Lockett demonstrated through calculations why the third version Starship, in his words, is “functionally useless.”

And that’s not even considering the physics-defying difficulty of orbital data centers, or the highly unlikely scenario of Starship completing its low-temperature propellant in-orbit refueling duty during Artemis III.

Now, you might think that even if the orbital data center business is stripped away, xAI is the real key to SpaceX’s ultimate success.

This company (xAI) claims its AI products occupy 93% of the addressable market SpaceX asserts, but its flagship product Grok is so unappealing that even its own engineers are reluctant to use it, and the company is spending $60 billion trying to acquire a competitor, Cursor, to get Grok truly operational.

As for the much-hyped $15 billion annual contract with Anthropic, Boyle pointed out an obvious fact: xAI is leasing computing power and hardware to its competitor Anthropic through its Colossus and Colossus II data centers. This clearly indicates that, so far, xAI has been unable to effectively utilize its own data center capacity. (Boyle also pointed out a less obvious fact: Anthropic can cancel this three-year contract with 90 days’ notice at any time.)

However, all these ironclad facts will take some time to fully surface. How long? Two years? One? Or perhaps even less?

Regrettably, I am quite certain: before these facts are fully exposed, the private equity investors who have backed SpaceX over the past two decades will have ample opportunity to sell their shares to unsuspecting the public, realizing huge profits.

2. As a tool for wealth transfer, SpaceX will be a great success

A series of rule changes by Nasdaq, S&P 500, and FTSE Russell have almost guaranteed that SpaceX’s IPO will greatly enrich insiders while plundering those retirees who have their 401(k) and IRA funds in broad market index funds, with no suspicion.

(1) Nasdaq leads this shameful parade

As early as March 10, when rumors of the SpaceX IPO were still in their infancy, Keubiko’s Musings Substack author published a prescient piece titled “Nasdaq’s Shame” (subtitle: “How to manipulate indices to please billionaires”).

Nasdaq not only eliminated the “seasoning” requirement, allowing SpaceX to enter the index just 15 days after IPO, but also changed how it weights “low-float” stocks in the Nasdaq 100.

SpaceX will be a stock with extremely low float, with only 5% of shares available for sale, yet Nasdaq will weight it based on a 15% float standard. Quoting Keubiko:

“This index is applying a fictitious, massive-dollar weight to a restricted, highly controlled stock. Thousands of billions of dollars of price-insensitive passive capital are legally forced to actively buy this stock within days. It’s effectively forcing a giant index capital water hose through a pipe only as thick as a garden hose. A recipe for artificially creating huge supply-demand squeezes.”

But it gets worse. As Keubiko wrote, the math becomes “brutal.” Once insiders’ 180-day lock-up expires and SpaceX’s float exceeds 20%, Nasdaq will weight the stock based on 100% of total shares.

Of course, Elon Musk perfectly timed the lock-up expiration to coincide with Nasdaq’s mid-December rebalancing. Again, quoting Keubiko:

“[Index funds will be] legally required to buy billions of dollars of this stock at the same moment insiders are allowed to unload their shares.”

Since Keubiko first exposed this in his article, a large number of financial journalists and market experts have awakened to what’s happening. Many articles now describe how Nasdaq is rewriting rules to force millions of passive investors—those who invest their retirement funds in broad market index funds—to buy SpaceX at absurd valuations.

(2) Other major indices join the parade

In this race to the bottom, the S&P 500 has already amended its rules to include companies via a “fast track,” no longer requiring proof of ongoing profitability.

Predictably, FTSE Russell is rushing to follow suit.

(3) The Rikishi Moment

Phil Bak gained widespread attention with his excellent Substack article “The Rikishi Moment,” a name derived from the great (but flawed) baseball player Pete Rose’s moment of deep shame.

Bak is well aware that John Bogle—the founder of Vanguard and inventor of low-cost index funds—gave ordinary investors a huge gift. But markets that once served as beneficial tools have, in the hands of cynics and unscrupulous actors, become evil instruments. Bak wrote:

“John Bogle has left us, and I can only imagine the look on his face seeing the current state of index funds. I can only imagine that same sad look. I can only imagine the same dazed, exhausted acceptance, as his great invention, born from nobility, collapses into a sewer of fraud.”

(4) Who will benefit from this harvest?

This question seems too simple, doesn’t it? Of course, Elon Musk, and his long-time accomplices like Antonio Gracias, Steve Jurvetson, and Ira Ehrenpreis.

But the beneficiaries are far more than Musk’s group. As talented Rupert Mitchell said in a recent podcast:

“Over the past 20 years, almost anyone with a bit of a name has had the chance to buy into SpaceX—and indeed, many have. Believe me, everyone holds it.”

“No sovereign wealth fund, no institution, no mutual fund, no private equity firm, no crossover hedge fund does not hold this stock—and hold it heavily—at a cost far below the IPO price.”

No surprise, who else can we add to Rupert’s list?

3. What happens after the thief gets away?

This is easy to answer: disappointing operational performance (see Part 1 of this article) and endless equity dilution.

SpaceX’s IPO can raise at most about $85 billion. But a careful reading of the registration statement (done by Greg Collins of Cape Fear Advisors) reveals that SpaceX will need about $235 billion in capital by 2030.

Assuming SpaceX raises $85 billion via IPO and uses $20 billion to pay down debt, there will still be a $170 billion funding gap. (Collins’s estimated raise is slightly less, making the gap even larger, but it’s still a huge shortfall.)

A straightforward solution is of course to plunder Tesla’s cash—via mergers or forced investments in SpaceX. But Tesla simply doesn’t have enough cash to feed this money-burning furnace.

The future, as the S-1 warns, will be endless dilutive financing: buried deep in SpaceX’s revised S-1 is a warning:

“Future transactions may involve issuing a large amount of equity.”

It’s even arguably misleading. Not the part about issuing large amounts of equity in the future; that’s inevitable.

But are those issuances for “future transactions”? Or, as you might suspect, Elon, for the deals already promised in SpaceX’s S-1?

And any misstatements or falsehoods in the registration statement, or any improper conduct by Musk and his executives and directors now or in the future, will be beyond the reach of harmed investors.

SpaceX’s shareholders sign a mandatory arbitration agreement. They have no meaningful voting rights. Governance disputes will be settled by a new Texas Business Court, presided over by a pro-Musk judge (no jury involved).

4. Summary

Without regard to order, and given that the only law Elon Musk cannot break with impunity is the “Law of Unintended Consequences,” here are some final thoughts:

(1) Total collapse is possible

SpaceX’s IPO could fail spectacularly from the start, even be delayed or canceled. The number of stocks seeking a bailout may far exceed the cash available to absorb them.

Mitchell and Brey discussed these possibilities in their highly informative written reports and subsequent podcasts.

(2) It could shake the stock and crypto markets

SpaceX offering an unprecedented 30% share to retail investors, who must gather cash from somewhere.

This could trigger a massive, destructive sell-off—stocks and cryptocurrencies are prime candidates. In fact, recent downward pressure on BTC may partly be due to such selling (Michael Saylor has recently added fuel to the fire).

(3) It could burst the AI bubble

Chris Irons, famous for Quoth The Raven, views the SpaceX IPO as a referendum on whether his belief in an AI investment bubble is justified.

If the IPO succeeds and demand is overwhelming, it means investors are willing to ignore many warning signs and continue to suspend traditional investment discipline. But the disappointing outcome might mark the beginning of a boom-and-bust cycle.

(In a recent podcast with Adam Taggart, Chris described today’s financial markets as “a digital casino on cocaine.”)

(4) It could cause permanent damage to the popularity of index funds

For decades, index funds have provided ordinary people—lacking financial expertise but needing to invest for retirement—with a low-cost way to access broad markets.

The SpaceX IPO is a huge trap for these ordinary investors. If the scenario I foresee unfolds, they will be forced to buy at inflated prices and watch helplessly as the value of their holdings inevitably declines.

This could tarnish index funds so badly that 401(k) plan sponsors, managers, and financial advisors will no longer recommend them as suitable investments.

(5) Never try shorting SpaceX!!

Elon Musk is a unique character. Time and again, he has proven immune to any meaningful market, legal, or regulatory scrutiny.

His opponents are right about Tesla’s poor fundamentals, its “full self-driving” lies, its Robotaxi fantasies, and its shaky accounting. But when they think these issues will impact the stock price, they are wrong.

One day, somewhere, someone will make a fortune shorting Tesla or SpaceX. But it’s unlikely to be you.

For now, Tesla is better understood as a religion rather than a financial investment, and we can now include SpaceX in that category too.

So my advice: stay far away. Tend your garden. Play with your kids. Read a good book. Listen to beautiful classical music.