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Analysis-SpaceX debut draws a crowd, but few recent hot IPOs outpace the market

Written by Noel Randewich

May 26 (Reuters) – Wall Street is buzzing as Elon Musk’s rocket and satellite maker SpaceX is expected to launch next month, but few of the biggest IPOs in recent years have paid off for investors who bought when the deals hit the market.

A Reuters analysis of the 50 highest-grossing IPOs over the past five years shows that investors would have been better off buying the S&P 500 index fund about three-quarters of the time. The data underscores the difficulty of finding bargains among companies whose valuations tend to rise long before the stock takes off.

Investors who bought each IPO tracked by Reuters are up an average of 27% through May 21. That compares with an average gain of 53% in the S&P 500 during those same periods. The analysis assumes that the buyer will be able to buy the shares at the IPO price – usually not possible for a retail investor – or simply buy the S&P for the broader market.

The historic return for investors who bought on a turbulent first day of stock trading was even worse, the analysis showed.

“It’s hard to make money unless you’re in the early stages of these things and buy these things before the IPO,” said Dennis Dick, a proprietary trader at Triple D Trading.

NOTE THE LEVELS UP

The first SpaceX is expected to be followed by OpenAI and Anthropic, tapping into the demand for AI-related companies that have sent the US stock market to record highs.

Set to trade under the ticker ‘SPCX’, SpaceX filed its prospectus on Wednesday, ⁠with a possible share sale as early as June 11. Founder Elon Musk is making some shares available to retail investors through Robinhood, SoFi and other trading platforms that allow them to get in at a lower price.

The aerospace company is expected to hit a $1.75 trillion valuation that would dwarf all previous Wall Street stocks, but a Reuters analysis shows that these top companies are no guarantee that investors will make money.

University of Florida Professor Jay Ritter, who studies IPOs, said that while most public listings underperform the S&P 500 over time, companies with the highest valuations as measured by sales price tend to do worse.

At a value of $1.75 trillion, SpaceX’s average sales price would be around 100, compared to AI heavyweight Nvidia’s average sales price of 24. SpaceX lost nearly $5 billion last year.

“Every one of these companies where investors are willing to pay a very high price to sell has a compelling story as to why the future could be really bright,” Ritter said. “But, you know, things can go wrong.”

THE GOOD, THE BAD, AND THE UGLY

Among the IPOs analyzed, AI-related chip designers Astera Labs and Arm Holdings were the big winners. Astera is up more than 700% since its 2024 IPO, while Arm is up nearly 400% since its 2023 IPO. Both of those plays outperform the S&P.

Cerebras Systems, another AI chip designer, is up 52% ​​from its May 14 IPO price; down about 27% from its early day high.

Among the biggest disappointments in recent years, Chinese giant Didi Global was delisted from the New York Stock Exchange in 2022 following its IPO oversubscription last year. Now trading over the counter, Didi Global shares are down about 74% from their IPO price of $14.

Electric car maker Rivian Automotive has plunged 82% since its 2021 IPO that briefly made it the second most valuable automaker in the US. The company continues to lose money on every car it builds, and it burns about $1 billion every quarter.

Shares in design software company Figma nearly quadrupled in early trading last July. But with investors concerned that the AI ​​maker could outsell Figma’s technology, its stock has fallen 35% from its IPO price of $33.

Even the hottest offerings can be delayed. Chinese e-commerce company Alibaba, which was not included by Reuters in its analysis, holds the record for the largest US IPO by valuation. Dubbed the “Amazon of China,” its shares have doubled since their 2014 Wall Street debut, during which time the S&P 500 has returned more than 300%.

(Reporting by Noel Randewich, editing by Colin Barr and David Gaffen)

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