What's The Big Deal?
Get the view from the inside. Every week, Graham Smith (ex-Ares) and Deborah Taylor (ex-Barclays) take a look at Wall Street’s headline-grabbing deals.
From mega-mergers and hostile takeovers to complex private credit transactions, they break down the why, the how, and the who behind the numbers.
What's The Big Deal?
The $1.75 Trillion SpaceX IPO: Everything You Need to Know.
Use Left/Right to seek, Home/End to jump to start or end. Hold shift to jump forward or backward.
SpaceX begins trading on Friday at a $1.75 trillion valuation, and the deal looks unlike any major IPO that has come before it.
In this episode, Debs and Graham go inside the prospectus, break down the unusual structural features Elon Musk has pushed through, and debate whether the valuation can be justified.
The mechanics alone are remarkable. The IPO is being priced at a fixed $135 per share rather than through a traditional book-build range, putting all of the price risk onto buyers and signalling unusual confidence from the issuer. The free float is less than 5%, which sets up potentially significant post-listing volatility.
Retail investors have been given 30% of the allocation, roughly three times the typical share, raising the question of whether this is genuine democratisation or simply exit liquidity for early holders.
The dual-class share structure leaves Musk with 85% of the voting power despite owning around 45% of the economics.
And the underwriting fee, agreed across a syndicate of 23 banks, has come in at 0.75%, the lowest on record for a deal of this size.
The valuation discussion centres on the TAM chart in the prospectus. SpaceX has positioned itself less as a launch and communications business and more as an AI infrastructure and applications story, with $26.5 trillion of AI revenue underpinning the case for the headline number, including $22.7 trillion in enterprise applications alone.
Debs and Graham draw the parallel to the Tesla IPO, where the company was reframed from auto to tech in order to unlock a tech multiple. They also reference Aswath Damodaran's published view that the realistic AI TAM is closer to $5 trillion, and Morningstar's estimate that the fair value of the business is roughly half the IPO valuation.
The episode closes on what to watch when trading begins. With oversubscription pointing to a potential pop, but a low free float, a 180-day staggered lock-up creating an overhang, and the Nasdaq 100 fast entry expected to trigger $30 to $50 billion of forced buying, the first six months are likely to be unusually volatile. Both hosts agree the outcome is genuinely unpredictable.
Key Discussion Points:
The fixed-price IPO mechanism, why it's unprecedented at this scale, and what it signals about the issuer's confidence.
The structural risks: low free float, large retail allocation, dual-class shares and lock-up dynamics.
The fee anomaly: 23 banks, 0.75% — the lowest on record for a mega-deal.
The TAM debate: $23 trillion in the prospectus versus Damodaran's $5 trillion estimate, and how the AI bucket drives the valuation.
The Tesla parallel: reframing the business to land a tech multiple.
What to watch in early trading: oversubscription, index inclusion fast entry, and the 180-day lock-up overhang.
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SpaceX has filed crazy addressable market sizes.
SPEAKER_01Elon Musk has kind of rewritten the IPA player.
SPEAKER_00If you participate in this IPO, of course you get economic exposure to SpaceX, but you have literally no say. There's there's gonna be no no proxy mailed to you, you know, once a year or whatever it is, because you don't you just don't have a vote. Elon's got like all of it.
SPEAKER_01You're basically investing in the dream, and the the numbers that we have today are pretty much a bit a different business entirely.
SPEAKER_00What do you think is gonna happen in the days post-trading?
SPEAKER_01The kind of worrying thing is that that is pivotal to the whole valuation of SpaceX.
SPEAKER_00It feels like we're we're kind of headed for a dip just post-close and then maybe Welcome to this week's episode of What's the Big Deal?
SPEAKER_01My name is Debs Taylor, and I'm going to use my career in investment banking to bring an equity market perspective to our discussions today.
SPEAKER_00And I'm Graham Smith, and I'll use my career in investment banking and private credit to bring the private market perspective here.
SPEAKER_01What is our big deal for this week?
SPEAKER_00Well, big deal is no surprise. Again, we've we've had this recurring theme of the few mega IPOs that are coming down, coming down the pipe this year. And now we're we're close on one. So we've talked to SpaceX a few times already, but SpaceX has filed. They're out building the book right now. We've got all of the all the really glossy, shiny investor materials that show nothing short of a rocket launch in terms of graphs being up and to the right, some crazy, uh, crazy addressable market sizes. Uh so we're gonna talk a little bit about the IPO that's literally it's going to, it's gonna start trading on Friday, dubs, right, I believe. And you know, really start talking about the the actual timetable here of what happens post-IPO. And so you know, it's it's it's interesting now. We've got the first one that's actually coming, kind of see how things go.
SPEAKER_01I know we've got real stuff to talk about here this week, haven't we, Graham?
SPEAKER_00Yeah, yeah, but exactly.
SPEAKER_01We'll talk a little bit about um, yeah, the IPO process ahead. But I think also it's worth highlighting that Elon Musk has kind of rewritten the IPO playbook, I think. Um so we'll talk about that. Yeah. Um, we'll also talk a bit about the catalysts and what to look out for in the markets uh as a share start trading. And I think we should grab our popcorn for that one. It's gonna be a bit of a wild ride, I suspect. Um and then finally we'll talk a bit about the valuation debates. I know it's been rolling on for some time. We've already covered it a little bit on a previous episode, but we've got some really interesting numbers that we can look to from the S1. So let's dive into that and talk about what we think about their valuation. So, should we kick off uh and talk about uh the IPO process that SpaceX have followed? Because there's some really unusual features, aren't there, Graham, and how they are conducting their IPO?
SPEAKER_00Yeah, well, why don't we why don't we talk kind of well? I guess I'm really interested to get your perspective here, having looked at a bunch of public companies before. I'm sure having done a bunch of primary research on companies that are coming to market. I mean, in my time at Lehman, I think I worked on one S1. S1 for anyone who doesn't know is the the prospectus, like the initial prospectus that goes out to new investors as part of a as part of an initial offering. I worked on one, the IPO got pulled. So that was really the extent of my first hands on the other side of the table experience with an IPO. Since then it's just been all what's happening, you know, what's happening generally in the market. And of course, in my in my investing career, there wasn't anything IPO related whatsoever, except for if a, you know, say a portfolio company of ours had exited through an IPO, but I was the debt investor, so I wasn't running that process anyway. So I'm really keen to get your take on what does a typical process look like and how has Elon rewritten the rules here for the benefit of who knows, but most likely himself.
SPEAKER_01Yeah, well, I think there's a few things that he's done differently uh compared to the IPOs that I looked at when I was uh in working in investment banking. Um the first thing is the pricing mechanism. Uh usually the way that we build the book uh for an IPO is you identify a pricing range, you sound out the investors to see what they think. Uh they can place orders based on that range, what we refer to as a scaled order. So you basically reduce the number that the uh number of shares you request as the price goes up within the range. And that's a really useful way of helping the banks to assess and advise on the final pricing. Um but they're throwing that out the window. They're going with a fixed price mechanism. They've already announced that the price will likely be $135 per share. I mean, they can in theory change their minds. Uh, but that's what they've they've committed to in their latest S1. And when do we find out?
SPEAKER_00Can you say they can they can change? When when do we find out for certain what the listing price is? Is that is that literally Friday morning?
SPEAKER_01No, so after close of business on Thursday, and then Friday morning is when it starts trading. And what's unusual is basically you're putting all of the price risk onto the buyers because you know, if you're bidding within a range, then you know, if there's low demand, you end up with a lower IPO price. Whereas here we have absolute commitment to you know this $135 per share price. Um, so you know, it it does signal you know confidence from SpaceX's side that that's the price that they think they can IPO at. And we do hear that it's oversubscribed, so it seems like it's been a successful process so far. Um, but yeah, it is it is unusual. It's completely unprecedented to do this in the US markets. It does happen in other markets occasionally, um, but for a deal this size, it's completely unprecedented to pursue this right this route.
SPEAKER_00Yeah, and we still we still do have some of the typical provisions you'd see in any listing. I think we talked about this a couple months ago. There's a green shoe here. So if the if the stock tanks post-listing, the banks can buy up more shares in the open market to try to support the price. I guess we're saying, is there a a much bigger risk of that of that delta from initial listing price to first day close, a few days post-close just being so much bigger than we would typically expect to see it, even in an IPO that that might flop post-listing?
SPEAKER_01Well, in theory, there is there is an increased risk of that. There's actually another risk, which we'll probably come back to, which is a risk of volatility, because the free float on this IPO is tiny and it's less than 5% of the share count. So that always increases volatility risk. And I would question whether the stabilization mechanisms that usually get applied if there's a big shift in the share price, whether they are actually going to be that meaningful with such a small free float and risk of high volatility. So I think that's a really interesting point, that one.
SPEAKER_00Interesting. And do we think, by the way, just because the free float here is so low, that explains some of the oversubscription and the demand? Because I don't know, it's it's it's it's a weird one. Like on the one hand, you say, okay, it's a small percentage of the market cap, so not that much available. It's still a big number. It's what, 75 billion that they're that they're floating?
SPEAKER_01It's not nothing, but ultimately you've got um none of the existing shareholders exiting at this point. They have an opportunity to exit later on. Uh there's a lockup for 180 days for them. Um, so at this point in time, the number of shares being issued is actually quite small. And it does open them up to quite large volatility in how the shares trade. Um yeah, we'll have to see how it plays out. But um, and there's lots of other things happening over the next six months, which I think could affect the share price. But we can come on to that. Um, but yeah, there's lots of exciting things to to to see how how it plays out. But I think the other thing that's quite unique about this IPO is the fees that the banks are you know are charging for this IPO. There's what, 23 banks involved? Uh I think so.
SPEAKER_00I saw the number and I just said, oh my gosh.
SPEAKER_01Everyone wants to be part of it, yeah, because part of the party. Um, but the fees themselves, they're the lowest on record. So less than on a percentage basis, we're talking. Yeah. On a percentage basis. Now, typically with an IPO, we expect the fees to be around four to seven percent of the proceeds. Um, at the higher end of that range, usually for US IPOs, because of you know concerns over litigation risk, it's slightly at the lower end in Europe. Um, the mega deals generally the price the fees are you know a low. So usually around you know they have been around one percent for Facebook many years ago. Uh, I think for Saudi Aramco as well, the fees are around 1%. So it's you know it's not unusual to have lower fees for mega deals, and that's because the banks do want to be part of the party. You know, they want to be you know the part of the headlines of this transaction. Um, but this is the lowest fee fee ever on a percentage basis.
SPEAKER_00Aaron Powell Is there an element of well, two two two things, I guess, at the same time. One is you can, I think you can kind of credibly say the same amount of work is involved for a mega deal versus a small deal in terms of in terms of a lot of the just moving pieces that have to come together, the drafting of the prospectus, the roadshows, all this kind of stuff. That's one on the on the other, it's like, is this deal almost almost too easy for the investment banks? Because you just put Elon out there and he's like, all right, we're building spaceships that go to the moon and Mars and everything, and our toll dress will market is like a hundred billion trillion dollars, and everyone just gets excited and they're like, yeah, we'll participate. Like, is this is this IPO oddly easy?
SPEAKER_01I'm not sure it would be you should classify as easy, but certainly there are elements of it which make it easier to sell as an investment opportunity. Uh, Elon Musk is so, you know, well known, has such a following. I'm sure that does help. Even the pricing mechanism probably reduces the workload to the banks because they're usually thinking about the range, building a book around that range at the different prices. Well, you've got rid of all of that. And even their advisory role around the pricing because it's already effectively priced. As long as it's oversubscribed, we know the price. So I think to a certain extent, um the fee negotiation reflects the fact that as you say, it's slightly easier to sell as an investment opportunity and there is this slightly simplified pricing mechanism. But I'm sure there was a lot of work behind the scenes in, you know, there's a whole load of due diligence that has to take place. You know, the banks have to satisfy themselves. You know, it is a public, you know, it is a robust business that's worthy of public investment.
SPEAKER_00Yeah. And I do actually on the on the diligence requirement, I want to come back to that in a moment when we talk about some of what has been put forth in the prospectus, because I think the thing, the thing that is just the hardest to believe is the TAM. Maybe not the hard supply, but the the biggest the biggest jump. I mean, we'll put the graphic on screen in a little bit and kind of talk through the various steps. But there's one, there's one, there's one bar in there, really, where you really have to be a believer in the dream of AI for everyone and you know all the stuff we've been talking about. And I'm I'm actually interested who has to sign off on that. Like how do the banks get satisfied that actually, yeah, we believe we believe this number just because it it outshines everything else by just multiples. Um we'll come back to that one, I think, in a sec. The one other question I have for you on just on the actual IPO and list, not listing mechanics, but one of the features of this deal that seems different compared to most others is this dual share class structure. So as I understand it, if you participate in this IPO, of course, you get economic exposure to SpaceX, but you have literally no say. There's there's gonna be no no proxy mailed to you once a year or whatever it is, because you don't you just don't have a vote. Elon's got like all of it.
SPEAKER_01Yeah, I mean, not quite all of it. I think it's got about 80 something percent of the votes.
SPEAKER_00I said like all of it, Debs. But okay.
SPEAKER_01But like seriously. I mean, he doesn't have to be. Yeah, but he does have effective control completely. I don't I'm not questioning that. I would completely agree with that. But yeah, so he owns about sort of 45% of the business but completely controls it. So yeah. And I think given that there is such a large retail allocation, 30% of the shares are being allocated to retail investors. I think it's important that they are aware, and it is flagged in the prospectus, but that they are aware that as you say, they effectively get no say. There is, you know, it it is Elon Musk's business, what he says, what he says goes, and you know, that you're putting all of your money and your trust in Elon Musk. That is effectively the case if you're participating in the IPO.
SPEAKER_00That that's a big ask, isn't it? All my trust in Elon, oof. Yes. I don't know. Yeah. Now, how by the way, how does that how does that 30% compare to the average listing in terms of the institutional retail allocation?
SPEAKER_01Yeah, so it's usually less than 10%. So it's easily three times the usual allocation. And, you know, to be fair, um there has there's a lot of appetite in the retail market uh for this, so it's great that there is that allocation. You have to question whether the retail investors are being used for exit liquidity by Elon Musk and eventually the other early stage investors. Um, but yeah, it is, you know, is it is he is this being done for democratization and access to investment in this company, or is it just you know a crutch in terms of providing liquidity?
SPEAKER_00Yeah. I mean, look, I guess whatever whatever your view on that outcome, you can see a reason why this IPO, compared to, compared to most others, would have such exceptional retail demand. It's just a highly visible company. Everyone knows it, everyone knows Elon. Whether you love the guy or hate the guy, you kind of know what he's all about. So I I do I do see why the retail buy-in here can be what might be higher than than your normal share in any old IPO. I can I can kind of buy that.
SPEAKER_01Yeah, absolutely. But the reality is if you're buying shares in a company, then you're, you know, you need to understand what you're buying, what you're investing in, understand the governance risks, the pricing. So I guess that's kind of, you know, hopefully what this episode will help can uh enlighten people on.
SPEAKER_00100%. I mean, so again, I guess that's a that's a good segue into talking about what are you being asked to to buy into here. And having had the benefit of seeing some of the some of the listing documentation now, there are a couple things that I think are worth are worth just having a quick discussion about and highlighting. Because yeah, we've I think we've already we've already talked about some of the some of the valuation here. And it's from my perspective, nothing short of nothing short of crazy. What did we talk about? We we talked about the other week, like a couple hundred times, a couple hundred times EBITDA, like hundred times revenue. And we already know we already know the valuation here is just insanely punchy. Now we've actually had a bit of the a bit of the background, a bit of the detail that the banks are providing to investors to try to substantiate that. So let me let's pull up the let's pull up the prospectus. And there are a couple pages, one one graph in particular that I was talking about a second ago that I think is worth having uh just a quick discussion about. One, we're looking at a company called SpaceX. SpaceX has been in the business of launching rockets, of launching communication satellites. So you think I'm going to invest in this space company for exposure to that kind of activity. Then you look at the at the prospectus here. And ultimately what we're trying to do, sorry, what I said when I say we, what the banks are trying to do is convince the retail investor that actually, you know, actually we do think there's just this insane amount of growth potential here. But the thing that's that's kind of shocking, shocking to me is if you look at the, you know, if you look at this this stacked, this kind of broken apart, stacked bar chart that breaks out the TAM into individual segments, just the lion's share of this is all is all in one in in AI, but two in enterprise applications. So kind of going across these, these categories, we have the the traditional space segment is actually the smallest TAM on this on this page at $370 billion. And you have connectivity, which is Starlink broadband and Starlink Mobile. Uh that's just over a trillion dollars. And then you've got this AI segment. And the AI TAM that banks are putting in this prospectus is $23 trillion. And interestingly, most of this is enterprise applications. And the the breakdown they have in this chart is $2.4 trillion AI infrastructure, $760 billion consumer subscriptions, $600 billion digital advertising, and then $23 trillion in enterprise applications. And I guess from a from a fundamental perspective, well, a couple things. One, does that necessarily make sense in the context of what SpaceX was originally kind of launched to do? And two, you really have to believe in the full, the fully formed, fully realized version of AI in order to believe anything close to this TAM, I feel like. And look, there are plenty of there are plenty of early indicators that a lot of this technology is amazing. The adoption curve is so steep, people are really using it. Like, can you can you bridge, can you in your mind, can you in your own mind kind of come to a real world view where you've got AI integrated into almost every aspect of everyday life? Yeah, but possibly that question around how long it'll take to get there. But then just looking at looking at the market size for SpaceX and how literally all of it is just in enterprise applications is uh I don't know. Is it is it crazy? I mean, also like the other the other question I have, I don't know. I mean, in terms of in terms of SpaceX's AI revenue, obviously they've got they've got Grok, which I assume has done, has done some of this. It almost feels to me like more of SpaceX's AI revenue these days is coming from their infrastructure rather than their own AI solutions. So like are they even gonna be the ones to really deliver on this, on this TAM in this, in this particular segment? Or is their is their real AI exposure gonna be in the infrastructure, whether it's in the Colossus data center they have here or some future vision of a space AI data center? And could that be interesting over time? Yeah, 100%. But today, as I see this chart, you just look at it and you're like, what?
unknownI don't know.
SPEAKER_00So do you know what, Graham though?
SPEAKER_01I well, I think this as you're saying this, I'm thinking I'm I'm hearing deja vu because I remember when Tesla was IPOing, there was this pivot towards this isn't an autos company, this is a tech business. Because they knew that was how you achieved a high valuation because everyone was pricing tech companies at a premium. And it feels a little bit the same. It's like this isn't about the rocket business, this is not about the communications business. Obviously, that augments the AI business, because as you say, there's kind of ambitions for space-based data centers. But ultimately, it feels very much like they're doing what they need to do to be able to sell the narrative, which is that we're tapping into the AI market. The AM the AI market is bigger than anyone previously anticipated, and that's how you reverse engineer a valuation of $1.75 trillion. If I was being skeptical, that is what I would take from it. But there are some, I think there are some interesting data points because I know that you know, some of the advisor banks have kind of published their numbers around their expectations for particularly the XAI business revenue growth. And they're quite punchy, aren't they, Graham? I mean, we're talking, I think, over the next five years, you know, roughly 100% annualized revenue growth to support some of these valuations. What have we, well, what have you seen, Graeme, that maybe even supports some of this revenue growth? Is there are there any recent data points or developments?
SPEAKER_00I mean, I I feel like the most recent data points we have are all the run rate revenue discussions we've been having around OpenAI and Anthropic. And on the base if you if you believe what they're saying, where I want to say was it, was it Anthropic said they had doubled their run rate revenue in a period of months, you know, figure figures like this. Can you see can you see a combination of the recent trajectory plus plus a at least a near-term, you know, real huge uptake in enterprise AI applications that delivers a five-year 100% revenue keger? Actually, on that one, maybe. That's the one, that's the one where just fundamentally, I kind of think actually I can, I can, I can form a view which suggests that's not impossible. It's more the on the SpaceX side, I think if you believe if you believe this full, the full kind of vision and the prospectus requires you to buy into, I want to say like a 40 to 50. 50% revenue keger over 15 years. Like that's the I think that's the one that's a little bit harder for me to wrap my head around. Um but then on the AI side, can you question whether XAI is the one that's really going to benefit at that 100% revenue keger level? Or is it going to be open Aanthropic? Is it all these guys? I don't know. I don't know. I mean, in some ways, it does feel like XAI has some interesting exposure through their infrastructure. I mean, we've talked about in respect of open AI how that's a differentiator for them as well. That could be a really interesting, uh interesting aspect to their AI business. Because I don't know about you. I mean, everyone, everyone I know and talk to who's using AI solutions is using some kind of combination of OpenAI and Anthropic. I don't really know anyone who's using grok, at least, at least on a on a personal level. I know what I remember from a few months ago, Musk was saying, okay, uh if you if you want to participate in the AI investment banks, you have to buy grok from from me as well, um, which you know you kind of park that park that for a second. Beyond that, I I don't know of m many people or anyone who's using who's using the actual XAI proper enterprise solution in their day-to-day life. But again, this is just a sample size of one. I use it in my car, but that's about it.
SPEAKER_01Yeah, although I think um so I I did read that uh SpaceX has just signed contracts with Google and Anthropic uh for some of the compute c capacity or something. Is that is that right?
SPEAKER_00Aaron Powell Yeah, but that's for that's for compute capacity, right? Like that, I think as I understand, I believe that's in essence renting out the data center capacity, not selling rock.
SPEAKER_01No. Absolutely. But that does enhance the RET AI revenues, does it not?
SPEAKER_00Aaron Ross Powell It does 100%. But I guess the the thing that I kind of come back to on this on this TAM chart is I assume that is in this 2.4 trillion AI infrastructure bucket they've got on their TAM, not the 23 trillion enterprise AI application. Yeah.
SPEAKER_01Okay. Got it. Got it. That's a really good point.
SPEAKER_00I'm actually I am I am genuinely curious how much how much bona fide revenue do they have in that really big number bucket today?
SPEAKER_01So I feel like that, as you say, as they today, very little. This is all ambition. You're basically investing in the dream. And the the numbers that we have today are pretty much a bit a different business entirely. So you've really got to shoot for the stars, literally, uh, if you are thinking they're gonna you know achieve the these you know these quite ambitious revenue growth figures. Um so that's I think so the the revenue figures that we've seen are, as we said, are very ambitious. We know it's a business which is burning through cash, particularly on the AI side. Um anything else that jumped out at you in terms of numbers, Graham?
SPEAKER_00I mean, the only thing that was kind of funny is in the in the back, they had a run through of their eBid DA to adjusted EBITDA. So I've got three segment adjusted eBid DA numbers. They do space connectivity and AI. And it's it's kind of funny because we, you know, I'm sure Deb's, we, we run through similar, similar discussions around adjusted eBITDA in the classroom and what's adjusted, what's not. Here it's kind of funny that you know we're it's just a simple bridge from income to adjusted EBITDA. So it's income, addback DNA, add back share compensation. That's the one that's the one where you can say, hey, is this really, should this really be an adjusted EBITDA number or not? Like it's not cash, but it's a real, real expense. Uh they've got some impairment charges, which is basically nothing. I mean, the whole the whole point is the bridge here just doesn't, it doesn't matter. So space bridge from net loss from operations of 700 million in 2025 to 700 million of adjusted eBITA, 4.4 billion in connectivity to 7.2, and then in AI, ooh, a big, big change from negative 6.4 to negative 1.2. That's their adjusted eBIT da in the in the AI division. So you're going through all this all this effort of presenting an adjusted eBITA number, and it's kind of like for what?
SPEAKER_01Absolutely.
SPEAKER_00If you believe any of that, then you shouldn't be investing.
SPEAKER_01Yeah. But it's uh interesting. There's so there's no funky adjustments in there then. There's no kind of add back of uh Elon Musk's salary or anything like that.
SPEAKER_00Uh not that not that I've seen. No, no. Fair. Fair, fair, fair. Because I'm his his share-based comp, I assume, is more than I I don't know what I actually don't know what a share-based comp is last few years, but it's it's insanity. So it's probably more okay. Oh, I've got a I've got a consolidated adjusted ebit.bridge. So one point 1.9 billion of share-based comp in 2025. I don't know how much that went to Elon, to be fair. Um the one the one kind of question I do have is that say that TAM chart in the in the prospectus. Obviously, if you're if you wanted a bookrunner search, you had to at least sign off on that slash have some some faith in it. What's the what's the process for figuring out is there any liability there if that TAM, like how do you prove a TAM doesn't materialize, takes a long time to grow into? That number just seems like it's so it's almost so invented. Like how where's the burden of proof?
SPEAKER_01To be honest, it's a really great question. And I don't have a really robust answer. I mean, the banks have to basically demonstrate that they're comfortable that it's not being fabricated. There has to be some underlying analysis. But the who actually knows what the TAM for AI is? And in fact, I was looking at some analysis by a very well-regarded valuation expert, Damodrin, who's you know, he's an academic who's viewed as like the dean of valuation. And he argues that the, you know, the AI TAM is much lower than that. We're talking sort of mid-single digits, maybe like five trillion dollars. Um, so significantly less than what we're seeing in a SpaceX prospectus. But ultimately, we're just all arguing over something that we don't really know. And the kind of worrying thing is that that is pivotal to the whole valuation of SpaceX. Um and and I think what Dumodron does highlight, and I think is really important, is where you have this uncertainty, fundamentally, the valuation should reflect that uncertainty. You would usually go down the route of saying, okay, you know, there are a number of possible scenarios, a TAM of five trillion, a TAM of 26 and a half trillion. And then you say to yourself, okay, well, what are the probability of all of these scenarios? And then you wait, you know, come up with a weighted average. And that's what should be reflecting the valuation. And what it feels to me is that this valuation prices to the highest possible valuation and ignores all of the other downside scenarios to that. So as I've kind of said before, you kind of have to buy into the dream that it will absolutely achieve that, no risk of error or disappointment on those numbers. So I think the phrase that Demodron uses is it's a loaded bet. You know, ultimately it is just pricing for the optimal scenario. Um, and it's not only Demodron that says this. I think Morningstar as well have come out and said that their uh estimated valuation is roughly half of the IPO valuation. So I I think it's no surprise to anyone. It's no surprise to us that this is quite an aggressive valuation. Um it's not that it's not achievable, it's just whether that's a fair valuation uh for this company.
SPEAKER_00So I were just to just to wrap up here, what do you think is going to happen in the days post-trading?
SPEAKER_01Yeah, it's really interesting, actually. And I think I highlighted earlier the kind of my biggest concern about the IPO is that it will be very volatile in terms of the trading because it is such a low free float. Um as we said earlier, you know, the usual price stabilization mechanisms like the green shoe option, will they actually have an effect when you've got quite you know potentially quite volatile trading? Um those that stabilization lasts for 30 days. After that, if there's continued volatility, I mean, in extreme situations, you do get trading limits, which are circuit breakers, I should say, um, for the exchanges that would sort of suspend trading if there's a lot of volatility. Um, but you know, that for me is the big risk is the low free float. You've then, of course, got uh the Nasdaq inclusion, uh the Nasdaq 100 inclusion. So they will be SpaceX will be admitted to Nasdaq 100 within 15 trading days. Um and as we've mentioned previously, this is fast entry, completely changed the rules for SpaceX. I think what's actually interesting is that although the pool of money that's uh for index funds for the Nasdaq 100 isn't as big as, for example, the SP 500, for which they won't get fast entry, the amount of forced buying is quite high because SpaceX will be a huge part of that index. So we're talking about $30 to $50 billion of forced buying as soon as they enter the Nasdaq 100. So that for me is a huge catalyst. It will force additional buying, and in a market where there is thin trading, then the effects will be magnified. So I think it could be a very rough ride. Uh you know, possibly will be very positive at that point in time, but it will increase the volatility.
SPEAKER_00Interesting. So do you think do you think realistically because I'm hard, I'm finding it difficult, at least in my own mind, to form a view where there's gonna be an immediate spike in valuation post-trading, just given how toppy everything is. So do we think realistically what's gonna happen post-trading price dips to who knows what? I mean, this is it's an interesting question because do a lot of retail investors, and we acknowledging the retail, the retail community here is a higher percentage than normal, you say, okay, probably probably much less sophisticated than an institutional investor. Do you have a lot of people buying it just because it's SpaceX and it's Elon without even really understanding any of the stuff that even we've been talking about? I I could see that. I could see that being a thing. So I I don't know. Maybe I'll maybe I'll eat my words. But as I say, it feels it feels like we're we're kind of headed for a dip just post-close, and then maybe maybe it bounces back on the index inclusion point that you're just talking about.
SPEAKER_01Yeah, I think the only pushback on that, Graham, would be that the behind the scenes we're hearing massive over subscription, which means there are people who haven't been able to participate in the IPO. If there's excess demand, that would suggest there will be an IPO pop. Um, great, that's day one. But how long will that you know demand you know persist at you know if the price continues to rise? And then you've got people then saying, well, hang on, I've you know, I'm now ready to sell. And we're if we're in a thin market, you've got the share price moving up and down. And that starts to unnerve investors, they start to lead to confidence. So it is, you know, I think very uncertain waters in the early days, you know, and as we say, that kind of is exacerbated slightly by the pricing mechanism. So I think the other thing that we should watch for is the fact that there is a lock-up for existing shareholders. Uh, there's a staggered lock-up, so different dates at which uh uh existing shareholders can sell. Um, and that ends after 180 days. So there'll be gradually this release of additional shares into the market, and that will create an overhang. It will put downward pressure on the share price. So we've got all of these little catalysts happening in the markets uh that will affect how the shares trade. So it does make it very difficult to know, you know, when the shares have reached their true level. Um, so clearly, this is definitely an event where, you know, grab your popcorn. There's going to be lots to watch for.
SPEAKER_00Well, and interestingly, I was just I was just thinking, you know, one thing we were talking about on an earlier episode was just how private companies are staying private longer before they list. So in theory, you would think a lot of these companies that are coming to market this year have an even bigger backlog of employees, really shareholders who are kind of desperate to monetize, whether get out completely or at least try to try to sell something. So is that impact on some of these stocks going to be bigger than perhaps we've seen it before? I don't know. It's food for thought.
SPEAKER_01And then obviously the follow-one is then we've got open AI and anthropic likely to IPO later in the year. So there is so much to watch, so much to see how it evolves. Uh, but I think that covers all that we had for SpaceX. We look forward to Friday's start of trading. I hope to all of our listeners that you've enjoyed our deep dive into SpaceX IPO. Um, and it'd be great if you can leave us your comments, what you think about uh SpaceX's IPO. Do you think it's the deal of the decade or the steal of the decade?
SPEAKER_00Yeah, let us know whether you participated or not as well.
SPEAKER_01Yes, absolutely. Um great. Thanks so much from me.
SPEAKER_00Thanks, Debs, and we'll see everyone next week.