Last week (3 June), Space Exploration Technologies (SpaceX) said it was seeking to raise $75bn at its IPO on 12 June, by issuing 555.6m shares at $135 each. This would value the company at $1.77trn.
But with so much hype surrounding the listing I suspect the offer will be heavily oversubscribed. I think there’s a good chance that investors will be disappointed with the number of shares they are allocated. Of course, this is likely to drive the stock price higher in early trading. However, those hoping to cash in early and make a large gain (in monetary terms) could be frustrated.
So how else could investors get a piece of the action? Well, they could consider taking a stake in Scottish Mortgage Investment Trust (LSE:SMT).
Why?
That’s because it already has a large shareholding in Elon Musk’s company, along with around 100 other positions in “exceptional public and private growth companies”.
As of 31 March, its stake in SpaceX was being carried at £2.98bn based on a valuation for the entire group of $1.25trn. At the time, the trust acknowledged this was below the anticipated IPO price saying it “values private holdings based on verifiable transactions, not press speculation”.
But this has now been revised upwards following “confirmation from SpaceX of the initial public offering price”. Logically, this suggests it’s valuing the group at $1.77trn.
Don’t get too excited… yet!
However, I’m not expecting fireworks from the Scottish Mortgage share price immediately post-IPO.
That’s because investors appear to have already priced in much of this uplift. Since early April, when speculation about SpaceX’s intention to float intensified, the trust’s share price has risen by nearly 25%. The recent revaluation has closed the gap and brought the market cap and net asset valuation (NAV) in line with one another.
But successful investing is about taking a long-term view. And here, SpaceX could play a large part in driving the Scottish Mortgage share price higher. Much of what Elon Musk touches seems to turn to gold. And I believe all of SpaceX’s divisions — rockets, satellite communications, and AI – have huge growth potential.
Over the past one, three, and five years, SpaceX has been the biggest contributor to the trust’s returns.This could continue for years to come.
Final thoughts
But Scottish Mortgage is about more than SpaceX. It invests in lots of other companies with enormous potential. One concern I have is that many of these are unlisted (41.5% of total assets at 31 March). This means it’s difficult to accurately value their shares. And they cannot be quickly converted into cash.
When SpaceX floats, this level of exposure will drop, but it still could be an issue. The trust will be unable to sell (assuming it wanted to) all of its shiny new shares for up to six months.
It also has to be borne in mind that if the tech sector in general, and AI in particular, overheats, the Scottish Mortgage share price is likely to be one of the casualties.
However, due to its impressive portfolio of exciting companies and decent track record, I reckon those comfortable with the risks surrounding the sector could consider taking a position.
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James Beard owns shares in Scottish Mortgage Investment Trust plc.
