The chance to get in early on a stock like Amazon (NASDAQ:AMZN) doesn’t come around often. But these things might be like buses.
Investors have been waiting decades for this kind of opportunity. And all of a sudden, there are three of them – starting with SpaceX.
Future tech
Elon Musk’s internet/AI/rocket company hits the stock market this Friday (12 June). And there’s a lot to be excited about.
The firm is the clear leader in satellite internet and rocket launches. But those are capital-intensive industries.
They might, however, have a lot of potential. And that’s what makes them interesting.
Amazon shareholders have seen this before. They’re used to being patient and waiting for profits to show up.
That patience, however, has been very well-rewarded. Investors who bought when the stock hit the market are up 272,366%.
Amazon
Amazon’s stock market journey hasn’t been a smooth one. Between April 1999 and April 2001, the stock fell 92%.
Anyone who invested £1,000 at the top saw their investment fall to £80. That’s enough to test anyone’s long-term conviction.
This coincided with a wider decline in the tech sector. And not every stock that fell during that period made it back.
Amazon had two main things going for it. One was a willingness to forego short-term profits for long-term strength.
The other is a shareholder base that was willing to put up with this. And the value of that is hard to overestimate.
Long-term success
Amazon shares have almost never looked cheap. For as long as it’s been on the market, the stock has consistently traded at high valuation multiples.
In fact, the firm didn’t turn a profit until 2003. So shareholders have had to be ok with owning an expensive, money-losing stock.
Their willingness to do this, however, has been a big advantage. It’s allowed Amazon to focus on long-term strength over short-term profits.
If the firm had investors expecting dividends, it wouldn’t have been able to do this. And that’s been – and is – very valuable.
For Amazon shareholders, the results have been spectacular. So the next question is whether SpaceX can do something similar.
What about SpaceX?
There are a lot of reasons to be wary of SpaceX’s stock market launch. It looks expensive, loses money, and its products are unproven.
All of those points, however, were true of Amazon in 1997. And the two also have something very important in common.
A lot of investors are prepared to be patient with Elon Musk. That’s been the case in the past and I don’t think it’s changed.
There’s no reason for dividend investors to own Tesla shares. Shareholders have to focus on long-term potential over immediate returns.
SpaceX could well be a similar story. But – like Amazon before – this could give it the ability to make decisions that other companies can’t.
The $1.8trn question
SpaceX is looking for a $1.8trn valuation when it joins the stock market. But I think the real test is still to come.
At some point, I expect the stock to go through a similar downturn to Amazon in 1999. And then we’ll see what its shareholders are made of.
I think they’re a resilient bunch – and that’s a big advantage. But I’m looking for a more attractive entry point before joining their ranks.
Should you invest £5,000 in Amazon right now?
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Stephen Wright owns shares in Amazon.
