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[Investor] I’m a guy that's into space. I hope we go to Mars and all that stuff.
This video exposes how the SpaceX IPO is engineered to transfer wealth from ordinary investors to Elon Musk through index fund rule changes and IPO structuring.
Key Takeaways
- The SpaceX IPO is designed to benefit Elon Musk and insiders by leveraging index fund rules and IPO share allocation.
- Index fund rule changes enable forced buying of SpaceX shares, inflating the stock price temporarily.
- Retail investors are at risk of becoming 'bag holders' due to the artificially high IPO price and limited share availability.
- SpaceX’s valuation is unprecedented and potentially unsustainable, raising concerns about long-term investor losses.
- Understanding index funds and IPO mechanics is crucial for retail investors to avoid being exploited in such schemes.
Summary
- SpaceX is going public with a potentially record-breaking IPO, possibly making Elon Musk the first trillionaire.
- The IPO is structured to benefit early investors and insiders while risking losses for ordinary retail investors.
- Index funds, which hold a large portion of American retirement savings, play a central role in this wealth transfer.
- Nasdaq changed its index inclusion rules to allow SpaceX to enter the Nasdaq-100 index within 15 days of IPO, bypassing the usual seasoning period.
- This rule change forces index funds tracking Nasdaq-100 to buy SpaceX shares, artificially boosting demand and price.
- SpaceX is offering less than 5% of shares to the public, creating artificial scarcity and driving up prices.
- Retail investors receive a larger-than-normal allocation (30%) of the limited shares, encouraging Main Street participation.
- SpaceX’s valuation is extremely high, with a revenue multiple over 50 times, far exceeding comparable tech IPOs like Facebook.
- The video highlights concerns about the sustainability of SpaceX’s valuation and the risks posed to ordinary investors.
- The overall scheme is described as engineered to enrich Elon Musk and early backers at the expense of everyday investors.
Full Transcript — Download SRT & Markdown
Speaker A
To see that get turned into a way to transfer wealth from ordinary people, who are just trying to save for retirement, to people like Elon Musk is just depressing.
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SpaceX is going public this month. It could be the biggest IPO in history. It could also make Elon Musk the world’s first trillionaire.
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Millions of Americans like you and me are about to become SpaceX shareholders. We won't buy a single share.
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The reason why I described it as a bag-holder situation is because it feels like it's getting engineered to be one.
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[Eric] Bag holders. IPO. Valuations. Sounds complicated. It's supposed to, but you don't need a finance degree to understand it.
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You need ten minutes. The whole scheme hinges on something you've probably heard of: index funds.
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A good chunk of American retirement savings are tied to them. You pick a fund. It picks an index, which picks the stocks.
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You don't think about it. That's the point. Index funds are supposed to be safe. Passive.
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The rules are the rules. Except, if you look closely, the rules seem like they're being rewritten to make people like Elon Musk fabulously wealthy at everyone else's expense.
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Every piece of evidence we have is that the IPO is being engineered to rise very rapidly after it prices, and then fall very dramatically after that.
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That is a recipe for retail investors, especially, to take large losses. Here's how the scheme works and what you can do about it.
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So are there really three hours of questions, or how’s it...? Are you fucking serious?
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Yeah. I have to be careful about saying things about companies that might go public.
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You know. That’s never been a problem for you, Elon. You can't hype companies that might go public.
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[Eric] $1.75 trillion. That's the value Elon Musk has floated for SpaceX when it goes public this month.
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More than Walmart. Is it worth that? SpaceX is a real company. It shoots satellites up in the sky.
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It provides things like Starlink. It’s a very impressive engineering company.
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[Eric] That's Robin Wigglesworth, editor at the Financial Times.
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There is definitely real business to be done there and real asset value there. The question is whether it is as large as Musk claims it is.
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[Eric] George Pearkes advises investors where to put their money. Last year, SpaceX made about $19 billion, most of it from Starlink and government contracts.
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But a company's market value is partially a bet on what that company will earn in the future.
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That bet is called a revenue multiple. Facebook went public at roughly ten times its projected revenue.
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SpaceX is asking for over fifty times.
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[George] The combination of sheer size and this extreme multiple is completely unprecedented.
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[Robin] Based on the numbers that we know, that is absolutely batshit. This valuation seems too good to be true.
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Some investors may need it to be. In 2022, Elon Musk raised $44 billion and bought Twitter.
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His backers? Andreessen Horowitz, a Saudi prince, the co-founder of Palantir, and Jack Dorsey, the guy who founded Twitter in the first place.
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Musk renamed it X, and, within a year, it's worth less than half he paid.
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That's a problem. There was also a solution. AI was hot. Musk owned an AI company, so he merged X into xAI.
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No cash changed hands. X investors received xAI stock. But that solution raised another problem.
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xAI is essentially a money furnace.
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[Eric] The solution? Musk has a rocket ship company.
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He uses it to buy xAI. Again, no cash exchanged. Three companies. Two mergers. Zero dollars actually paid.
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Everyone who helped take Twitter private now holds SpaceX shares. Now, SpaceX isn't just a rocket company that sells internet.
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According to Musk, it's the future. Data centers in space.
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[Elon] Assuming my predictions come true, SpaceX will launch more AI than the cumulative amount on Earth of everything else combined.
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I see no evidence that it's a viable business opportunity. There are far too many physical challenges with doing this.
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[Eric] But the value has to hold because so far no one has been paid.
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Investor shares are only worth something on paper. To turn paper into cash, SpaceX has to go public.
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When a company goes public, it opens its doors. Early investors cash out, get paid for the risk they took.
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Everyone else gets a chance to own a piece of something that used to be off limits.
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It's called an initial public offering, or IPO for short. It is a very normal part of a company's evolution and lifecycle.
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There isn't just Twitter investors here. SpaceX's original investors took a big risk. Peter Thiel, Palantir’s other co-founder, Google, and Andreessen Horowitz.
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But SpaceX's IPO is anything but normal. In a typical IPO, 90% of shares go to institutional investors — pension funds, banks, insurance companies. Regular people get 10%.
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SpaceX says they're changing that. 30% to ordinary people. Main Street, not Wall Street. When you see an IPO give a far larger allocation to ordinary investors, it's usually a sign that they can't get professional investors to buy at that price.
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The price is nuts. And if you can't sell it to professional investors, well you sell it to unprofessional investors who don't know any better.
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If people want to invest in SpaceX's IPO, that's their right. The problem is Musk found a way to make people invest in SpaceX whether they want to or not.
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How? Index funds. The index fund is one of the rare examples of the finance industry coming up with something that lines the pockets of ordinary people and not Wall Street itself.
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[Eric] An index is a list. Someone decides which companies go on it. A fund is a basket.
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Someone builds it to mirror the list. When a company gets added to the index, every fund mirroring it has to buy shares.
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Not because they think it's a good investment, but because the rules require it.
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[Robin] Index funds have both outperformed the vast majority of active managers in every market, in every country, over any timeframe in the long run.
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[Eric] Thousands of indexes exist. Nearly a third of American stock is tied to one of them.
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One of the most popular tracks the Nasdaq-100, the 100 biggest nonfinancial stocks on the Nasdaq exchange.
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Under Nasdaq’s index rules, SpaceX isn't eligible to be included in the Nasdaq-100. New companies have to wait up to a year.
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It's called seasoning. Seasoning a stock is just the process of having it trade publicly for a while.
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Public markets tend to be unsure of how to handle certain kinds of investments, novel sorts of companies, really quickly.
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Like a rocket company that makes most of its money providing satellite internet and wants to build AI infrastructure in space.
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If Musk could change that rule, he could trigger mandatory buying of SpaceX stock by every fund that tracks the index.
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This spring, Nasdaq changed their rules. This document outlines the proposed changes to the Nasdaq-100 index.
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The most important? A “fast entry” rule. If a huge company goes public, it gets into the index in 15 trading days.
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No seasoning. There was a public comment period. Wall Street was for it. They say companies are more mature now, and these changes allow the index to better represent the market.
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The opposition came from regular investors concerned about buying unproven companies at high prices. But the rule change isn't the goal.
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The goal is what the rule change enables: a plan with four different steps. Like everything, the price of a stock is based on supply and demand.
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How do you increase the price? One: artificial scarcity. Most IPOs offer 15 to 20% of their shares to the public.
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SpaceX? Less than five. Two: of those shares, retail investors get 30%, or up to three times the normal allocation.
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Remember, Main Street over Wall Street. Combined, a bunch of demand and a small supply.
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That means a higher than normal price. Three: 15 trading days after the IPO, SpaceX enters the Nasdaq 100.
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Any index fund tracking the Nasdaq 100 now has to buy SpaceX. You have this wall of money comi
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Doubtful, and in fact, absolutely not. [Eric] None of this works without Nasdaq changing the rules.
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Musk made sure there was an incentive to do so. Nasdaq is both an index provider and an exchange.
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[Eric] Ben Schiffrin spent 18 years at the Securities and Exchange Commission, which oversees the stock market.
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It kind of used to be the case that the exchange, you know, wasn't really supposed to be this for-profit moneymaking entity, but now it is.
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Two stock exchanges compete for every major listing: New York and Nasdaq. For the Nasdaq stock exchange, having SpaceX is a big win.
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You want big prestigious tech companies to go public there, and the New York Stock Exchange wants them to go public on the New York Stock Exchange.
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[Eric] SpaceX was the prize. Musk knew it. According to Reuters, Musk conditioned where SpaceX would list on one thing: fast track SpaceX into their major index.
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It’s all gravy for Nasdaq. SpaceX pays Nasdaq to list their stock. The real money is somewhere else.
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All the data and trading fees that they then sell over time, year after year, to other trading firms, to asset managers.
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[Eric] Nasdaq changed a rule that shapes trillions of dollars in retirement savings. No regulator approved it.
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If an index wants to change how it's gonna include certain stocks in that particular index, that is not something that has to be approved by the Securities and Exchange Commission.
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[Eric] Upwards of $30 trillion is being directed by a process that's effectively self-regulated. I think at some point we are going to have to say that these are incredibly influential investment advisors in practice, and they should be regulated and supervised accordingly.
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Because it's not just SpaceX or Nasdaq. You can see how, you know, one index provider getting the ball rolling would perhaps lead other index providers to follow.
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[Eric] You've probably heard of the S&P 500. It's the most powerful index in the world.
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Bloomberg reported the S&P is considering its own version of what Nasdaq just did. They’d shorten the seasoning period and they’d let the largest companies in without ever showing a profit.
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The reason isn't a mystery. OpenAI and Anthropic are both expected to go public this year at massive valuations.
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Neither is profitable. There's no regulator watching. The only check is the index provider's own internal comment process.
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Nasdaq just ran one of those. When I asked Nasdaq if the change was made because SpaceX demanded it, and if there's a conflict of interest in being both an exchange and an index provider, Nasdaq never answered the conflict of interest question,
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but did say that the rule change reflects how markets have evolved. The consultation, they said, followed industry standards.
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The S&P is running the same playbook on the biggest index in the world. Their comment period is open.
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It closes in early June. Anyone can submit a comment, including you.
Topics:SpaceX IPOElon Muskwealth transferindex fundsNasdaq-100IPO valuationretail investorsstock marketinvestment risksinitial public offering
