A Cautionary Tale Behind SpaceX IPO: What History Says Tells Us
- Steven C. Balch, CFP®
- 7 days ago
- 4 min read
It is shaping up to be one of the most remarkable IPO seasons in market history, with SpaceX and Anthropic looking to go public.
The excitement around their listings is completely understandable. However, before that excitement completely takes over, it is worth looking at what history tells us about how markets and individual IPO stocks have performed around major listings. The data is more nuanced than the headlines tend to suggest.
The Good News for Index Investors
Starting with the most encouraging data point: looking at 18 major U.S. IPOs, the S&P 500 was positive in 16 of those 18 cases in the three months following the listing, with a median gain of 4%. Not one of those periods saw the broad index draw down more than 10%.
What this tells us is that major IPOs at the scale of SpaceX and Anthropic can act as a tailwind for the broader market. The excitement and capital flows surrounding a listing of this magnitude tend to be broadly positive for investor sentiment. If you own a fund tied to the broad US markets, a historic IPO season like this may work in your favor.
A Cautionary Tale for IPO Buyers
While the broader market tends to benefit from major IPOs, the picture looks quite different when buying individual stocks. Truist strategist Keith Lerner looked at 30 major IPOs and the pattern is striking when you focus on the Year 1 Max Drawdown column.
Companies like Robinhood saw drawdowns of 90% within the first year. Rivian fell 88%. Lyft was down 79%. Snap, Coinbase, DoorDash, and Uber all saw drawdowns exceeding 50% within 12 months of going public.
Even companies that eventually became major successes had difficult early periods. Facebook saw a 54% drawdown in year one. Twitter was down 58%. The point is not that these companies were bad businesses. The point is that buying at the IPO price, when excitement is at its peak and valuation is often at its most stretched, is not the same as buying a great business at the right time.
The median year-one max drawdown across all 30 IPOs was 54%, and the average was 55%. That means investors could endure a 50-plus-percent loss somewhere during the first year of an IPOs listing.
Many investors cannot stomach that kind of volatility and could end up selling near the bottom, turning what might have been a temporary drawdown into a permanent loss of capital.
What This Means for SpaceX and Anthropic
SpaceX and Anthropic are genuinely extraordinary companies. SpaceX is targeting a valuation of roughly $1.75 trillion in what could become the largest IPO in history. Anthropic, valued around $1 trillion, is one of the most important AI companies in the world. The long-term potential for both businesses is real.
However, the data suggests that buying on the first day of trading, or even in the first year, carries risk that is easy to underestimate when the narrative is this compelling. IPO prices are set at the moment of maximum interest. Valuations reflect optimism at their peak, and history consistently shows that the period immediately following a major IPO is one of the most volatile and unpredictable windows in any stock's life. Even Saudi Aramco, which listed at $1.7 trillion in 2019 in what was then the largest IPO ever, still trades below its issue price today.
How To You Think About These IPOs
The answer depends on where you sit.
For index investors: history suggests major IPOs can be a tailwind for the broad market. If you own the S&P 500, you may benefit from the sentiment and capital flows without taking on the individual stock risk.
For individual stock buyers: the data argues for patience. The companies that go on to be long-term winners are often available at better prices 12 to 24 months after their IPO than on day one.
For everyone: position sizing matters. If you want exposure to a high-profile IPO, consider whether the position size reflects the actual risk, not just the excitement around the story.
Final Thought
Some of the best companies in the world went public through an IPO. Owning those businesses early has created real wealth for patient investors. The caution is not about the companies. It is about the timing and the price. The window between IPO day and when a stock finds its real long-term value is often the most treacherous period to own it.
When the next big name goes public, the opportunity may not be on the first day of trading. It may be months later, when the excitement has faded and the real business results start to tell the true story.
- Steve Balch, CFP®
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