Wall Street is abuzz with next month’s expected blockbuster debut of Elon Musk’s rocket and satellite maker SpaceX, but few of the biggest IPOs in recent years have paid off for investors who bought in when the deals came to market.
A Reuters analysis of the 50 IPOs with the highest valuations in the past five years shows that investors would have been better off buying an S&P 500 index fund about three-quarters of the time. The data underscores the difficulty of finding bargains among companies whose valuations have often surged long before the stock’s debut.
An investor who bought each of the IPOs tracked by Reuters would be up an average of 27% through May 21. That compares to an average gain of 53% in the S&P 500 over those same periods. The analysis assumes the buyer would be able to purchase shares at the IPO price, often not possible for a retail investor, or simply buy the broad-market S&P.
Historical returns for investors buying during the frenzied first day of trading of a stock fare even worse, the analysis showed.
“It’s difficult to make money unless you’re in the early stages of these things and buying these things before the IPO,” said Dennis Dick, a proprietary trader at Triple D Trading.
SpaceX’s debut is expected to be followed by OpenAI and Anthropic, tapping into demand for AI-related companies that has sent the U.S. stock market to record highs. Set to trade under the ticker ‘SPCX’, SpaceX filed its prospectus on Wednesday, with a share sale potentially as early as June 11. Founder Elon Musk is making some shares available to retail investors through Robinhood, SoFi and other trading platforms that would allow them to get in at a lower price.
The space exploration company is expected to target a $1.75 trillion valuation that would dwarf all previous Wall Street stock listings, but the Reuters analysis shows that such superlatives are no guarantee investors will make money.
University of Florida professor Jay Ritter, who studies IPOs, said that while most public listings underperform the S&P 500 over the long run, companies with particularly high valuations as measured by price-to-sales tend to fare the worst.
At a $1.75 trillion valuation, SpaceX’s price-to-sales ratio would be nearly 100, compared to AI heavyweight Nvidia’s price-to-sales ratio of 24. SpaceX lost nearly $5 billion last year.
“Every one of these companies where investors are willing to pay a very high price-to-sales ratio has a compelling story for why the future potentially can be really bright,” Ritter said. “But, you know, stuff could go wrong.”
Among the IPOs analysed, AI-related chip designers Astera Labs and Arm Holdings have been the biggest winners. Astera has surged over 700% since its 2024 IPO, while Arm has soared about 400% since its 2023 debut. Both of those performances outpace the S&P.
Cerebras Systems, another AI chip designer, soared 52% from its May 14 IPO price; it is down around 27% from its first intraday high. Among the biggest disappointments in recent years, Chinese ride-hailing giant Didi Global was delisted from the New York Stock Exchange in 2022 following its heavily oversubscribed IPO the year before.
Now trading over-the-counter, Didi Global shares are down about 74% from their $14 IPO price. Electric car maker Rivian Automotive has slumped 82% since its IPO in 2021 that briefly made it the second-most valuable U.S. automaker.
The company continues to lose money for every car it builds, and is burning around $1 billion in cash every quarter. Shares in design software firm Figma nearly quadrupled in their first trading session last July. But with investors worried that generative AI could commoditise Figma’s technology, its stock is down 35% from the $33 IPO price.
Even the hottest offerings can lag. Chinese e-commerce company Alibaba, which Reuters did not include in its analysis, holds the record for the largest U.S. IPO by valuation. Touted as the “Amazon of China,” its shares have doubled since its 2014 Wall Street debut, during which time the S&P 500 has returned over 300%.