Strategies Investors Are Considering For SpaceX

[00:00:00]It is Friday. It is SpaceX IPO day. And I've got some questions. I'm sure you all do as well. Where is this stock going? Is it a good deal? Is it way too much? Why is S&P being so evil or so overly generous? These are the questions we're hoping to get to and through. I've got uh Will Rind joining me. We're delighted to have him join us. He's the founder and CEO of Granite Shares. uh an innovative ETF issuer known for its cutting edge uh products in leverage strategies, income solutions of commodities like gold and thematic investments. He's also uh been in the industry for 25 years uh including industry leadership roles like uh at Eyesshares uh at the uh ETF securities and the World Gold Council. Will, great to have you on. Thanks for joining us.

[00:00:55]Thanks, Brian. Thank you so much for having me. Pleasure to be on.

[00:00:58]>> So, uh, SpaceX, I don't know if you've heard of this little company that makes, uh, rockets and, uh, has some some telecom going on, has some AI going on that uh, this is going to be the biggest IPO ever. Is that right?

[00:01:13]>> That is right. Um, we've had some big ones in the past, but this one breaks all of those records. So definitely from a historical perspective, financial markets perspective coming to market as the largest IPO ever.

[00:01:27]>> Yeah. So what should uh what should we expect to see uh as the market opens today?

[00:01:33]>> I think we're going to see quite a lot of volatility. Um that's probably the the one thing that we can say with some certainty. Um but I think joking aside that we if we believe the setup and we have no reason not to uh in terms of how much the IPO has been oversubscribed you're talking about a level of roughly four times overs subscribed um meaning more demand than supply into what is you know on a relative basis quite a small free float for the stock. So I think what you could see um is on the positive side you could see quite a runup um in terms of demand just because of the small float the excess of demand here where the stock runs up quite a bit. The one kind of question mark really is this overhang. Uh so on the other side on the more bearish side it's the amount of investors that have bought shares in SpaceX over the years um from different sort of parties and those shares are not subject to to lock up and so what is the behavior going to be of those investors and you know how does that impact the stock?

[00:02:44]>> Very good point. So when a company goes on the market they decide how much percentage of it they're going to sell.

[00:02:51]Are we going to sell half the company a third? But are we going to sell darn near all of it? It's a question of how much money we need to raise and how much control we wish to retain. What I hear you saying is that the what is this 7 8% of the stock will be floated on the IPO.

[00:03:05]What I hear you saying is that that's low. Now I have seen lower and that created a lot of artificial uh inflation. Vinfast comes to mind. They only floated I think 2% of the company at a much lower valuation. Uh is the small float concerning? Um, I think it's only concerning really from a shortterm momentum perspective and a short-term volatility perspective. You know, it is still a large absolute number. Let's let's, you know, not make any bones about it that this is still in terms of absolute dollars a huge amount of of float for the market to digest. But yes, as a percentage of the company, it's relatively small. Have we seen outflows from companies that are required to register such things where they're stocking up their their cash for the purchase?

[00:03:57]>> Um it it's difficult to tell um whether it's actually manifested in terms of outflows from other asset classes or even other stocks. uh we certainly have seen this from different bankers and people close to the IPO um that we're constantly hearing it's oversubscribed and so from that perspective um we don't know exactly uh what the actual end result will be but I think it's fair to say that you know there will be there will be demand at the moment um this is a global phenomenon of course it's not just a US investor story or not even a US retail investor story so I just came back, Brian, from a trip to Japan um the other week and you know, everybody's talking about it there. So, this is your capital's coming from all over the world.

[00:04:46]>> Those are uh interesting perspectives to keep in mind that it's not just it's not just me, it's not just funds, it's not just this country. Uh now when we're talking about these big funds um I think I I don't try to get into the minds of the people managing the funds but I think it's a very exciting story and a lot of them want to get in. Uh are any of your funds already in SpaceX?

[00:05:12]>> So the we as as you know Brian we are a provider of ETFs. Um, we don't have any ETFs that provide broad index ETFs that have exposure to SpaceX because it's still, you know, private company up until this point. However, we're of course launching um two leveraged ETFs, SPAL, which will be a 2x long, SpaceX and um SNK, which is a 2x short. Uh those at the moment are slated for Monday actually. Um, so that's when the levered ETFs on SpaceX will launch and they will give investors exposure to the upside or the downside of the Tesla stock price in leveraged form. So for all the bulls and bears out there, they'll have a way to to trade around the IPO.

[00:06:03]>> Now, you mentioned earlier that the stock appears to be oversubscribed, meaning there are a lot of people who said 135, I'm in. Can I buy it today and wait until it opens actually and the number of people request the number of shares requested is larger than the allotment that they would provide. I have seen I have a friend who uh was looking to buy some company that he just knew was going to go great. He requested 350 shares from Robin Hood. Robin Hood granted him one share. uh which is worse than zero because at I know you heard me and the answer was one share. What a slap. Uh so uh is that what we're seeing? Are are we likely to see a lot of people who first of all in my JP Morgan account they will not let me pre-by it. They will not give me the option to even try. Uh but if uh are there a lot of people who have signed up who are saying I want 350, I want 3,000 shares who will get zero or one share uh at the IPO?

[00:07:07]>> I think the the honest answer is we don't know at this stage. Um that will all come out in the wash, you know, as the company goes public and as more data points get uh reported to the market. At this point, we're just going by, you know, what we hear, which is that it's overs subscribed. there has been a really large uh allocation to retail. So about 30% of the float my understanding um has been allocated to retail investors. But like you say that doesn't mean to say you're going to get an allocation. That still means that you can ask or some people you know people have subscribed or asked for an allocation but they may not have gotten an allocation based upon where demand sits. I mean I think that um demand is is certainly there. that news that the company published about the deals with the AI infrastructure deals with Google Anthropic probably helped um at the margin perhaps to accelerate some more of that demand. Um but yeah, I mean ultimately it'd be interesting to see, you know, how retail investors um were able to actually participate when we start getting some of that data back.

[00:08:16]>> And I think it's going to be a wild day for sure. when companies first go public, like you mentioned, there's going to be a lot of people who are not lock on lockup uh employees, former employees, uh who can I'm just thinking property values in Brownville, Texas may be going up next week, uh because there will be a fresh batch of newly minted millionaires. Those people can liquidate or at least shave their position a bit.

[00:08:43]We saw that with Meta when it went public. All the insiders wanted to get at least a little bit of cash. There can be a lot of volatility. There's a lot of interest in this. This is a very high-profile IPO. How big of a swing in either direction could people expect to see just in the first day?

[00:09:02]>> Well, the the honest answer is who knows. Um but you know certainly we've seen some of these IPOs go public. Um and that let's talk about more recently.

[00:09:13]Let's not talk about IPOs that happened years ago, but more recently, you know, we've seen quite big swings uh in the market. So, I mean, could we see if it opens if it opens today 135, could we see $200? Uh it's possible. Um and certainly if enough m momentum gets behind it but of course the converse is also true that it could trade down if you start to see a lot of insiders and I don't mean insiders that are working at the company today and are subject to the lock up but people that uh either left the company offloaded their shares a long time ago they're selling you know that could be the opposite and we could see a big swing in the in the downward direction as well. Mhm. So, uh it's not crazy to think it could be 50% higher or 50% lower by the end of the day. Uh but I think what I hear you saying is uh just sit back. The first weeks might be a roller coaster. The more time that passes, the more it's likely to stabilize a bit.

[00:10:16]>> Yeah. I I think at the company of that valuation, hopefully that size, 50% would be certainly an extreme move.

[00:10:23]>> Yes. Um, so hopefully it won't be as big as 50%. But, you know, certainly could swing I think 10 to 20% in each direction.

[00:10:33]>> I think people would be happy to a lot of the people who want it at 135 would be happy to buy it at, you know, 149.

[00:10:41]Um, I think that would uh make a lot of people very pleased. Uh, so any uh strategies or advice for risk mitigation for those people who are looking to buy on day one? Um I think if it's risk mitigation probably the honest answer is not to participate on day one and wait for wait for it to settle um a little bit in either direction. I think the trading on day one is for people that are really having a strong conviction one way or the other. So I talked to some people who are firmly on the upward momentum train and who firmly believe it's going higher. I talk to others who don't buy the valuation at all and are looking for it to to come down. So I think the day one is for people that you know hold that conviction and are expecting the stock to go up or down over the day and are looking for a way to play it.

[00:11:33]>> Now uh let's talk about the valuation.

[00:11:35]It is it's a big valuation. This is a company that has a lot of irons in the fire but none of them ready to quite pull out and forge into a sword. Uh we've got some very serious revenue on Starlink. We've got a fresh bunch of revenue from XAI uh compute as a service. Um a lot of money going in for tokens on on XAI, but really the story is renting it out to others right now.

[00:12:03]When you look at it, do you think the valuation is too high? Much too high about right? I think anybody, you know, realistically, if you're a buyer, the valuation is not really something that you're focused on. It it can't be.

[00:12:18]Um because by anybody's definition, the valuation is high. Um you're talking about a company that on a revenue basis is trading what somewhere somewhere in the region of high7s uh 70 times revenue um versus Nvidia at 22 times which is one of the most profitable companies in the world and has you know probably the strongest moat around at the moment from an AI perspective. So, you know, I think if you were looking at it purely through a valuation metric, it's difficult to justify um why the valuation makes sense. So, I think just like Tesla, the stock, it's not a valuation story because the people buying it are clearly believing or are very much um you know in in the future growth in a future state of the company. It's about the possibility. It's about the future.

[00:13:18]It's about the different revenue lines and businesses that the company has and it's about tomorrow what the company can be as opposed to you know thinking about the valuation today from a pure sort of fundamental perspective. So I think anybody really that's buying into this just like Tesla I don't think it's a pure valuation story. It's about uh it's a future belief story. You know what do you think about Starling? What's your view on stling? What's your view on AI, AI infrastructure? What's your view on rocket business and opportunity potential opportunities of space? That's what the story is about. I think the valuation is secondary. For those where the valuation is first, I think it's very difficult for for them to get on board with that and that's why they're probably, you know, not going to participate or will be more inclined to short. When someone says, "I care more about the PE than anything," I say CocaCola, Costco. There are some good options out there. If you were strictly to look at price to earnings ratio, you never would have bought Tesla. I bought Tesla when there was no PE ratio because uh because I could see things that others couldn't. And if you have eyeballs, you can go outside on some nights and see Starlink for yourself. Uh it's not super common, but you can do it.

[00:14:41]>> So, we've got a situation where there was a brief flirt from the S&P saying, "Well, maybe we'll include this early to the S&P 500." Now, it looks like there will be a 12month delay. We concerned about that? Is that prudent? Is that fair, unfair? I mean, I think the the one thing regardless of whether you like that or not, I mean, this goes to the in part to your valuation question, Brian, and to your point about, you know, how does the stock trade? So, one, if you're in the bull camp, clearly one of the arguments that that you're going to make is that passive funds, large legions of passive funds have to buy the stock if the underlying IS if SpaceX is in the index, so like the NASDAQ 100 for example. So passive funds will have to buy and they buy irrespective of price.

[00:15:31]Price doesn't even factor into the equation. One millisecond you have to buy. So going back to the S&P probably the first thing that will surprise majority of people is people think that the SM S&P 500 is an index that is purely rules-based. In other words, there's a uh criteria that gets you into the S&P 500 and if you meet that criteria, then bang, you're automatically in. That's actually not how it works. The S&P ultimately the index has a committee. So, this is actually a committee of people that will make a human decision about whether a stock should be included or not. So in that respect, perhaps to some degree, the irony is that although the S&P 500 is arguably the most famous index in the world, there's an argument to say it's not actually an index at all. It's an active, you know, philosophy. Um, and you know, from that perspective, that committee has decided that you they won't automatically include this IPO and there'll be a seasoning. So I think it's a it's you know clearly it's positive for the stock longer term but it won't be part of the immediate momentum story to the extent there is one over the first few days and weeks and I think that holding off for a year is reasonable. If you want the stock, buy the stock. If you want something more conservative with a little bit of uh exciting upside like an S&P indexed fund, uh you'll get it once it quiets down a bit. Uh we got to let it quiet down.

[00:17:11]>> Well, I I was just going to say again that I think you're exactly right. Like if you got to believe in the stock, you got to believe in the company. Just because it's going into an index shouldn't be reason to buy. Um that that's just a a factor of the market because it can easily reverse. So that can't be your decision to buy. It just has to be, you know, maybe part of the bullcase of course, but ultimately it's about the company and your belief in the company.

[00:17:37]>> So are you telling me that all those decisions I made based on peer pressure may not have had the best foundation of decision- making involved.

[00:17:46]>> I think that's >> if they're based around passive funds buying maybe. Huh. So, I will be live streaming uh that market opening to see what happens. Guys, if you're around, come back for that. That'll be a lot of fun. I don't know what it's going to look like. It's going to look bizarre.

[00:18:02]Uh I'm going to treat it like I do a product event or a rocket launch. We're going to just see what happens.

[00:18:09]Questions will be open. Comments will be will be addressed. Well, I want to thank you so much for uh giving us your valuable time. I uh think this was a very insightful and eye-opening conversation and I uh welcome you back anytime you like uh on a variety of topics. Uh so guys, what do we miss?

[00:18:25]What do we misunderstand? Leave it in them comments below.