In the past five years, 70% of large IPOs have underperformed the market: SpaceX, with a sky-high valuation of $1.75 trillion, is coming, and retail investors need to be wary of the risks of "catching the falling knife."

Attention, Wall Street is excited about the upcoming high-profile IPO of Elon Musk's rocket and satellite manufacturing company SpaceX next month, but in some of the biggest IPOs in recent years, few investors who bought in at the time of the IPO have made money. An analysis of the top 50 highest-valued IPOs in the past five years shows that in about three-quarters of cases, investors would have been better off buying a S&P 500 index fund. This data highlights the difficulty of finding bargains in companies whose valuations have often soared significantly before they go public. The data shows that, on average, investors who bought into each of these IPO stocks had a return rate of 27% as of May 21. In comparison, the average increase in the S&P 500 index during the same period was 53%. The analysis assumes that buyers could purchase the stock at the IPO price (which is often not possible for retail investors) or simply purchase the broader S&P index. The analysis also shows that for investors who bought in during the frenzy of the first day of trading, their historical returns were even worse. Dennis Dick, a trader at proprietary trading firm Triple D Trading, said, "It's difficult to make money unless you're in early on these projects and buy into these assets before the IPO." Beware of high valuations Following SpaceX's IPO, it is expected that OpenAI and Anthropic will also follow suit to meet the demand for AI-related companies that has already propelled the US stock market to record highs. SpaceX plans to trade under the ticker symbol "SPCX" and submitted its prospectus on Wednesday, with the stock sale potentially taking place as early as June 11. Founder Elon Musk is offering partial shares to retail investors through Robinhood, SoFi, and other trading platforms, allowing them to enter at a lower price. This space exploration company is expected to set its valuation target at $1.75 trillion, surpassing the size of all previous Wall Street IPO stocks. However, analysis shows that this "record-breaking" does not guarantee that investors will make money. Jay Ritter, a professor at the University of Florida who studies IPOs, said that while most publicly traded companies perform worse than the S&P 500 index in the long run, companies with particularly high valuations measured by price-to-sales ratio (P/S) tend to perform the worst. At a valuation of $1.75 trillion, SpaceX's price-to-sales ratio will be close to 100, while AI giant NVIDIA's ratio is 24. SpaceX lost nearly $5 billion last year. Ritter said, "Behind every company that investors are willing to pay a very high price-to-sales ratio for, there's a fascinating story explaining why the future could be very bright," "but you have to know that things could also go wrong." AI halo not a "magic bullet" In the IPOs analyzed, AI-related chip design companies Astera Labs and Arm Holdings were the biggest winners. Since their IPOs in 2024 and 2023 respectively, Astera has surged by over 700% and Arm by around 400%. Both of their performances have exceeded the S&P index. Another AI chip design company, Cerebras Systems, has surged by 52% since its IPO price in May 14; however, it has since dropped by around 27% from its peak on the first trading day. Electric vehicle maker Rivian Automotive has plummeted by 82% since its IPO in 2021, when it briefly became the second-largest US automaker by market value. The company continues to lose money with every car produced and burns around $1 billion in cash every quarter. Design software company Figma's stock almost doubled on its first trading day in July last year. But concerns among investors about the commercialization of Figma's technology through generative AI have caused its share price to fall by 35% below the $33 IPO price. Even the hottest IPOs can fall behind. Alibaba, a Chinese e-commerce company not included in the analysis, holds the record for the largest US IPO by valuation. Since its listing on Wall Street in 2014, its stock price has doubled, while during this period, the return rate of the S&P 500 index has exceeded 300%.