It will be the mother of all IPOs.
Last year notched a comeback for initial public offerings, and the resurgence greatly boosted capital markets profits at the big name financial institutions, and helped generate a banner year for investment banker bonuses. But now a single IPO is poised to raise more money alone than all 90 of last year’s IPOs, combined—and that means Wall Street will make more money, too.
This super-whale is none other than Elon Musk’s SpaceX, which just mushroomed in size via its all-stock acquisition of another bastion of the tech titan’s empire, xAI, creator of the chatbot Grok. News that Musk planned an IPO for SpaceX emerged in December, around the time a new funding round valued the rocket enterprise at $800 billion. In January, just prior to being bought by SpaceX, xAI achieved a $230 billion cap via a fresh capital raise.
Hence, investors are already giving the combined companies an equity valuation of over $1 trillion. And Musk wants more. According to reports in Bloomberg and the Financial Times, he aims at an offering that would give the new SpaceX a market cap of $1.5 trillion, raising around $50 billion in cash to fund expansion. Analyst Franco Granda of PitchBook believes that a $1.75 trillion mark is justifiable based on SpaceX’s gigantic growth opportunities, especially for its Starlink satellite franchise.
The actual prospects for SpaceX’s future financial performance and stock price are highly uncertain, since as of today, by Fortune‘s analysis, after 23 years it still generates zero net earnings. To justify a $1.5 trillion market cap, it would need to earn more than Berkshire Hathaway does today to generate decent returns for shareholders.
But one cohort is en route to pocketing a never-before-seen windfall while taking virtually no risk: the Wall Street banks that shepherd the deal.
The fees on a SpaceX IPO would be huge, but the big money comes from underpricing
At $1.5 trillion, the SpaceX debut would rank as the second-most-valuable IPO in history—trailing only the Saudi Aramco introduction at a total valuation of over $1.7 trillion in late 2019, and leagues ahead of number two Alibaba at $169 billion (2014).
A $50 billion raise through an IPO, meanwhile, would top the all-time list, according to data compiled by Bill Megginson, a professor at the University of Oklahoma. Adjusted for inflation, SpaceX would edge current leader Nippon Telegraph & Telephone (1987) at $44 billion, while dwarfing such others in the top dozen as Visa ($27 billion in 2008) and Softbank ($28 billion in 2018). And indeed, $50 billion surpasses the cumulative $44 billion raised through 90 IPOs last year.
The record-setting raise should translate into a never-before-witnessed take for Wall Street. In the IPO world, those dollars come in two forms. The first: the underwriting fees—or what’s known as the “gross spread”—that the banks receive for pre-selling shares to institutional investors before they start trading, and hence offered to the general public. Jay Ritter of the University of Florida, the leading academic expert on IPOs, reckons that on a deal this immense, the charge would be around 2%. At 2%, the fees for placing the newly-issued $50 billion in stock comes to $1 billion.
According to Ritter, most big IPOs have two to three “lead underwriters” or “lead book runners.” They’re the ones empowered to allocate the shares on offer among themselves and the other members of the syndicate, a group that typically might total 20 or so. Judging from past offerings, Ritter estimates that the SpaceX book runners could collect some 35% of the fees, or roughly $350 million, with the rest divided among the members hitching a ride.
High as those numbers tower, the main prize is the second money-spinner from IPOs, the gain the institutions handpicked by the underwriters for big allocations garner on the “pop” when the the stock starts trading. Put simply, the underwriters have a strong incentive to award the shares to their biggest trading partners at bargain prices that exclude lots of potential investors who’d pay even more. The power to create an artificial shortage is tremendously enriching for the investment banks.
Ritter’s research shows that underpricing is de rigueur in IPOs, and on average, the shares jump 19% over what the chosen institutions paid by the end of the first trading day. “The ability to give their clients underpriced shares is worth a lot more than the 2% fees,” says Ritter. Were SpaceX to leap that average of 19% on day one, Wall Street’s customers would pocked a one-day, paper gain of $9.5 billion. The initial investors got their shares due to their status as the firms’ largest, commission-paying trading customers. In exchange for winning the super-cheat shares, says Ritter, they typically rebate about 30% of the one-day gain to the book runners who anointed them in future business. In SpaceX’s case, then, the two or three lead book runners would collect an extra nearly $3 billion (30% of the roughly $9.5 billion windfall). Let’s assume three lead underwriters. Each would garner a total as high as $120 million in fees, and another $1 billion courtesy of the super-discount pricing, for a total of almost $1.1 billion.
What are Musk’s options for taking SpaceX public?
On the one hand, SpaceX would “only” be raising 3% of its total market cap in a $50 billion offering. A typical underwriter argument is that the underpricing cost, in this case almost $10 billion, is small change for the benefit of collecting a stable, loyal base of institutional shareholders, and getting lot of sell-side research from the book runners and other brokerage firms that underwrote the offering.
Still, sacrificing over $10 billion (including fees) would be a big deal for SpaceX, especially given its extensive requirements for capital expenditures that cash flows apparently don’t cover. xAI alone reportedly spent $8 billion on plant and equipment in 2025, and though we haven’t seen estimates for SpaceX, as a maker of 400-foot rockets en masse, it’s the ultimate in metal-bending manufacturers.
According to Ritter, Musk has two excellent options for keeping a lot of the cash that would otherwise flow to Wall Street in SpaceX’s coffers. The first is doing a “direct listing.” That’s a mechanism that avoids the pre-sold, underwriting procedure, and allows market makers on the exchanges to set the opening price based on the orders coming in from everyone who wants the shares, not just those hand-picked by the lead book runners. In direct listings, the existing shareholders cash out, for example, but to date, the company itself doesn’t raise extra cash. But Musk could then do a follow-on offering at a higher price than a traditional IPO would have generated, potentially leaving far less on the table. Spotify, Palantir and Coinbase all used direct listings to go public.
A second possibility: Deploying a program known as “limit order book building.” DoorDash and Airbnb both used it in establishing their listings. it’s where the institutional investors must show both the quantity of shares they want, and the price they’re willing to pay for them, as opposed to just asking for shares. That solution wouldn’t prevent all the underpricing by any means, but it would greatly curb the biggest expense to SpaceX.
Or, as Ritter suggests, Musk could use the threat of either a direct listing or limit order approach to both drive down the fees, and get a closer to market price from the underwriters’ clients. “Musk is known as a maverick, a guy who thinks out of the box,” says Ritter. “He fits the profile of the kind of CEO that in the past has gone for this kind of tradition-breaking solution.” To be sure, Musk’s a rebel. We’ll soon see if he’s got the spine to stand up to Wall Street.
