Inside the IPO Surge – Ep. 298

Welcome to the Accumulating Wealth podcast. I’m Judson Crawford. And I’m Hunter Satterfield. We are CPAs, wealth advisors, and partners at CWA, a financial services firm here to help you navigate the decisions you face every day. And today, we’re circling back to a topic we covered earlier this summer, IPOs. 

That’s right. Last time we talked through the basics, what an IPO is, why companies go public, and what investors should watch for before getting caught up in the buzz. Since then, the IPO market has started showing signs of life again. More companies are testing the waters, and investors are trying to figure out if this is just a short window or the start of a broader comeback. 

So today, we’re following up with what’s going on, what’s driving the activity, and what investors should keep in mind as everything starts picking back up. Let’s get into it.  

Happy July, Hunter. That’s right. Happy end of World Cup. Sad end of World Cup. It was fun. It was so much fun. It was so much fun, and listeners yeah, I got caught up in the frenzy. My boys did. That was, like, the first time – they’re 15 to 20, and in United States time zones, all of it. Man, I got caught up. What about y’all? 

Absolutely. The girls were into it about 30% of the time. They were into the halftime show of the final game 100% of the time. But yes, we had fun with it. In fact, the twins capped off the World Cup with a soccer camp this week, and on Sunday they were practicing flopping. Oh. That’s what they learned from the World Cup is flopping. That’s good. Yeah. And the, dance, the halftime dance, right? Yeah, 100%. 

Of course, in the midst of the World Cup, you’ve got a bunch of testosterone-fueled boys sitting around saying, “I could totally make a PK.” Totally. Like, “These guys are missing PKs. I could totally do it.” 

So, my question for you, Judson, before we go into some stats very quickly. What is more likely, all right? You get 10 shots at the goal, and Emi Martinez from Argentina is in goal, and you have to score one of them. Or you are the goalie, and Mbappe is shooting 10, and you have to stop one of them. 

Stopping one of them is more likely to me than… and because it would be luck. Like my body would happen to just be in the way of that one kick. You would just fall over and Mbappe’s kick would hit you in the belly? I don’t think that set up the way that those PKs are set up, that’s not happening. 

I think that he’s kind of a smaller dude. I’m kind of a bigger dude. I think I would just intimidate the hell out of him and he would kick it over the crossbar. 100%. That’s what I think too. Yeah. 

Well, unlike us, 24% of American men say that they definitely would score a PK in a World Cup match. And, like this isn’t just like a PK against like 10 you players. In a World Cup match. This is in a World Cup match. Yeah. I think it’s quite hilarious. 25% of men were drinking while they answered that question. That’s right. They were Scots, the Tartan Army. If you take 18 to 44-year-old males who vote Republican, it is 60%. It’s astounding. Does it show the other side of that? 

Yes. So actually, independents are lower than Democrats. Hmm. But Democrats are at 28%, independents are at 26. Okay, wait. 28% to 60%? 28 to 60%. That’s unbelievable. 60% of… Goodness gracious. I also am very astounded, all 45 and older women basically are the same, and they, 8% of them think they could score a PK. Okay. 

I mean, Are there 8% of former women players? Is this why? Maybe. I think this – everybody on this should be zero. I totally agree. 24% is too high. 60% is ludicrous. The question is, Judson, if there was no goalie, could you just kick it in? Yes. Okay. Nobody in front of me, no goalie, no team standing making the line, no dude laying on the ground behind their feet. Yes. I’m proud of you. Okay, let’s do IPOs. How many out of 10? I don’t know. 10 out of 10 if nobody’s there for me. Yeah, I mean, I probably – I think I could do that. The goal’s pretty large. 

Anyway, all right, let’s do IPOs. Okay. We had an IPO this summer. Indeed. So, it’s been a little over a month now. It was June 12th that SpaceX IPO’d. Take us through what happened that day and what happened. Yeah, I mean, I think this is an opportunity for us to give us our flowers. We said it was going to be volatile, and if you really wanted to buy it, you could probably buy it post-IPO for the share price, and that indeed was the case. 

But yeah, June 12th, as you mentioned the official number did come out at $1.77 trillion, $135 a share, raised $75 billion. None of that’s necessarily been spent yet publicly. We’ll get to earnings here in a little while, at which we might find out some of that.  

It didn’t actually open, though, at $135. On the exchange, it opened $150 and that’s that sort of like pre-IPO pop that happens. It closed that day at $160.95. So you’re feeling good. 19% gain. Yeah. You’re like, “Okay, here we go.” For those, the volume, Judson, was astounding. 500 million shares moved on day one. Pretty crazy, dude. Okay. 

So, from there, so it closed up, you’re buying it, you’re feeling good. Why did it go up and what happened after that first day? Yeah, I mean, I think this is pretty typical, and we talked about this in our IPO episode, right? Like, it’s pretty typical for that first day, that first few days, things just to go to rip higher. I mean, it had explosive price action, I think for a couple reasons. 

One, the hype, right? I mean, we had a fair number of clients saying, “Hey, Hunter, Judson, can you get me into this thing?” And so, I think that hype, it was reported to be four times oversubscribed, which is bananas, and we’ll get into that here in a second. I think Musk’s profile broadly, I mean, he’s a billionaire now trillionaire, multi-trillionaire genius. 

Wait, wait, wait. When you say four times oversubscribed, does that mean that there was 300 billion in asks? Yeah. So basically, what that is, is the number of shares that were actually out there – Okay, so not of the full 75. Correct. Got it. Yeah. The number of shares that were out there to be had, there were four times as many requests. 

And you see, like, you heard some of this stuff in the moment where it’s like, “Yeah, I put in a request at Schwab,” and this happened to our clients too, or Robinhood or wherever else, and I got one share. That’s right. One little measly share. And there were some folks out there, maybe that were higher profile investment clients of places that got a little bit more. 

But yeah, I mean, it was, for many investors, they didn’t get much. And so, I mean, again, I think that the hype plus who Elon is, plus that oversubscription, but then I think the sneaky one, and we mentioned this at the time, is there was limited float, right? So only 5% of outstanding shares were even traded. 

So just the market for those shares was very, very tight and limited, and I think that shot the price up higher. And there is a concern there, and we’ll talk about that here in just a second, listeners. But so, since then, that really quick post-IPO hype, things just ratcheted very much higher. 

In fact, June 16th was an intra-day high at $225. Okay. So that’s where it hit its high point. Four days later. Four days later. But hey, we’ve been as low as $119. And it’s crazy, right? Like up 3% one day, down 7% the next day. It’s a classic sort of volatile hype stock. 

And again, this is typical post-IPO behavior. The highs are enthusiasm and speculation. The lows are investors taking profit, valuation concerns. And then I think macro too, because this is one, even more so than the Mag Seven names, they have no, like, actual stated financials out there yet. So, macro can wreak havoc on the stock price, and it’s proven to do so so far. 

Okay. So, as you said, it’s high, it popped right up to $225 high. It pretty quickly came back down to around that $150 number, hung around there for a little bit, and then sort of has been trading somewhere in that $119 to $125 range since. So, you mentioned it earlier, we’ve got its first earnings report coming up. Maybe even bigger than that, we have share locks that are being opened up. So, what do you expect to see from it? 

Yeah, I mean, I think price discovery hasn’t even been able to be had yet, because you only have, again, you only have 5% of shares even outstanding to trade, and you’re still dealing with this hype. You have no financial statements out there. I think price discovery’s about to happen in the next couple of weeks and presumably, listeners, we’ll record again toward the end of the year on, on where things stand. 

And when I say price discovery, it’s in a free market when things are out there to be traded and you’re not dealing with hype and you’re now dealing with real actual numbers, investors are going to say, “This is what I’m willing to pay for this stock.” 

So, to your point, first earnings release will be Q2 earnings dropping on August 4th. I will absolutely have my popcorn ready on that day. It will be the first sort of public view of their financial statements. We’ll see, like, what has Starlink growth been? What has CapEx spend been? Because that’s a lot of what Elon stated part of the goal of this was to get money to raise funds, the $75 billion, to go and continue to build Colossus and their Grok AI and all these different types of things with xAI. 

So, I think that will be really interesting to see is what their CapEx spend is. And then also shortly right after the IPO, they used the stock basically to leverage their acquisition of a company called Cursor, which was already, it was under LOI pre-IPO, but Cursor’s like a vibe coding company that they basically wrapped in and got as well. 

So, we’ll get to see some detail on that. That will be a fascinating day. That leads to my next popcorn being ready. Two days later, we have a massive share unlock. So, on August 6th, we will go from only 5% of shares outstanding being able to be traded to 25%. On one day, there will be a share unlock for the original investors of 20%, which Judson, it’s 911 million shares. 

So, when you think about this, so you’ve got these original investors and you’ve have to think that some of them will want to take money off the table. Oh, yeah. Right? No doubt. No doubt. So then really probably based on what you see on August 4th would be which direction that drives the price essentially. 

Absolutely. Right? Yeah, and what the language is in the earnings and what the calls look like and so you’ll have that unlock, but then the crazy thing, so that’s on August 6th. Then you have 7% unlocks on August 20th, September 9th, September 24th, October 9th, October 24th I mean, you are going to see over- 7% on all those dates. Correct.  

Another 50% of shares hitting the market. Like, welcome to price discovery, right? And then the final ones will be right after Q3 earnings, there will be another 28%, and then everything else by December 8th. So in the next five months, like, we’re going to be eating a lot of popcorn, Judson. Yeah. We may be talking about this again. Yeah. I have a feeling. I would think so. 

Now, the question is, so all those shares will get released on December 8 somewhere in December, except Elon’s. So, he still has to hold for a full year. And of course, he has 49% of the company, so there’s still a ton remaining. But man, by the end of this year, we’re going to pretty much know what the stock price is going to be for a while. 

So, in light of this, it’s been interesting. I think taking a step back and looking at what’s happened over the last month to month and a half, I don’t think anybody’s surprised by it. How does this color the next couple IPOs that are coming out? Yeah, I mean, I think the next two big ones would be Anthropic and OpenAI, so maybe take them each. Anthropic’s already filed their S1, so that got filed confidentially in June. And they’re targeting somewhere around October for theirs. 

And I think it’s a likely October. I think some of it has to sort of see what’s going on with SpaceX as it unlocks for sure. They’re targeting somewhere between $1.1 and $1.2 trillion on the numbers, so I think that probably happens before the end of the year. 

And then the next one would be OpenAI. Now, OpenAI is a really interesting one because obviously Sam Altman’s dealing with, I mean, he just went through the Elon lawsuit. Now Apple is also suing OpenAI as well. So, they’re saying, hey, they’ve already filed their S1, they’re saying sometime in 2027 because they’re, quote, “targeting a $1 billion valuation,” or are they trying to get through some of this stuff first? 

So, it’s a really interesting one on OpenAI, but I think both of those companies’ teams will be looking very intently at what goes on with SpaceX as these things get unlocked to see what happens more broadly and what the market is ready for when it comes to theirs. 

One last thing I think that’s interesting to cover just related to SpaceX, because I think this is a path that we’re going to be interested to watch for Anthropic and OpenAI as well, is SpaceX is already in the queues. 

So, the NASDAQ, it was already introduced in the NASDAQ. It represents about 1.05% of the NASDAQ right now. It’s also in some Russell indexes, but it still won’t be in the S&P for at least another 12 months. Plus, it has to prove consistent GAAP profitability as well. So again, I think as we see what price discovery looks like and it comes into the S&P, that will be an interesting story for these other two stocks. 

So, a question, if I’m a client of Cain Watters and I invest in our investment platform and we’re talking about this SpaceX stock and we’re looking at these releases. Number one, is there any allocation to SpaceX within our managers right now? And how do these managers look at this as these release? Do they set a price target and go, “Hey if SpaceX hits this number, I think I may buy some”? Or I mean – and I know you’re speculating here, but how do you think they think about that?  

Yeah, that’s a good question. I mean, I think that – So first off, is it in any of our actively managed portfolios? No. No is the answer because, again, we believe in buying things that are high quality, known businesses. So from a price discovery standpoint, we have to wait for this for a very long time. I mean, we certainly are not going to put it in our active portfolios when the S&P doesn’t even have it in theirs. Yep. Right? 

I do think if you’re a growth manager, you’re giving it a very long time. You’re looking through this very intently to say, “Hey, what do these earnings reports show from a profitability standpoint from how they’re directing the business?” I mean, SpaceX is an incredible business. 

It has an incredible opportunity to change the world or universe, I guess, in this perspective. But from a manager perspective, you also have to cover your butt. You can’t see swings of $120 to $225. You just can’t see that in your portfolio. So, I think as a CYA, you basically have to say, “Hey, I’m going to wait for the market to feel this thing out, and then I might enter in at that point.” So. 

Well, it’s a good lesson and I think that SpaceX probably will be obviously the one that was talked about the most, the one that was hyped the most. But it’s a good lesson for all of our listeners if they’re looking at other IPOs coming out that a lot of them may act in this similar way, right? 

Absolutely. Yeah, and I think we’ll cover some more IPO stuff as we go. We wanted to give everybody an update because it was one of our most listened to episodes in a while. But before we hang up, Judson, I think maybe some more just broad general market thoughts. The market’s been a little interesting over the last month. 

I want to maybe talk just high level and then maybe a couple interesting observations. So, the first is that basically over the last month, S&P’s flat. Nothing. It’s still up 9.5% for the year, which is great. The Qs are down 2%. Small-cap continues to rip for the year. It’s up 2%, and international’s basically flat. 

So, over the last month, there’s so much macro, right? I mean, you’re dealing with everything’s still going on in Iran and the implications of inflation, which we’ll talk about here in just a second. And so from the macro perspective, the market’s basically gone sideways other than high quality small cap companies. 

But we’re still seeing these indices up. S&P’s up 9.5% this year, Qs are up 11%, small cap’s up 21%, international’s up 7%. It’s still been a really good year for our clients, but I think that it’s just like a really interesting market because as we go again, the second half of this year, there’s so many other things coming that will really kind of tell the story of where things are going. 

Yeah. For those of you who enjoy this type of investment talk, Hunter, one thing that we were talking about earlier today is there is a new letter that you’ve been developing that’s about to hit for our clients that will be coming out in August. Do you want to talk a little bit about what that is and why you’re doing it? 

Yeah. I think so many of our clients between this, our YouTube recordings, everything else, are like, “Hey, if I really want more on investments, like really more info from you guys, more technical stuff, like could I get that?” And so, yeah, I mean, for our clients, these will just be for clients only. We’re going to roll out our first investment newsletter in August. 

It’ll have a quick note from me on what types of things we’re seeing. It’ll have some high level returns on the benchmark. We’re going to have an interview that Tectonic does. Brad and Tectonic and that team does with one of our investment managers on like, “Hey, what are you seeing?” 

And then we’re also going to have a really detailed analysis by the Tectonic team on exactly what they’re seeing in the market. I’m excited. I think it’s going to give people the opportunity, our clients the opportunity to deep dive if they want or just read high level like you’re reading the front of a newspaper and move on. 

Well, I think it’s a good opportunity. You just went over some of those returns year to date, and I think that a lot of times you can look at your year-to-date return and go, “Oh, it’s a good year.” You may not know exactly how and why our managers or our allocations are doing so well for our clients. This gives you a little bit more context. 

And like you said, I think it’s great if you’ve never been to one of our Annual Meetings and been able to hear directly from one of our managers you’ll get a lot of great insight directly from them as well. So that’s fantastic. You can look for that sometime in August. And how will our clients receive that? 

Yeah, it’ll be out there on the client portal. And so, it’s going to be out there for you to read, and then of course you can always follow up with your advisor if you have more questions. But it’ll be an opportunity for us to talk through just some interesting things that are out there. 

Which, before we hang up, I do want to talk three just kind of fascinating things that have happened in the market over the last month or so. The first is IBM. So, IBM last week kind of a bad earnings report plus some messaging in there that basically people were spending more on AI hardware than they were on IBM software. 

The stock went down 25% in one day. It’s a big percent. Yes. Yes, it is. In the grand scheme of things, it was a nine-sigma event for a 115-year-old company. Nine-sigma, which is staggering from a statistics standpoint. Huge. It’s equivalent basically to Black Monday when the Dow went down 23%. 

I was like, okay, let’s give our listeners some context. Like, what in the scheme of like the lottery, what is a nine-sigma event? This is what Grok tells me. A nine-sigma event is you, Judson, playing the lottery and winning every week for 480 million years straight. Wow. Yes. Staggering, right? I haven’t won one week. Imagine that. And IBM stock went down 25%. 

But again, I think it’s fascinating. IBM’s a great company. And it’s still going to be there, and I’m sure it’ll rise back up over time. It’s still paying its dividend yield. None of that’s a problem. Again, it’s just sort of this insight of this is why we don’t buy single positions. This is why we diversify. This is why we’re in these different types of things, because IBM is a type of company every single person in America would say, “Yeah, that’s a good company to buy.” 

So anyway, super fascinating there. Next one very quickly the 10-year yield, which is the proxy on kind of how 30-year mortgage rates are set. It kind of had hit a high because of all the stuff going on in Iran. It was up to about 4.7%. With the Iran MOU, it drifted down to like 4.5%, 4.4%. It’s now back up to 4.63%. So that is a problem for mortgage rates. Mortgage rates now, as of today, are back up to 30 years- 30-year fixed at 6.75%. It’s been as low as 6.25%. So that’s a problem as we go into the fall. 

But Judson, we’re also going to have story time with Brad upcoming, and I think that’ll help inform some of the stuff here, right? Absolutely. Because what are we going to talk about on that? Hunter, thanks for asking. We’re going to be talking about the new Fed chair, Kevin Warsh, and what we expect from rates, because as we talked about on one of our last episodes the outlook for rate changes has really changed over the last couple months.  

Well, yeah, and he made some big changes. Like, it’ll be great to talk to Brad about it, because he made some big changes to forward guidance. So yeah, listeners, look for that one upcoming, because again, this stuff’s crazy with mortgage rates. But – and the last thing I think is interesting, Judson, is inflation, which we kind of briefly mentioned in a scatter shooting a little while ago, but CPI for June was 3.5, which was actually down from May. For the first time in a bit. Yeah. 

Core CPI also down. PCE won’t release until the end of next week, which is the Fed’s sort of preferred one. But man, this is an oil story, right? Yeah, 100%. Like, CPI is going where oil goes, and so – And it’s back up. Yeah. Yeah, we might get some of that in story time with Brad, but this Iran stuff is problematic for inflation, for sure. 

Yeah, even with the reduction, it’s not where we want it to be, and I think that’s the storyline that we’ve have to talk about we need that to go down. That’s right. 

Well, before you hang us up, Judson, man, we’ve got an incredible fall coming. We’re wrapping up the summer here shortly. Kiddos will be going off to school. We’ve got a series coming on data centers, which I think is going to be awesome. Like, what they are, how they’re built, what do they mean for our future, why are they important, what are their resource constraints, all that type of stuff. So, I think that one will be really cool. 

We’ve got story time with Brad. We’ve got an amazing guest lineup for this fall. Most importantly, though, Hunter … Uh-oh … we have our 300th recording. Okay, I was going to go there, but yeah, we have some cool guest listeners lined up. 

But Judson, what’s the most exciting one we have coming? We have our 300th episode being recorded just in a couple weeks, which we’ll have some special guests, some amazing things that you may not know about Hunter and myself, which I don’t even know what’s going to come, honestly. I don’t know what’s going to be said but I’m not nervous about it. I’m less nervous about that than the July 4th episode, so there’s that. Yeah. Anyway, we’ll be back in front of you next week, listeners. Thanks again. 

All right, the best way to keep up with us is to subscribe to this podcast. That way, you never have to miss an episode, and you can go back and listen to all the others. If you’re enjoying us so far, please leave us a review. If you have a question, comment, or suggestion for a future episode, drop us a line at cainwatters.com/wealth. We really do answer these. And if you want to learn more about what we do when we’re not recording these episodes, visit cainwatters.com to see how we’re helping our over 3,500 clients reach their long-term financial goals.