Key takeaways:
- An IPO is a company’s first public share sale, but the headline price and valuation don’t always reflect what most investors can actually buy.
- Big IPOs can be volatile early on because only a small slice of shares may trade at first (the float), and later index inclusion can trigger automatic fund buying.
- Following hype can be a risky investment strategy: first-day “pops” can be hard to capture, so long-term investors are usually better served by diversification and patience.
If you’ve been hearing more and more about IPOs, you’re not alone; with the recent SpaceX listing, curiosity and excitement have peaked.
With a lot of buzz, however, can also come a lot of confusion.
So, if you’ve been wondering:
- What is an IPO?
- Why all the excitement?
- Beyond the SpaceX headlines, what do I actually need to know?
...keep reading, because we cover all this – and more – in our comprehensive guide.
- What is an IPO?
- The SpaceX example
- Is the whole company up for sale?
- What happens when SpaceX joins big market "indices"?
- Why index inclusion can move the share price
- More big names may be on the way
- Why IPOs get people excited
- What history tends to show (after the first day)
- What this means if you're investing for the long term
- How Wealthify fits in
What is an IPO?
IPO stands for Initial Public Offering.
It refers to the first time a privately owned company sells shares to the public on the stock market.
A share is a small slice of ownership in a company. If you own shares, you’re one of the owners — even if that only means owning a tiny fraction.
Companies usually do an IPO for two main reasons:
- To raise money to fund growth (new projects, hiring, expansion, paying down debt, and so on).
- To give early investors and employees a way to sell some of what they own. Before an IPO, it’s often hard to turn those shares into cash.
Before a company goes public, you generally couldn’t buy in unless you’re a large institution or a specialist investor.
The SpaceX example
If you’ve been keeping on top of the headlines, you’ll likely have seen many references to SpaceX. As you may already know, SpaceX is Elon Musk’s aerospace manufacturer, primarily known for launching reusable rockets.
SpaceX going public in the US is a big reason the IPO chat has ramped up. Reported figures from coverage include:
- Shares priced at $135 each. [1]
- A headline valuation of around $1.77 trillion. [2]
- Roughly $75 billion raised. [3]
That combination – a famous name plus enormous size – is why it’s being talked about so widely.
You may also have seen reports that a larger‑than‑usual portion of shares were made available to everyday investors: SpaceX reportedly allocated over 20% of its total share offering to retail. [4]
If those reports are accurate, it would be unusual – many IPOs are dominated by institutions, leaving ordinary investors with relatively limited access.
Is the whole company up for sale?
No. When a company “goes public”, it usually only sells a slice of itself.
The founders, staff, and early investors typically keep most of their shares, otherwise they risk losing control of their own company.
The key term: “the float”
The shares that are actually available to buy and sell in the open market are often called “the float” or “free float” (this refers to shares that are available to the public to trade).
If the float is small, two things tend to happen:
- The price can swing more ; because fewer shares are available, it can take less buying or selling to move the price.
- The headline valuation may be misleading in terms of what investors can get their hands on in the early days.
With SpaceX, the important point for understanding the early volatility is not just company size, but how many shares are actually out there to trade.
What happens when SpaceX joins big market "indices"?
An index is basically a list of companies. Examples you might have heard of include the:
- S&P 500.
- Nasdaq‑100.
- Russell family of indices (like the Russell 1000).
A huge number of funds simply track these lists, meaning they try to hold the companies in the index in roughly the same proportions.
Why index inclusion can move the share price
When a company is added to an index, funds that track that index may need to buy the shares automatically, which can create a burst of extra demand.
For some indices (like Russell indices), there are also rules that can allow large IPOs to enter relatively quickly, rather than waiting for an annual reshuffle (though the exact timings depend on the index provider’s methodology and the company’s eligibility).
One important exception: the S&P 500
To join the S&P 500, a company must meet eligibility rules beyond size – including a profitability test based on GAAP (Generally Accepted Accounting Principles) earnings, meaning it generally needs a track record of profits before it can be added.
So, even if a newly public company is huge, it may not be added to the S&P 500 immediately if it doesn’t meet those rules.
Why its “weight” in indices can start small — and may grow
When people hear about a multi‑trillion‑dollar company, many assume it must instantly become one of the biggest parts of any index.
But many indices don’t weight companies by the headline valuation. They weight by “free‑float” market value or, in other words, the value of shares actually available to public investors.
So, if a company has a very large valuation but only a small portion of shares available to trade, its index weight can start smaller than you’d expect.
Over time, that can change due to a number of factors:
- Lock‑ups (a contract that bars insiders from selling shares for a set period after the IPO) end, meaning some early holders are allowed to sell and more shares can become available.
- The company may do additional share sales later, known as “secondary offerings”.
- It may become eligible for more indices as it builds a longer record as a public company.
What this means is that index ownership tends to build over time and not necessarily all at once, on day one.
More big names may be on the way
SpaceX may not be the last major listing you hear about.
Other high‑profile AI companies have been discussed as potential future IPO candidates, including Anthropic and OpenAI. Still, it’s worth noting that filing paperwork isn’t the same as committing to a date, and plans can change.
Even if the names change, the hype cycle often repeats in similar fashion.
Why IPOs get people excited
IPOs push a lot of psychological buttons for people. Here’s a few reasons why:
- They feel like a cultural moment, with a lot of “buzz” and people talking about it.
- They can trigger fear of missing out, as people don’t want to miss an opportunity to be a part of the next big winner.
- In a similar vein, people are keen to “get in early”, even though the company may have been operating for years.
This kind of excitement is normal, but it can also cloud judgement, leaving less time for important questions like:
- What price am I paying?
- How risky is this?
- What could go wrong?
The “first‑day pop” — and the catch!
Sometimes, you’ll see headlines that say things like “IPO jumps 20% on debut”.
And it’s true, this sort of thing can happen.
But at the same time, a large portion of that jump may occur before many everyday investors can buy. This is because IPO prices are often allocated to large institutions and certain clients first, and trading can move quickly once the stock starts trading publicly.
This is why headlines should always be taken with a grain of salt. Just because something is technically true, it doesn’t necessarily account for the nuances.
The reality is, the best price movement may have actually happened before you even had the chance to gain access.
What history tends to show (after the first day)
Looking at a large number of IPOs over time, [5] you may notice certain patterns:
- Day one can be strong (that’s what makes the news).
- The next 6-12 months looks more mixed, and the “easy money” story doesn’t reliably continue.
- Over longer periods, many studies find IPOs, as a group, can lag comparable to already‑listed companies.
Of course, history isn’t a crystal ball. But what it can be is a useful reality check when the headlines make an IPO sound like a low-risk bet.
Investing gives your money the opportunity to grow over the long term, although returns can rise and fall with market conditions.
What this means if you're investing for the long term
If you’re investing for long‑term goals like a house deposit, financial independence, or retirement, you don’t necessarily need to react to every new listing.
The basics tend to matter more than the hype:
- Diversification, spreading your money across many companies and types of investment.
- Invest at a risk level you can live with. For example, Wealthify customers have access to five different investment styles, along with our expert investment team managing their money for them.
- Stay invested over the long term through the ups and downs, commonly known as “staying the course”.
Trying to jump on each new big name may produce fewer rewards than a steady approach.
As a rule of thumb, caution and a cool head can often help reduce the temptation to buy when excitement (and prices) could be high.
How Wealthify fits in
Wealthify builds ready‑made, diversified Investment Plans that spread your money across lots of investments, rather than relying on any single company performance.
Over time, diversified funds and portfolios often end up owning many of the biggest companies anyway (which’ll likely include today’s headline names), as they grow and become part of widely tracked markets and indices.
This means you can participate in long‑term market growth without needing to guess which single IPO might be the next superstar.
If you opt for a Wealthify Plan such as a Stocks and Shares ISA, Junior ISA, or Self-Invested Personal Pension, your investments will be managed by our in-house expert Investment Team.
They’ll invest in line with your chosen investment style, managing the hard work and investment know-how on your behalf.
And that means you can get on with what really matters: living life.
Investing involves risk. The value of investments can go down as well as up, so you could get back less than you invest. It’s important to note this article is for general information only, and isn't personal financial advice.
