SpaceX's upcoming initial public offering, which is expected to set a record for size, has Wall Street preparing intensively, while individual investors are also hoping to secure a stake. Bankers and institutional investors in discussions with SpaceX executives are debating how many shares should be reserved for retail investors to purchase at the IPO price. These investors would be able to subscribe through brokerage platforms such as Robinhood, SoFi, and Morgan Stanley’s E-Trade, while high-net-worth clients could buy shares directly through banks.

One reason for this consideration is the expectation that individual investors, drawn by Elon Musk’s substantial online influence—similar to the enthusiasm they showed for Tesla stock—will again demonstrate strong interest in SpaceX. In addition, retail brokerages that stand to benefit from the IPO boom are also seeking sizable allocations.

However, investment banks managing the IPO typically prefer to allocate shares to mutual funds rather than individual traders, as they believe mutual funds are more likely to hold the stock for the longer term after listing.

Despite this, banking sources indicate that the proportion of shares reserved for retail investors in the SpaceX offering is likely to exceed the usual 10% to 15% range.

The sheer scale of SpaceX’s IPO also necessitates broader investor participation. SpaceX executives have informed investors that the company aims to raise approximately $500 billion, a figure that could nearly double the size of the largest IPO on record. Many of the world’s major institutional investors and mutual funds already hold stakes in SpaceX from its private phase, which may limit their appetite for additional shares.

"As we approach an ultra-large IPO, a wider distribution channel is essential," said Gregor Feige, Co-Head of Americas Equity Capital Markets at UBS. "The trend we are observing is that companies planning to go public are increasingly willing to make allocations on a global basis—whether to sovereign wealth funds, family offices, ultra-high-net-worth individuals, or retail investors."

The extent of retail investor involvement could influence what is already a complex IPO. Following its recent merger with Musk's xAI, SpaceX is no longer just a rocket and satellite internet company. xAI is making costly investments to compete in artificial intelligence against firms like OpenAI, Anthropic, and Google, and these expenditures could dampen investor enthusiasm.

At the same time, two other major AI competitors—OpenAI and Anthropic—are also advancing plans for large-scale IPOs, which may divert investor attention and capital.

One key motivation for SpaceX to end its nearly 25-year run as a private company is its ability to raise funds directly from individual investors and index funds.

Musk has publicly discussed the company’s capital-intensive projects, such as building factories on the Moon and launching data centers into space to alleviate Earth’s energy and land constraints.

"Public markets clearly have far more capital than private markets—if not 100 times more, then certainly more than 10 times," Musk stated last week on the Cheeky Pints podcast.

Consumer technology companies have a history of reserving shares for long-term users before going public, allowing them to participate before potential first-day price surges. Such companies can set aside shares through directed share programs.

For example, according to securities filings, Airbnb reserved up to 7% of its IPO shares in 2020 for U.S. hosts on its platform. In 2024, Reddit allocated 8% of its offering to U.S. users and moderators.

Retail brokerage executives have been advocating for larger allocations ahead of the SpaceX listing, arguing that individual investors can positively influence a company’s stock performance.

Vlad Tenev, CEO of Robinhood, has pointed out that in recent years, companies with a high proportion of retail shareholders—such as Palantir and Robinhood itself—have often enjoyed valuation premiums in the market.

That said, retail investors who receive IPO allocations can also face losses. Last year, cryptocurrency exchanges Gemini and Bullish allocated unusually high percentages—30% and 20%, respectively—to individual investors. Despite strong debuts, both companies’ shares have since fallen more than 50% below their IPO prices.

Tesla, now valued at $1.3 trillion, has continued to see its stock rise in recent years driven by retail investors, even as vehicle sales have declined. According to S&P Global Market Intelligence data, public investors hold approximately 40% of Tesla’s outstanding shares, compared to around 30% for other tech stocks such as Apple, Alphabet, and Nvidia.

"I love retail investors," Musk said in a 2024 interview. "They choose to support the company, and I am very grateful for that."