Key insights
- Jim Cramer identifies short-term speculators as a key risk for the SpaceX IPO, fearing they may sell quickly, causing volatility. While strong demand is reported, Cramer prefers long-term investors. He suggests that a tightly allocated offering and fewer shares allocated to investors could mitigate this risk by signaling strong demand and encouraging holding periods.
CNBC’s Jim Cramer said Wednesday that one of the biggest risks facing the upcoming SpaceX IPO isn’t a lack of demand — it’s the possibility that too many investors are looking for a quick profit.
“The speculators aren’t there for the long haul. They may not even be there for the afternoon,” the “Mad Money” host said. “This cohort worries me.”
Elon Musk’s rocket company is reportedly four times oversubscribed, meaning demand from investors is roughly four times greater than the number of shares available in the offering. While that typically signals strong interest, Cramer said the composition of the buyer base may matter more than the headline demand figure.
His concern is that some investors are treating the IPO as a short-term trade rather than a long-term investment. If those shareholders rush to sell after the stock begins trading, it could create volatility and pressure the shares.
“These people could hurt you,” Cramer said. “They’re not your friends, because they just want to flip this thing as soon as possible.”
Instead, Cramer said the healthiest IPOs tend to attract investors who are willing to hold the stock for years.
“What you want is a deal where the only buyers are retail investors who don’t touch it, or maybe buy more after the opening, coupled with big institutions who got in very early and don’t want to sell it because they promised they wouldn’t,” he said.
Cramer added that a tightly allocated offering can help reduce the influence of short-term traders. In his view, investors should actually hope they receive fewer shares than they request because it signals demand is outstripping supply.
“If you’re in for 100 shares and you only get 25 shares, you know you’re in good shape,” he said. “It makes everyone hungry to buy more.”
While SpaceX’s reported oversubscription should help limit the impact of speculators, Cramer said he would feel more comfortable if demand were even stronger.
“Given that this deal is four times oversubscribed, that shouldn’t happen,” he said. “But, in reality, I accept that if SpaceX were ten times oversubscribed, I would feel a heck of a lot better.”
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