Source: GEP
Less than a month ago, we witnessed the largest Initial Public Offering in history: SpaceX.
To put the sheer scale of the SpaceX IPO into perspective, the previous record – set six years ago by the IPO of Saudi Aramco, the state-owned energy company of Saudi Arabia – was not even half the size at a staggering ~$29 billion dollars. In fact, even at its set initial price of $135 per share, SpaceX’s offering would have been larger than all IPOs issued in 24 of the last 30 years dating back to 1995 (Figure 1). Instead, the stock opened trading at $150USD/share and ended its first day of public trading at just under $161USD/share.
Figure 1: Historical IPO data vs SpaceX
Source: Dealogic, The New York Times. Note: Monetary values have been adjusted for inflation.
The SpaceX IPO was different in other ways, too. Where normally mega-IPOs are dominated by institutional investors, 30% of this offering was reserved for retail investors. Fidelity dropped their initial investment minimum from $500,000 to just $2,000 – other brokerages waived any initial minimum requirement at all.
This play to the investing public worked: over its first three days of trading, retail investors bought more SpaceX than all “Magnificent Seven” stocks combined.
So, the question on our clients’ minds is undoubtedly: did we participate?
Not all that glitters is space dust
In 2015, long before space became a part of everyday investment conversations, we invested in Linde – a global industrial gases and engineering company.
At the time, there was very little about Linde that captured investors’ imagination. But our conviction was driven less by the industry itself, and more by Linde’s differentiated culture and execution record. We are yet to find a company that doesn’t wish to grow faster than its industry and achieve greater profitability. Yet, in practice, we rarely see that level of execution. Linde’s incentives, governance, and organization structure set them apart and allowed them to execute consistently.
Plus, we saw an enduring business with essential, recurring demand, high barriers to entry, and a management team focused on growth and returns on capital – all things we look for in our portfolios even in the absence of unknowable future catalysts.
Seeing value before the market does
Around 2018, we got our first confirmation that our high assessment of Linde’s management was correct when they identified semiconductors as a long-term growth area: a $3 billion opportunity, they estimated, growing at 9–10% over time.
The announcement attracted little attention at the time. After all, the AI craze ignited by the release of ChatGPT was still 4 years away. But in the years since, this segment has grown into a meaningful part of Linde’s business (reaching $7-8 billion) with relationships across the world’s leading manufacturers including Taiwan Semiconductor Manufacturing Company and Samsung.
Tracing the spark back to its source
Now, a similar pattern is emerging in space. Linde has supplied NASA and the U.S. space program since the 1960s, but only recently has management begun discussing space as a growing opportunity.
Today, Linde is quite literally fueling the future by supplying fuel and propellants to companies such as SpaceX and Blue Origin, supporting approximately 60% of all U.S. rocket launches.
Linde’s space-related revenue remains relatively small today, but management continues to steadily grow its exposure to the sector, illustrating their ability to create what we call “real options” by identifying and participating early in opportunities that could scale meaningfully over time.
Over the same period, Linde’s peers have delivered less consistent execution, highlighting how even small differences in capital allocation compound into meaningful divergence over time (Figure 2).
Figure 2: Share price of Linde vs the broader market
Source: Bloomberg
Process over prediction
So, no: we did not participate in the SpaceX IPO.
While what SpaceX have achieved over the last decade is no mean feat, it is still early days for SpaceX as a public company. Their aspiration for the future seems even more audacious and straight out of a sci-fi movie (i.e. building data centers in space). If SpaceX achieves even an iota of what they aspire to, it will be a giant leap for humanity. Yet, such objectives are seldom achieved in a straight line, often falling in what we term in investing parlance as “unknown and unknowable”. As disciplined investors, how does one value something like that where the risk/reward profile cannot be ascertained with reasonable certainty?
This is why a core tenet of our investment philosophy remains to “seek the truth” – to look beneath the surface through disciplined, bottom-up research and ask: what could continue to work, even if the narratives change?
In our experience, the most enduring compounders rarely demand attention loudly – and their most valuable opportunities are often underestimated in their early stages.
But by the time management’s good choices become obvious to the market at large, the compounding has already done its work.
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