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Space Exploration Technologies (SPCX), better known as SpaceX, shattered records with its IPO, issuing almost $86 billion in stock. While management favored retail investors with its IPO allocations, institutional investors still held a huge amount of the stock as of the end of the quarter. Filings with the SEC revealed that 1,941 professional investment managers and corporate investors held more than $600 billion worth of SpaceX stock by June 30. Many of these shareholders were required to hold their shares through July, but in August, they finally got the opportunity to cash out some of their investments, with further opportunities in September and October.
Meanwhile, index funds will be buying up shares as more of the stock becomes publicly available. When SpaceX filed to go public, many popular stock indexes updated their rules to include the company shortly after its market debut. Popular indexes with SpaceX already included are Nasdaq-100 (tracked via Invesco QQQ Trust), Morningstar US Total Market (tracked via Vanguard Total Stock Market ETF), and Russell 1000 (tracked via iShares Russell 1000 ETF). Notably absent is the S&P 500, which refused to update its inclusion criteria, leaving SpaceX out of this large-cap index for at least a year.
The three indexes began with relatively small weightings for SpaceX because the company only offered about 5% of its stock to the public. The Nasdaq-100 has the highest weighting for SpaceX due to its fewer constituents and a tripling of the float-adjusted market cap, meaning SpaceX could be fully weighted once 33.4% of its stock is available, likely by the end of the year. With lockup expirations in August and further expirations in September, October, and November, the indexes will increase SpaceX's weighting during rebalancing in mid-September for Nasdaq-100 and Morningstar US Total Market, and later for Russell 1000.
The billions of dollars locked in index funds tracking these indexes, along with mutual funds benchmarked against them, will drive significant buying pressure for SpaceX stock over the next few months. However, hundreds of billions of dollars worth of shares are still locked up, with most coming to market by the end of the year. Early investors are likely eager to sell their shares, possibly to reduce concentration risk, while index fund managers buy due to regulatory requirements. This creates a dynamic where individual investors may find buying opportunities amid near-term selling pressure, though volatility is expected as lockup expirations and index rebalancing trigger large trading volumes.
Investors should consider SpaceX’s long-term potential, particularly in its artificial intelligence and communications businesses, despite recent financial results and near-term expectations. The stock’s value is heavily tied to high growth expectations, and its volatility will likely persist as institutional selling and buying events unfold. Investors looking to avoid SpaceX can shift assets to the S&P 500 or other indexes that won’t include it until next year, but those locked into certain funds may struggle to avoid exposure.
Source: The Motley Fool
