SpaceX, Elon Musk's space technology company, is reportedly nearing its initial public offering (IPO), which is expected to occur "tomorrow." While the company is seeking a valuation of $1.75 trillion, analysts are divided on its realism, with Morningstar valuing it closer to $780 billion, representing a nearly $1 trillion gap. This valuation is particularly contentious given that SpaceX is currently a loss-making business, having lost approximately $4.2 billion in the first quarter.
A key concern for market experts is the unusual relaxation of rules for index inclusion ahead of SpaceX's IPO. Typically, new shares need to be listed for a year or two before being added to major indices. However, both Nasdaq and FTSE Russell are reported to be allowing SpaceX to enter their indices much sooner, with Nasdaq permitting inclusion after just 15 trading days. This accelerated inclusion means that every tracker fund following these indices will automatically purchase SpaceX shares upon its IPO.
This situation is expected to force passive investors, particularly those in tracker funds, to buy SpaceX stock irrespective of their fundamental investment views. JPMorgan estimates that if SpaceX lists at its proposed price, around $95 billion of existing large-cap tech stocks might need to be sold to maintain current weightings. This shift could catch many investors off guard, especially those who assume their passive funds are broadly diversified and prudent, as a significant portion of their portfolios could become concentrated in SpaceX.
The potential for immediate, large-scale passive buying is viewed as a mechanism that could inflate SpaceX's stock price post-IPO, regardless of its fundamental value or the fact that it reportedly trades at 100 times revenue and pays no dividends. Some analysts suggest that this scenario primarily poses a problem for conventional, cap-weighted passive investors, while those employing fundamental weighting or active management strategies may be able to sidestep being forced buyers at inflated prices. Some alternative methods for speculating on private company valuations, such as through platforms like Polymarket, are emerging, but these do not directly support new issues.
