SpaceX's impending inclusion in indexes like the Nasdaq 100 has created a dilemma for a segment of investors, particularly those who prefer to avoid the company or its CEO, Elon Musk. These investors, who might be risk-averse or concerned by Musk's various controversies, are now being forced to hold SpaceX shares through their passively managed index funds. This situation is prompting some to actively adjust their portfolios to minimize or eliminate their exposure to the volatile stock.
SpaceX's recent initial public offering (IPO) has seen significant volatility, peaking on its third day of trading before losing about 15% of its value since then. Despite its high valuation, trading at more than 100 times its revenue, the company has incurred substantial losses, including $4.3 billion in the first three months of the year. This financial performance makes its inclusion in the S&P 500 unlikely in the near future, as that index requires consistent profitability. The Nasdaq loosened its rules, allowing SpaceX's inclusion despite its financial losses, leading to its imminent entry into the Nasdaq 100 as early as next week.
Financial analysts are largely split on SpaceX's prospects. While some, like Wedbush's Dan Ives, have set a $190 price target with an outperform rating, others cite valuation concerns. Kailash Concepts, for example, notes that the stock trades at 100 times annual revenue, a multiple historically associated with steep declines. Wedbush's target is based on a potential market-cap weighting of about 0.7% in the Nasdaq 100, which could lead to forced buying by index funds of approximately $4.3 billion. Concerns also extend to the company's bond performance, with a $25 billion bond issuance now trading at a steep discount, resulting in about $305 million in paper losses for investors.
