Key Points
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SpaceX will likely be added to the Nasdaq-100 index after the market closes on July 6.
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Inclusion in the index means that funds tracking the Nasdaq-100 will purchase the stock.
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While purchasing action could be a bullish catalyst for SpaceX, investors have to look at the bigger picture.
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Following its initial public offering (IPO) on June 12, Space Exploration Technologies (NASDAQ: SPCX) immediately became one of the world’s largest publicly traded companies. The space tech and artificial intelligence (AI) company went public at a valuation of $1.77 trillion and has since seen its valuation march even higher, with its market capitalization sitting at $2.1 trillion as of this writing. Now, SpaceX is coming up on another milestone.
After the market closes on July 6, SpaceX will be added to the Nasdaq-100 index — an index that includes the 100 largest, non-financial companies that trade on the Nasdaq stock exchange. As a result, exchange-traded funds (ETFs) that track the Nasdaq-100 will be buying the stock so that their portfolios accurately reflect the index. In turn, the buying action could be a catalyst that works to send the company’s share price higher. Does that mean SpaceX stock is a buy before July 7?
Is SpaceX stock a hot buy ahead of its Nasdaq-100 inclusion?
While SpaceX has seen some substantial swings since its IPO, it’s also shown meaningful pricing support near the $160.95 per share level it closed at on the day of its public debut. As of this writing, the company’s share price is just below that level and 17% from its $135 per share listing price.
With inclusion in the Nasdaq-100 on the horizon and the promise of SpaceX being added to other major indexes in the not-too-distant future, I wouldn’t be surprised to see the stock gain ground between now and July 7. On the other hand, I also don’t think that investors should rush to buy shares ahead of next week’s big index inclusion milestone.
For starters, SpaceX stock does not trade in a vacuum — and macroeconomic and geopolitical dynamics will continue to have a significant impact on how its stock trades in the near term and the long term. I also think that the stock trades at hugely growth-dependent valuation levels that look difficult to justify right now.
SpaceX recorded a net loss of roughly $4.9 billion last year on sales of approximately $18.7 billion. While it appears very likely that the business will see sales growth that exceeds last year’s annual expansion of 33%, there’s a good chance that heavy spending on the company’s AI segment will also result in this year’s annual loss coming in far above last year’s level.
SpaceX is roughly three weeks removed from its IPO, and there’s a risk that hype connected to its public debut and investors hoping to score gains with short-term trades are still propping up its valuation. There may also be a bigger “cash out” risk looming through the remainder of the year.
While SpaceX insiders are currently prohibited from selling their shares due to the post-IPO lockup period, roughly $800 billion in shares will become eligible for sale by October. Given that many inside shareholders have already seen massive gains on stock issued throughout SpaceX’s time as a privately held company, there’s a good chance that there will be a lot of selling action later in the year. With that in mind, I think investors will likely have the opportunity to purchase shares well below their current valuation levels by the end of the year.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
