It’s not just 90m Americans sweltering through a heatwave. The hottest stock on the market right now is Space Exploration Technologies (NASDAQ: SPCX). SpaceX, as it’s best known, joins the Nasdaq 100 tomorrow (7 July) and funds tracking the benchmark have to buy today.
JP Morgan estimates around $4.3bn of buying, most of it landing in tonight’s closing auction. So is there a chance to beat the queues and buy ahead of the demand?
The set-up
The mechanics look tempting. Funds tracking the index don’t need to think about price, valuation, or direction — they just have to own the stock by tomorrow’s open.
The buying’s also aimed at an unusually small target. SpaceX floated only around 4.3% of its equity, so billions in mechanical demand will be chasing a sliver of a $2trn company.
Unusual buying pressure into an artificially-thin float looks like an opportunity. In a stock market that’s been interested in bottlenecks recently, this might be the biggest of them.
There are however, a couple of catches. One is a short-term issue around trading volumes and the other is around how to manage risk if things don’t go to plan.
The catch
Before joining the queue, diligent investors should look at the volumes. Roughly 500m shares traded on day-one alone — almost the entire 555.6m-share float changing hands in a single session.
Three weeks on, these shares have turned over several times. That matters, because it suggests plenty of investors from before the IPO are still looking for an exit.
There’s a detail in the pre-IPO S-1 filing that’s easy to miss: SpaceX’s amended document entitles restricted holders to sell the equivalent of 7% of shares outstanding. There’s more stock than the IPO itself.
So while index demand’s a one-time event that normalises immediately afterwards, insider supply from the private years is ongoing. Anyone buying today’s close is potentially providing an exit, not catching a wave.
Price is what you pay
Longer-term, the question is what investors are actually getting – the technology’s legitimately excellent, and the business has an effective monopoly on Western launch capacity. But there are some big questions.
At a price-to-sales (P/S) ratio of 155, the business needs two things: a massive revenue growth and a huge margin expansion.
To some extent, operational leverage should mean that one drives the other. But the launch business – where SpaceX has a monopoly – growth was just 8%.
Furthermore, of the 165 Falcon 9 launches in 2025, only 43 were for outside customers. The rest were SpaceX’s own satellites, which isn’t a way of bringing in new capital.
A monopoly should help protect pricing. But this is a speculative valuation priced for perfection, in a business that spends like a space programme — because it is one.
My verdict
The index inclusion’s real, but so is the supply waiting to meet it. Like the USA reaching the World Cup last 16, the achievement’s impressive – but it’s the price of the celebration that worries me.
SpaceX looks like a great business. But not every great business is a great investment in the stock market and I’m not buying today.
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Stephen Wright does not own shares in any of the companies mentioned.
