Shares of SpaceX saw a modest increase of 0.15% on Friday as the company prepared for its inclusion in a key Russell index. Passive funds that track these benchmark indices are required to add the internet and rocket company, founded by Elon Musk, to their holdings, involving billions of dollars in capital flows.
Traders exchanged approximately $19 billion worth of SpaceX stock on the day, with nearly half of that volume concentrated in the final minutes before the market closed.
Following its high-profile initial public offering this month, SpaceX's share price has experienced significant volatility. It initially surged 67% to an intraday high of $225.64 on June 16th before retreating to close at $153.23 on Friday.
Despite investors still evaluating how to value a company that reported a $4.9 billion loss last year, the stock price remains well above its IPO offering price of $135. Supporters anticipate that SpaceX will dominate the markets for satellite internet, artificial intelligence, and commercial space launches—areas they believe will define the next decade of global infrastructure development.
FTSE Russell will add SpaceX to its Russell US Indexes after Friday's market close as part of its semi-annual index reconstitution. This means passively managed exchange-traded funds that track the Russell indexes, such as the iShares Russell 1000 ETF, must incorporate SpaceX shares into their portfolios before the market opens on Monday.
When new companies are added to an index, passive funds adjust their holdings while striving to minimize "tracking error"—the divergence between the fund's performance and the index's performance, which can occur if purchase prices differ from the closing price used for the rebalance.
Although SpaceX's $2 trillion market capitalization gives it a valuation nearly on par with Amazon, only about $100 billion worth of its shares are currently available for public trading. The remaining shares are held by Musk, other insiders, and company employees.
A report released on Friday by quantitative analyst Melissa Roberts at Stephens indicated that passive funds will need to purchase over $4 billion worth of SpaceX stock to align with the Russell indexes they track.
The Nasdaq exchange confirmed on Friday that SpaceX will be added to the tech-heavy Nasdaq-100 Index on July 7th. This event will compel large index funds tracking that benchmark, such as the Invesco QQQ ETF, to buy the stock.
After recent declines, SpaceX's valuation metrics appear stretched, with its price-to-sales ratio reaching approximately 107 times its projected 2025 sales. In contrast, the valuation for AI chipmaking giant Nvidia recently stood at just 21 times sales.
S&P Global blocked SpaceX's inclusion in the S&P 500 index. The agency stated this month it would not alter its inclusion criteria to accommodate extremely large IPOs. Under one of S&P's unmodified rules, for a company to join the S&P 500, it must be profitable not only in its most recent quarter but also on a cumulative basis over the last four quarters.
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