The initial public offering of SpaceX has proven to be a resounding success, with its stock experiencing a significant surge since its debut. On its third day of trading, shares of the Elon Musk-led aerospace and artificial intelligence giant briefly surpassed $225 before settling at $201.68. For a considerable portion of the day, SpaceX’s market capitalization eclipsed that of e-commerce behemoth Amazon, which currently stands at $2.65 trillion.
While the fervor surrounding SpaceX’s public debut is undeniable, a critical question emerges: does this early trading activity reflect genuine investor demand, or are we still in an initial “honeymoon period” where the stock’s valuation is unassailable before market realities begin to set in? This is not to question the intrinsic value of SpaceX itself. Given Elon Musk’s proven track record with Tesla, betting against him would be ill-advised. SpaceX has achieved remarkable feats since its inception over two decades ago. The company is not only launching rockets but is also developing Starship, a fully reusable spacecraft with the potential to revolutionize the economics of space exploration. Its Starlink service is actively deploying satellites to provide global internet access, and through its recent acquisition of xAI, the parent company of social media platform X and the Grok chatbot, SpaceX is now a formidable player in the AI arena, with ambitious plans for in-space data centers. The recent announcement of a $60 billion deal for AI coding startup Cursor further underscores its aggressive expansion into the AI sector.
However, the revolutionary nature of a company does not automatically guarantee its accurate valuation, and this is where the current valuation of SpaceX stock warrants closer examination. The true worth of SpaceX remains largely unknown, and it is likely to take weeks, if not months, to ascertain. While Musk’s long-term vision is compelling, the timelines for achieving these ambitious goals, particularly for unproven technologies like orbital data centers, are inherently uncertain. Currently, SpaceX generates relatively modest revenue, requires substantial capital investment to realize its objectives, and has presented total addressable market projections that some may consider overly optimistic.
A primary concern is the absence of genuine price discovery. Despite being publicly traded for a few days, the current market price does not accurately reflect authentic price discovery. Pre-IPO, SpaceX largely dictated its own offering price of $135 per share, circumventing the traditional IPO process where investment banks gauge investor appetite to establish a price range. Furthermore, recent adjustments to index inclusion rules by Nasdaq and FTSE Russell are poised to accelerate SpaceX’s entry into major indexes like the Nasdaq 100, a move that could also benefit other future high-profile IPOs from companies like OpenAI and Anthropic.
Key Nasdaq rule changes include the removal of a minimum free-float requirement, previously set at 10% of a company’s shares being freely tradable for index inclusion. Nasdaq has instead implemented a weighting system that caps the influence of low-float stocks. SpaceX, having sold only approximately 5% of its shares in the IPO, falls under this designation. While the float is expected to grow as lock-up periods expire, SpaceX’s unconventional lock-up schedule adds another layer of complexity. Perhaps the most significant change is the drastically shortened “seasoning window” for new listings. Companies previously needed up to a year to qualify for index inclusion, whereas SpaceX will now be eligible for the Nasdaq 100 after a mere 15 days, or three trading weeks. Similarly, FTSE Russell has reduced its eligibility period to just five trading days, from its previous quarterly reconstitution cycle. FTSE Russell has also revised its minimum free-float requirement.
The rationale behind these accelerated inclusion rules is that indexes should accurately reflect the broader market, and excluding significant new public companies would undermine this aim. This predicament arises largely from startups choosing to remain private for extended periods and then debuting at significantly higher valuations. Notably, the organization behind the S&P 500 index has maintained its inclusion rules, which require a company to be profitable in its most recent quarter and on a trailing 12-month basis – a benchmark that SpaceX has yet to meet and may take considerable time to achieve.
For both Nasdaq and FTSE Russell, the consequence is that index-tracking funds will be compelled to acquire SpaceX shares without price sensitivity. This creates a window of opportunity for active investors to accumulate shares before the stock is incorporated into widely held passive index funds. The Invesco QQQ Trust, an ETF tracking the Nasdaq 100, alone manages nearly $500 billion in assets.
In essence, SpaceX has yet to undergo a true price discovery process. This crucial phase will commence once index funds complete their buying and will face its ultimate test as lock-up periods expire in the coming months, increasing the stock’s available supply. As SpaceX’s float expands, its weighting within the Nasdaq 100 will adjust according to the new calculation system. This dynamic will lead to a period of forced index buying coinciding with increased market supply, potentially moderating the impact of lock-up expirations, though the ultimate resolution of this push-and-pull remains to be seen.
Investors are certainly free to bet on Musk’s ambitious vision, which has undoubtedly captured the public’s imagination. As one observer aptly put it, “This is what has captured the American mind.” However, it is essential to recognize that the stock’s meteoric rise is not solely driven by current fundamental valuations. The true value of SpaceX is still a distant prospect, and its journey is likely to be far more volatile than its initial trading days suggest.
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