"SpaceX Is Now a Side Story." Why Being Added to the Index Didn't Help the Stock

SpaceX shares fell more than 5% on July 7 and were trading at $152, coming very close to the opening price on June 12, the day of its initial public offering.

The crash occurred on the day Elon Musk’s company was added to the Nasdaq-100 index—under a new, expedited procedure designed specifically for mega-IPOs. JPMorgan predicted that this would lead to an inflow of about $4.3 billion from index-tracking passive funds.

“Hedge funds and short-term traders [had already] priced in the company’s addition to the Nasdaq-100,” Jay Hatfield, CEO of Infrastructure Capital Advisors, told The Wall Street Journal. Indeed, last week, ahead of this event, SpaceX shares rose by nearly 6%. “Furthermore, the Nasdaq itself is looking rather weak right now, which also isn’t helping the stock,” Hatfield noted. On July 7, the Nasdaq-100 fell 1.3%.

Harvard Business School researcher Mark Sammon suggests that hedge funds and other large investors may have bought SpaceX shares in advance, anticipating that once the company is listed on the Nasdaq-100, they would quickly resell them to index funds and lock in profits, according to The New York Times. Last month, the hedge fund Millennium Management earned about $3.7 billion from index rebalancing trades, seeking to capitalize specifically on such episodes of “forced buying” by index funds, the publication writes.

In addition, investors are shifting their focus to other popular assets, the newspaper notes. One of the main events this week will be the start of trading in the U.S. of shares in SK Hynix, a South Korean memory chip manufacturer whose stock price in Seoul has jumped 238% since the beginning of the year. “SpaceX is just a side story right now,” Ivan Kosovich, managing director of Breakout Point, told the publication.

SpaceX found itself under pressure from the same wave of risk aversion among investors that affected the entire space sector, as noted by the 24/7 Wall St. website. Rocket Lab’s stock price plummeted 8.8%, while shares of AST SpaceMobile and Virgin Galactic fell by more than 4%.

Not even the many optimistic assessments that SpaceX received on Tuesday from Wall Street analysts were enough to boost its stock price. At least six major investment banks assigned ratings to its stock equivalent to a “buy” recommendation. Only a handful expressed skepticism. In particular, an analyst at MoffettNathanson took a neutral stance and set a price target of $131, CNBC reported. This target implies an 18% decline from the July 6 closing price.

The consensus target is $221, according to MarketWatch. That is 38% higher than the last closing price.

At the end of July, SpaceX will release its second-quarter financial results—for the first time as a publicly traded company, notes The Motley Fool. This will mark the end of the initial phase of the so-called lock-up period, allowing owners of nearly 20% of the currently locked-up shares to sell their holdings. Currently, less than 5% of SpaceX’s shares are in free float, while the remainder—held by Musk himself, early investors, institutional shareholders, and employees—will gradually be released from selling restrictions. In August, September, and October, several more tranches of approximately 7% each will be unlocked sequentially, the publication notes.

Following the release of the third-quarter report, a larger wave of restrictions will be lifted, and the main 180-day lock-up period will end in December. In addition, about 10% of the shares may be unlocked early if the stock price exceeds $175.5. Musk, who owns approximately 46% of the company, will not be able to sell his stake until June 2027.

According to The Motley Fool, a combination of two factors—limited trading volume related to SpaceX’s inclusion in the Nasdaq-100, as well as concerns that the expiration of the first phase of the lock-up period will lead to a decline in the stock price—is currently putting pressure on the stock.

This article was AI-translated and verified by a human editor