By Purvi Agarwal and Rashika Singh
July 7 (Reuters) – SpaceX’s addition to the Nasdaq 100 index on Tuesday is expected to unleash billions in passive buying, as brokerages kick off coverage of the $2 trillion-plus rocket and satellite company with broadly bullish views.
Shares of the Elon Musk-led company were down 1.2% in early premarket trading.
The company joins the index just 15 days after its stock market debut on June 12 – among the fastest inclusions ever – thanks to the Nasdaq’s revised rules for newly listed companies looking to enter widely tracked benchmarks.
Its debut in the tech-heavy index is set to create another source of demand for its shares as index funds and exchange-traded funds (ETFs) tied to the Nasdaq 100 will need to buy shares to match the benchmark’s new composition. Active managers who track the index closely may also adjust their positions.
Many retail investors prefer investing in funds to diversify their holdings. Over $587 billion is benchmarked in funds tracking the Nasdaq 100, including Invesco’s QQQ and QQQM, which will now have to make room for SpaceX.
J.P. Morgan estimated last month that SpaceX’s addition to the index could draw $4.3 billion in passive inflows.
QUIET PERIOD ENDS
Investors are awaiting a wave of reports from Wall Street brokerages making their first attempt to value SpaceX as a publicly traded company, applying traditional valuation metrics to a business that’s largely been assessed by investors’ belief in Musk’s long-term bets.
The industry-mandated quiet period ends for analysts at banks that underwrote the blockbuster IPO – led by Goldman Sachs, Morgan Stanley, BofA Securities, Citigroup and J.P. Morgan.
Both Morgan Stanley and Goldman Sachs started coverage on the stock on Tuesday with their top ratings, with Morgan Stanley dubbing the company “AI’s final frontier.”
“We see the company as well-positioned to scale its differentiated advantages across space, connectivity, and AI,” Goldman analysts said, betting each market has the potential to become a multi-trillion-dollar opportunity over a five-year-plus horizon.
Brokerages RBC, Bernstein, and Stifel also initiated coverage with their top ratings, betting on the success of Starship, SpaceX’s next-generation rocket that is designed to be fully reusable.
“The Starship is the flywheel that powers SpaceX’s ambitions,” RBC analysts said.
Last month, Oppenheimer became the first to initiate coverage with an “outperform” rating.
However, not everyone is bullish on SpaceX.
CFRA, the only brokerage with a “sell” rating, said in June the company’s valuation increasingly depends on unproven initiatives including Starship and xAI, a view it considers too aggressive given execution risks, capital intensity and limited visibility into long-term profits.
Last month, Morningstar analysts pegged the company’s valuation at about $780 billion, citing uncertainty around its AI business, including xAI and social media platform X.
INVESTORS BET ON AI CAPABILITIES
Investors are betting SpaceX can evolve into a hyperscale AI infrastructure provider in the near term, using cash generated to fund the development of Grok as it takes on OpenAI’s GPT models and Anthropic’s Claude.
They also see significant room for Starlink to expand its dominance in satellite communications, while much of the company’s longer-term ambitions depend on the successful development of its next-generation Starship rocket.
With a market capitalization of $2.1 trillion, SpaceX is the sixth-largest U.S. company, and CEO Elon Musk the world’s first trillionaire.
FTSE Russell added the stock to its U.S. indexes last month, with funds such as iShares Russell 1000 ETF already giving investors a piece of the biggest IPO in U.S. history.
However, S&P Global declined to create a similar fast-track process for the benchmark S&P 500 in June, and it is expected to take at least a year before SpaceX joins the world’s most widely tracked index.
SpaceX shares have gained more than 6% since their debut in their short ride marked by post-IPO volatility.
(Reporting by Purvi Agarwal, Rashika Singh and Akash Sriram in Bengaluru; Editing by Anil D’Silva, Saumyadeb Chakrabarty and Pooja Desai)
Comments