SpaceX joins Nasdaq-100 15 days after IPO

NEW YORK - SpaceX is expected to attract billions of dollars in passive investment inflows after officially joining the Nasdaq-100 Index on Tuesday (7 July). At the same time, several Wall Street brokerages have begun issuing positive recommendations on shares of Elon Musk's space company.

According to Reuters, SpaceX shares fell as much as 1.2% in pre-market trading. Nevertheless, the company, which has a market capitalisation of more than US$2 trillion, took just 15 days after its stock market debut on 12 June to be included in the Nasdaq-100, making it one of the fastest index inclusions in history.

SpaceX's inclusion in the Nasdaq-100 is expected to generate fresh demand for its shares, as index funds and exchange-traded funds (ETFs) tracking the Nasdaq-100 are required to purchase the stock to align their portfolios with the benchmark index.

Active fund managers that track the index are also expected to rebalance their portfolios.

More than US$587 billion in assets is currently managed by investment funds tracking the Nasdaq-100, including the Invesco QQQ and QQQM ETFs, which must now add SpaceX shares to their portfolios.

JP Morgan previously estimated that SpaceX's inclusion in the Nasdaq-100 could attract around US$4.3 billion in passive investment inflows.

The end of the post-IPO quiet period has also allowed the investment banks that underwrote SpaceX's initial public offering (IPO) to begin publishing research and investment recommendations on the stock.

Morgan Stanley and Goldman Sachs both initiated coverage with their highest ratings. Morgan Stanley described SpaceX as the "final frontier of artificial intelligence (AI)", while Goldman Sachs said the company was well positioned to extend its leadership in the space, connectivity and AI sectors.

Goldman Sachs analysts estimate that each of these sectors could grow into trillion-dollar markets over the next five years.

RBC, Bernstein and Stifel also initiated coverage with positive recommendations, driven by optimism over the development of Starship, SpaceX's next-generation fully reusable rocket.

"Starship is the flywheel that underpins all of SpaceX's ambitions," RBC analysts wrote.

In June, Oppenheimer became the first brokerage to assign an outperform rating to SpaceX shares.

However, not all analysts are optimistic. CFRA is the only brokerage to issue a sell recommendation.

According to CFRA, SpaceX's current valuation relies too heavily on unproven projects, including Starship and AI company xAI, making the valuation overly aggressive given the significant execution risks and capital requirements.

Last month, Morningstar estimated SpaceX's fair value at around US$780 billion, well below its current market capitalisation, citing continued uncertainty surrounding the company's AI business, including xAI and the X social media platform.

Investors currently see SpaceX as having the potential to become a major AI infrastructure provider. The company's cash flow is expected to help fund the development of Grok to compete with OpenAI's GPT models and Anthropic's Claude.

Meanwhile, Starlink is also seen as having substantial room for growth to strengthen its dominance in the satellite communications industry. At the same time, SpaceX's long-term outlook remains heavily dependent on the successful development of its next-generation Starship rocket.

With a market capitalisation of approximately US$2.1 trillion, SpaceX is now the sixth-largest company in the United States, while Chief Executive Elon Musk has become the world's first trillionaire.

Last month, FTSE Russell added SpaceX shares to its US equity indices. However, S&P Global has not adopted a similar fast-track inclusion mechanism for the S&P 500, meaning SpaceX is not expected to join that index for at least another year.

Since its stock market debut, SpaceX shares have gained more than 6%, although trading has remained volatile in the wake of its IPO. (ARF/LM)