Earlier this month, Space Exploration Technologies (SPCX +4.52%) offered investors one of the biggest investing events of all time: its initial public offering. SpaceX raised $75 billion for the largest IPO on record, and went on to bring in a total of more than $85 billion after underwriters exercised an overallotment option. The IPO was greatly oversubscribed, and the stock jumped nearly 20% in its first day of trading from its $135 IPO price. So it’s clear investors were eager to get in on this growth story right away.
Since, SpaceX has given back some of its gains — but it’s still trading higher than its IPO price. In the coming weeks, certain events will unfold, and they could trigger movement in the stock price. The first such happening is right around the corner, on July 7. Should you buy SpaceX before that time? Let’s find out.
Image source: Getty Images.
Why investors are buying SpaceX
We’ll get started by taking a look at why investors have rushed to invest in SpaceX in the first place. SpaceX, as its name suggests, is a leader in rocket launches, with a focus on reusable technology to bring down costs. It’s completed a total of 650 orbital launches, 85% using at least one reused booster, and last year the company executed the greatest number of launches compared to rivals. SpaceX’s next big goal for this space unit is the launch with payloads to orbit of its reusable rocket, Starship.
This tech and industrial giant has two other units, connectivity and artificial intelligence (AI). So far, the former, called Starlink, has quadrupled subscribers over three years to its satellite-based internet service, and this business is driving revenue. Last year it brought in $11.4 billion on the company’s total of $18 billion in revenue.
All of this is exciting, particularly for investors seeking growth. However, the AI business, while promising, may be the area of concern for some investors. This is because it requires significant investment as we can see from last year’s figures. The AI unit’s capital expenditures reached $12 billion, and that brought the company to a loss.
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Investing in Elon Musk
It’s important to note that Elon Musk, chief of Tesla, also is the founder and CEO of SpaceX. Musk is known for his innovations and ambitions, and certain investors seek to invest in a particular company because Musk is at the helm. That said, other investors feel quite the opposite and avoid companies led by Musk — they worry his ambitions are too lofty and won’t reach the finish line or generate profitability.
All of this has created a great deal of interest in the SpaceX IPO — from investors eager to get in on this growth story and from investors who are happy to watch from afar and potentially invest later on.
Now, let’s consider what’s on the agenda this coming week and whether you should buy the stock ahead of time. SpaceX is about to benefit from a new fast-track arrangement that allows stocks to join the Nasdaq-100 much more quickly than in the past.
What’s happening on July 7
The company will be added to the index, which represents the biggest non-financial companies on the Nasdaq, on July 7. According to the new criteria, a stock may be added as of its 15th trading day if it’s among the 40 largest Nasdaq companies by market capitalization. SpaceX, with a trillion-dollar market value, clearly makes the cut.
In the past, a company would have to wait three to 14 months for inclusion.
Here’s why the addition to the Nasdaq-100 could move SpaceX’s stock price. Funds that track the index must buy shares of any new additions so that they may continue to mimic the index’s performance. This flurry of buying activity may push SpaceX stock higher on and around the day of its addition. So, if you buy SpaceX a few days earlier, you might quickly benefit from a pop in the stock price.
Does this mean you should buy SpaceX before July 7? Not necessarily. These short-term movements are minimal and won’t have an impact on your long-term returns. (It’s also important to note that SpaceX does involve a certain level of risk so is best for aggressive investors.) Finally, if you are interested in investing in SpaceX, the best ideas are to buy the stock on a dip or opt for an exchange-traded fund that holds the shares.
