18 Jun SpaceX is Public. Should You Buy It?

SpaceX Is A Public Stock. Here’s What You Need to Know:

SpaceX priced its IPO (Initial Public Offering) this week at a valuation of roughly $1.8 trillion, instantly becoming one of the largest public offerings in history. If you follow financial news, you’ve seen the headlines. You may have also wondered whether you should want a piece of it?

The short answer is probably not, and the reasons go well beyond the general caution we’ve always held toward IPO investing. The SpaceX situation illustrates, in unusually stark terms, the gap between what a company is worth on paper and what that actually means for a diversified investor.

The Number That Actually Matters

A $1.8 trillion market cap is a real number. It reflects what the market believes SpaceX is worth in total. But when it comes to index inclusion and portfolio impact, total market cap is largely beside the point. What matters is the free float: the shares actually available to trade on the open market.

Because the vast majority of SpaceX shares are closely held by Elon Musk, early investors, and employees, the estimated investable free float is approximately $75 billion. That is still a meaningful number. But it tells a very different story than $1.8 trillion. On total market cap, SpaceX dwarfs the largest Russell 1000 names. On an investable basis, it lands between the 75th and 90th percentiles. A real presence, just a far more modest one.

SpaceX’s total market cap of $1.776 trillion towers over every Russell 1000 benchmark.

Investable (Free Float) Market Cap Comparison

When only the freely tradeable shares are counted, SpaceX’s investable market cap of ~$75B lands between the 75th and 90th percentiles of the Russell 1000.

What This Means When SpaceX Joins the Indices

SpaceX is expected to be added to the Russell 1000 and Nasdaq 100 within the coming weeks. When that happens, index funds and ETFs tracking those benchmarks will be required to buy shares automatically, regardless of valuation. This is simply how passive investing works: inclusion triggers buying.

But here is the important nuance: index weightings are based on investable market cap, not total market cap. That means the actual allocation most diversified investors will hold in SpaceX will be far smaller than the headline valuation suggests. A fund tracking the Russell 1000 will not treat SpaceX like a $1.8 trillion company. It will treat it like a $75 billion company, which places it firmly in the index but well short of the dominant weighting some headlines might imply.

In practical terms: if you hold a broad U.S. equity index fund today, you will gain some exposure to SpaceX automatically and passively when it is added. You do not need to do anything to participate, and you do not need to chase the IPO to get it.

Why IPO Enthusiasm Rarely Rewards Investors

This brings me back to the broader point I think is worth making every time a marquee IPO generates this level of excitement. The data on IPO investing is not encouraging for those who buy in at the open market price. Consider these three points:

80%

Of IPOs since 2020 are trading below their offer price

–17% to –31%

Average 3-year market-adjusted returns on IPOs by major underwriters (2012–2021)

50%

Of 2023 IPOs closed below offer price on day one

SpaceX may well be a generational company. The technology is real, the competitive moat is real, and the growth trajectory is real. None of that guarantees that buying shares at a $1.8 trillion valuation in the days following an IPO is a sound investment decision. History is littered with great companies that turned out to be poor near-term investments precisely because they went public at prices that already reflected years of anticipated growth.

The insiders who are selling in this offering have chosen this moment deliberately. They believe the current valuation is favorable to them. That alone is worth pausing on.

What We’re Doing Instead

For clients invested in diversified index strategies, no action is needed. Passive index funds will absorb SpaceX at its investable weight automatically and at no additional cost to you. You will own a piece of the company proportionate to its free float, not its headline valuation, and without the risk of having bought at the peak of IPO excitement.

For clients curious about whether to add SpaceX as a direct holding, my recommendation is to wait. Let the lockup period expire. Let a few earnings cycles pass. Let the stock find a price that reflects actual operating results rather than narrative and momentum. If SpaceX is as durable as its advocates believe, it will still be a compelling investment in two or three years, and the risk profile will look considerably different by then.

Patience in situations like this is not the same as missing out. It is the discipline that separates investing from speculation. Questions about how this affects your portfolio specifically? Reach out anytime. I’m happy to talk through what SpaceX’s index inclusion means for your accounts.