SpaceX Stock Is Down 48% From Its High. Here’s Why ETFs Are Loading Up Anyway.

To illustrate just how massive the ETF buying influence will be, consider that, as of June 30, nine Vanguard ETFs collectively held $6.1 billion in SpaceX stock. SpaceX raised a total of $85.7 billion by selling 555 million shares at $135 each, and by underwriters exercising options to buy more shares. That means the total position of these Vanguard ETFs alone, which doesn’t even factor in the Invesco QQQ Trust and ETFs operated by other investment management companies, was 7.1% of SpaceX’s initial float.

The Vanguard Total Stock Market ETF alone is so massive that it holds $39.3 billion in Meta Platforms stock — which again has a similar market cap to SpaceX. Once SpaceX’s float is large enough, and the Vanguard Total Stock Market ETF weights it based on its market cap rather than float, the Vanguard Total Stock Market ETF will hold close to 3% of all of SpaceX’s shares outstanding. Once SpaceX is added to the S&P 500 (likely next June), I’d expect the three largest S&P 500 ETFs by net assets — the Vanguard S&P 500 ETF, the iShares Core S&P 500 ETF, and the SPDR S&P 500 ETF Trust — to collectively hold over 5% of SpaceX’s outstanding shares.

ETFs’ insatiable appetites for blockbuster IPOs won’t end with SpaceX

There are two key takeaways for investors regarding the impact of ETFs on SpaceX.

The first is that ETFs will continue loading up on SpaceX as its float grows, even if its stock price goes down, which is the opposite of how ETFs typically work. For example, Micron Technology made up 1.8% of the Vanguard Total Stock Market ETF as of June 30 — ahead of Meta Platforms even though its market cap is higher — simply because it ran up so much in the first half of the year.

The second takeaway is that, despite the buying power of ETFs, SpaceX stock has been absolutely crushed in July. Not only is it down big from its highs, but it’s now down around 12% from its IPO price, even though SpaceX received a $300-per-share price target from Morgan Stanley. That’s a red flag that investors are souring on SpaceX, or at least questioning its valuation. And the sell-off is especially concerning given that we have yet to enter the period when restrictions on insider shares are lifted.

SpaceX is in a league of its own in terms of its total addressable market and technology. But the company went public at such a lofty valuation that it was doomed to undergo extreme volatility right out of the gate. Investors may want to consider conducting a portfolio review to see if they own any ETFs that are buying SpaceX and will continue buying more SpaceX shares in the coming months. If that is the case, it’s important to make sure you are comfortable with that dynamic and to recognize that it will likely repeat when those same ETFs buy Anthropic and OpenAI in a similar fashion.

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Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Meta Platforms, Micron Technology, Microsoft, ServiceNow, and Vanguard Growth ETF. The Motley Fool has a disclosure policy.

SpaceX Stock Is Down 48% From Its High. Here’s Why ETFs Are Loading Up Anyway. was originally published by The Motley Fool