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 marginally in premarket trading.
The company joins the index less than a month 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.
The stock’s overall impact is not going to be more than 0.7% of the index, Swissquote Bank senior analyst Ipek Ozkardeskaya said
However, as the free float increases, SpaceX could become part of the companies that do have an impact on the Nasdaq-100, the analyst said.
WALL ST BROKERS LAUNCH COVERAGE WITH BULLISH VIEWS
Investors will also scrutinize the first wave of Wall Street research on SpaceX, as brokerages try to value the newly public company using conventional metrics rather than the investor faith in Musk’s long-term vision that has largely driven its worth.
The industry-mandated quiet period ends for analysts at banks that underwrote the blockbuster IPO, which was led by Goldman Sachs, Morgan Stanley, BofA Securities, Citigroup and J.P. Morgan.
Morgan Stanley, Goldman Sachs, J.P. Morgan, Citigroup and Wells Fargo started coverage of the stock on Tuesday with their top ratings. Morgan Stanley dubbed the company as “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.
Most analysts see Starship, SpaceX’s fully reusable next-generation rocket, as the key driver of the company’s lofty growth projections.
“The Starship is the flywheel that powers SpaceX’s ambitions,” RBC analysts said, estimating about 2,440 launches by 2030.
Wall Street forecasts thousands of Starship launches annually by 2031, with J.P. Morgan projecting about 5,000, Wells Fargo 4,600, Bernstein 3,500 and UBS more than 1,500, depending on how much reusability SpaceX achieves.
However, not everyone was bullish on SpaceX.
MoffettNathanson, KeyBanc and Argus Research have the equivalent of “neutral” ratings, while CFRA is the only brokerage with a “sell” rating.
In June, CFRA said the company’s valuation increasingly depends on unproven initiatives including Starship and xAI, which it considers too aggressive given execution risks, capital intensity and limited visibility into long-term profits.
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 a short ride marked by post-IPO volatility.
(Reporting by Purvi Agarwal, Rashika Singh, Siddarth S and Akash Sriram in Bengaluru; Editing by Saumyadeb Chakrabarty, Pooja Desai and Anil D’Silva)
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