SpaceX shares are poised for a fourth straight day of gains, reinforcing the company's place among the world's largest after it surpassed Amazon.com Inc. by market value.
Market Performance
Shares of Elon Musk's rocket and AI company Space Exploration Technologies Corp. rose 4.5 percent in New York premarket trading Wednesday, signaling a slower pace of gains than previous sessions. The company has rallied about 49 percent since going public through Tuesday's close, overtaking Amazon in value to become the fifth-largest stock in the world, and is now roughly US$150 billion away from Microsoft Corp.
Investor Demand
The rally signals that there is still consistent demand for the stock after its record initial public offering. That has helped ease some concerns that the market would have trouble absorbing large IPOs, especially with potential public offerings from artificial intelligence competitors Anthropic PBC and OpenAI expected by year's end. Both would likely be in the US$1 trillion valuation range.
SpaceX stock's run is "really not at all unexpected, especially with the fact that they had 30 percent of the issue available for retail investors," said Brian Mulberry, chief market strategist at Zacks Investment Management.
Macroeconomic Context
The gains come as investors look ahead to key events for the macroeconomic and geopolitical backdrop. Wednesday marks the Federal Reserve's first rate decision under new chairman Kevin Warsh, spurring extra focus on communication style in the press conference. In addition, the United States and Iran are set to formally sign an interim peace deal on Friday.
Low Float and Index Inclusion
Some of the volatile intraday trading seen in shares of SpaceX can be attributed to low float, which might also be giving its stock price a boost. There are a relatively small portion of SpaceX shares available to trade, with only about 4.2 percent of total stock available on day one. As lockups keeping insiders from selling expire in the coming months, it could add downside pressure to shares.
There is also the possibility for index inclusion in the coming weeks. Nasdaq Inc. changed its rules to allow faster entry to shares of huge companies like SpaceX, which would force funds that track indexes such as the Nasdaq 100 to buy the stock. S&P Dow Jones Indices decided not to change its rules to allow new IPOs faster entry, meaning SpaceX won't be immediately included in the S&P 500.
Forced buying would support the stock price. In the interim, however, some investors may be content to stay on the sidelines of SpaceX knowing that they will hold a passive investment in shares once it is added to indexes.
"It could play into the fact that some investors are saying, well, I'm not going to panic because if you're able to then go ahead and just track that index with an investable instrument, you're getting exposure," said Shelby McFaddin, a portfolio manager with Motley Fool Asset Management.
