The SpaceX IPO is one of the most highly anticipated public offerings in market history, and it’s slated to become the largest IPO of all time when it goes public on June 12.
While there’s no shortage of excitement around SpaceX, investing immediately after it goes public can be risky. IPO stocks tend to carry more risk in general, as they’re new to the market and don’t have an established track record yet. Not all investors are comfortable with that level of uncertainty, and that’s OK.
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If you’re still eager to capitalize on SpaceX’s debut without buying it directly, investing in a broader ETF can be another option.
SpaceX is set to shake up the market
SpaceX is targeting a massive valuation of between $1.75 trillion and $2 trillion ahead of its IPO. Only six companies in the S&P 500 (SNPINDEX: ^GSPC) have a market cap of more than $2 trillion, meaning that if SpaceX were weighted by total market cap, it could become one of the largest players in the market.
That said, the rules around adding new IPOs to major indexes can get murky — especially with a company the size of SpaceX. Traditionally, new companies have to wait at least a few months before joining a major index. However, some indexes have recently relaxed their profitability requirements, allowing new stocks to join quickly even if they don’t have a proven track record.
For example, as of May 1, Nasdaq‘s (NASDAQINDEX: ^IXIC) “Fast Entry” rule allows large companies to join the Nasdaq-100 after just 15 trading days. This means that SpaceX could be included in ETFs like the Invesco QQQ Trust (NASDAQ: QQQ) — which tracks the Nasdaq-100 — by early summer.
Should you invest in QQQ before SpaceX goes public?
For those eager to invest in SpaceX but are hesitant to buy the stock on its own, investing through an ETF like Invesco QQQ can mitigate some of the risk. This ETF holds stocks from 100 of the largest non-financial companies by market cap, and that diversification can help reduce the impact of volatility SpaceX might introduce.
That said, SpaceX’s impact on funds like QQQ will probably change in the coming months. If it’s added to the index using its float-based market cap (which is based on the percentage of shares outstanding available for public trading) rather than its total market cap, SpaceX might account for a small percentage of the Nasdaq-100 at first. As its float increases, however, it could gradually gain market share.
