Why Did SpaceX Stock Drop Today?

Key Points

• SpaceX got fast-tracked into the Nasdaq-100 today.

• The company’s IPO only released a small percentage of the company to the public.

• Upcoming lockup expirations will likely bring more sellers into the market.

Space Exploration Technologies (NASDAQ: SPCX) was added to the Nasdaq-100 index before the market opened today, so investors might be surprised to see SpaceX shares fall. When a company’s stock is added to an index, it can rise due to passive buying by mutual funds and exchange-traded funds (ETFs) that are required to hold the entire index.

So why were SpaceX shares down by 5.2% at 12:45 p.m. ET today?

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It’s the math

The Nasdaq-100 tracks the 100 largest non-financial companies listed on the Nasdaq Stock Market exchange. But even the funds and ETFs that buy SpaceX stock once it’s on the exchange aren’t really buying a large quantity of the company. Consider this:

SpaceX raised about $86 billion from its public share offering. But the company was valued at $1.8 trillion at the IPO price. That’s less than 5% of the company available to the public. Elon Musk owns much of the balance, maintaining about 46% ownership. Other early investors, institutions, and employees own the rest.

The company is using a phased lockup schedule to allow those early investors to sell their shares. The first batch of shares will be available for sale after SpaceX reports its second-quarter results, either late this month or in August. Notably, Musk won’t be able to sell his shares until June 2027, but there could still be downward pressure on SpaceX shares in the near future from other sellers.

The relatively small amount being bought due to index inclusion, combined with fears that the coming initial lockup expiration will drive the stock lower, has shareholders pressuring the stock today.

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Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.