The SpaceX IPO: What's Actually Driving the Price, and What Happens in August

The most common question I've gotten lately is some version of: should I be buying SpaceX, and are you buying it in client portfolios? Here's the first thing to know. If you own assets in the market, you already own SpaceX. Anyone holding an ETF like QQQ, or really any growth ETF or growth mutual fund, already has exposure. So the better question isn't whether to buy it. It's understanding what is actually moving the price right now, because it has almost nothing to do with the company itself.

The supply is artificially tiny

Let me be clear up front: longer term, betting against Elon Musk is something you do at your own peril. But the early move is not about the business. For the last 20 years, a company going public has typically offered somewhere between 20% and 40% of its shares to the public, with the rest held by insiders, employees, and early investors. SpaceX is different. Only about 4.3% of total shares are available to the public right now. The other 96% are held by insiders who cannot trade yet. Massive demand meeting almost no supply. This is basic economics, and in my opinion it is the single biggest driver of the stock in its first few days.

The index rule they bent

Normally, when a company IPOs, there is a rule that it has to wait at least three months before it can be added to the major indexes. They made an exception for SpaceX and cut that to 15 days. That matters, because once a stock joins an index, fund managers are forced to go out and buy it automatically to track that index. So you get a wave of forced demand while the supply of tradable shares still has not changed. More buyers, same tiny float. Prices only go one direction when that happens.

What I am watching for in August

Here is the part most people are not thinking about. The first wave of insider shares unlocks in mid-August, and roughly 37% of shares come free to trade. That would put close to ten times the current supply onto the market. From a pure math standpoint, the probability is that a flood of new supply like that creates a lot of selling pressure. So the same mechanics driving the price up right now could flip the other way once those shares unlock. That is my thought process on SpaceX: know what is actually moving it, and know what is coming.