- SpaceX's IPO was big enough that it elicited fears about how it could impact market structure.
- But one key concern has been mostly unfounded for now, Morningstar said.
- Still, coming coming mega-IPOs could increase concentration risk, Morningstar says.
SpaceX stock has had a volatile ride since its record-setting debut this summer.
Elon Musk's rocket and AI company was hot out of the gate, but didn't sustain its momentum for long. Importantly for investors watching from the sidelines, the splashy IPO hasn't reshaped the market in the way many had feared it might leading up to the debut.
Morningstar on Wednesday flagged that SpaceX's colossal market cap didn't translate into the overweighting at the index level many investors had been concerned about. This was a worry percolating in the market as index providers changed their rules to fast track the stock into major averages like the Nasdaq 100.
"Despite reaching a $2 trillion market cap on its first day of trading, limited public float meant SpaceX represented only about 0.1% of the Total Market Index at the end of August, despite earlier fears surrounding its expedited inclusion in indexes," stated director of analytics Alex Poukchanski.
The concern was that funds that track the indexes would be forced to buy SpaceX, leaving investors exposed to the company even if they weren't interested in the IPO. Given that popular indexes like the Nasdaq 100 are cap-weighted, there were fears that index funds would end up dumping other stocks to make room for SpaceX with its enormous market capitalization.
The fear has been mostly unfounded, for now.
Poukchanski highlighted that the limited public share float ended up minimizing the risk, and the index weighting ended up being small. As a result, passive funds had to buy fewer shares, lowering the risk of major purchases sending the stock price soaring.
For investors, this is a good sign ahead of other mega-IPOs, and rule changes might not be the market-breaking force some feared.
But Poukchanski added that extreme concentration is still a risk in the era of giant tech IPOs. Giants like Anthropic and OpenAI will likely overshadow smaller offerings, and exacerbate that risk, he said.
"With anticipated IPOs from Anthropic and OpenAI, alongside continued subdued small-cap IPO activity, top-level market concentration could continue to rise, requiring further adjustments to the mega-cap segment to keep the indexes aligned with the market," Poukchanski added.
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