SpaceX's shares fell by as much as 7% during volatile trading on Wednesday, marking the first decline since its record-breaking initial public offering (IPO) last week. The stock eventually closed almost 5% lower, ending a three-day surge that briefly made SpaceX the world's fourth-largest company by valuation.
The IPO, which raised $86.2 billion, saw unprecedented retail investor participation, with up to 30% of shares allocated to individual investors. Demand exceeded $100 billion, but most retail investors received only a handful of shares due to oversubscription. The stock's tiny float—only 4.2% of shares were free to trade on the first day—amplified its price movements.
SpaceX's valuation soared to $2.7 trillion at its peak, surpassing Amazon and briefly edging ahead of Microsoft. However, analysts have raised concerns about its high volatility and lack of earnings. Morningstar valued the company at $780 billion before the IPO, less than half its current valuation. Some have labeled SpaceX as 'the biggest meme stock in town.'
The company's inclusion in major index funds, such as Vanguard's Growth Index Fund, is expected to raise market volatility due to its extreme price swings. SpaceX's implied volatility was nearly 120 on Tuesday, three times higher than the iShares Bitcoin ETF. Advisors and money managers are concerned about the forced exposure to such a volatile stock.
Retail investors have been the driving force behind SpaceX's rally, buying $369.8 million worth of shares over three sessions. However, the stock's future performance remains uncertain as insider selling restrictions begin to lapse in the coming months, potentially increasing supply and weighing on the price.
For investors who bought shares in the IPO or on the open market, experts recommend having a strategy in place, including taking profits in a tax-efficient manner and rebalancing portfolios to manage exposure. The stock's high volatility and lack of earnings make it a risky investment, despite its recent gains.