Elon Is FORCING Investors to Buy SpaceX Shares — Whether They Like It or Not!
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| By Sean Levine |
Love him or hate him, you have to admit Elon Musk is a pretty sharp guy.
Not only did he recently take SpaceX (SPCX) public, turning him into the world’s richest man …
He did it in a way that is FORCING major Wall Street players to push TENS OF BILLIONS of dollars into SpaceX stock over the next several months.
You read that right.
They have no choice.
And that process has already begun.
How’s THIS for Leverage
So how in the world did this happen?
Elon wrangled terms under which the Nasdaq would let SpaceX join the index of its 100 largest constituents much earlier than would normally be allowed.
Just three weeks after going public, to be exact.
As part of that deal, not only did SpaceX get to list early, but it also got valued a lot more strongly than it should have been.
You see, SpaceX has a special unlock schedule for its shares.
That schedule will baby-step out chunks of stock bit by bit into its float (the percentage of the company’s total shares tradeable on the market).
SpaceX’s initial float percentage at IPO was a chintzy 4.9%, which was worth about $95 billion.
That would have come to just 0.6% of total index value.
Apparently, Elon didn’t want to be embarrassed by how small a piece of the total index SpaceX amounted to.
Not considering how MASSIVE its $1.7 TRILLION world record IPO was.
More importantly, there’s nearly $2.5 TRILLION worth of institutional money that tracks the Nasdaq-100.
Which means it HAS to invest accordingly.
So, Elon Got a Better Deal
Nasdaq really wanted this listing.
So, he made Nasdaq TRIPLE SpaceX’s value for purposes of calculating its weight in the index.
That move boosted SpaceX’s weighting impact to more like 1.8% of the index’s total value.
And THAT meant that the $2.5 trillion worth of tracking funds and their related entities would not only be forced to buy SpaceX shares to match its TRUE value in the Nasdaq-100 …
But they would have to buy shares equal to THREE TIMES its true value.
And that’s what they did.
So instead of putting about $10 billion of dry buying powder into SpaceX, those funds and institutions bought closer to $30 billion.
Which netted Elon & Co. an extra $20 billion in share price support, without any debate or discussion.
It just happened.
Automatically.
Pretty slick.
But that was just the beginning.
The real moves are just getting started.
Past as Prologue
While impressive, there’s a lot more free money heading Elon’s way.
Remember the baby-step unlocking schedule for SpaceX shares I mentioned a minute ago?
That process was delayed until just after SpaceX’s first earnings announcement, which happened Aug. 4.
On Aug. 6, the first chunk of additional shares was unlocked … to the tune of another 911 million shares.
This more than doubled SpaceX’s public float to 1.55 billion shares.
Now in the meantime, SpaceX’s share price fell quite a bit between joining the index and Aug. 6, while at the same time, the index’s value rose.
So, despite the new shares, SpaceX’s weighting slipped to around 1.3% of the index after the multiplier.
But again, Elon is just getting started.
Over the next few months, SpaceX will be releasing another 91 million shares every couple of weeks, until the number of shares outstanding equals 2 billion.
Meanwhile, SpaceX’s share price has been recovering.
If we hold everything steady from here, those additional unlocks will boost SpaceX’s float from 11.8% currently to 15.3%.
Applying the 3x special Nasdaq multiplier means that the exchange will treat the company’s shares as worth around $850 billion, even though they in reality would be worth just over $280 billion.
That gets SpaceX to just above 2% of the Nasdaq-100 from a weighting standpoint.
And THAT means those tracking funds need to pony up $49 billion to buy SpaceX shares, or another $20 billion on top of their original investments in the company …
~$13 billion of which wouldn’t even be there if Elon hadn’t played Nasdaq like a fiddle.
But as large as these numbers are, they’re all still just a taste.
Because SpaceX’s last … and BIGGEST … pile of free money is yet to come.
So, stay tuned!
Sean Levine
Associate Director of Research
Weiss Ratings
P.S. All of this behind-the-scenes maneuvering is why we don’t guess here at Weiss Ratings. But we do use tools like the “U-AI” system that Gavin Magor just announced.
I urge you to check it out before it’s taken offline.
