Key takeaways

  • Two days after SpaceX earnings are released, most pre-IPO investors will be eligible to start selling the stock.
  • These lockup expirations will likely bring to market billions of shares of SpaceX stock in coming months.
  • As the number of shares available rises, the weighting of SpaceX stock in index funds will likely increase significantly.

SpaceX may be reporting its first earnings as a public company on August 4, but an equally significant event happens just two business days later. That’s when pre-IPO investors will have their chance to sell nearly a billion shares of stock—far more than was sold when the company went public.

Lock-ups are periods when early investors are restricted from selling shares immediately after a company goes public. SpaceX’s lock-up will expire in early August and continue over the next year. Ultimately, more than 6.4 billion shares could hit the market. Nearly 629 million shares were sold at SpaceX’s June 12 IPO.

Of course, it’s unclear how many of those shares will actually be sold. But Nicolas Owens, an equity analyst covering SpaceX at Morningstar, says a wave of selling is likely. “We believe that most of the available shares will come to market, because the existing sellers have low cost basis and long holding periods,” he says.

This steady flow of potential stock sales could weigh on SpaceX’s stock price, and as the number of shares in the public market increases, some index fund investors will find that SpaceX is becoming a greater share of their portfolio.

SpaceX stock’s small float and big overhang

When companies go public, they generally only sell a portion of the business to the public. Company executives and other insiders, along with early outside investors, are usually prevented from selling their shares for defined periods. The amount of shares available in the public market for trading is commonly referred to as “float.”

After the first lockup expiration on Aug. 6, the next lockup expiration after second-quarter earnings will be around Aug. 20, when another 455.8 million shares can hit the market. A pair of expiration dates are on deck for September, with further lockups continuing through the first anniversary of the IPO. Most of these lockup expirations do not cover shares owned by CEO Elon Musk, certain top executives, and board members. In early June 2027, Musk’s stake is eligible to be sold, although he has said he does not plan to do so.

Like just about everything else with the SpaceX IPO, the scale of the lockup sales is unusual. The average IPO typically sells about 20% of its shares, explains Matthew Kennedy, senior strategist at Renaissance Capital. “SpaceX floated about 5% of its shares, so there are a lot more shares locked up here than a typical IPO,” he says. “It makes sense, given the size of the company, but it’s a large technical overhang nonetheless.” It’s not just the number of shares that will be sold that is unusual. “SpaceX has the longest series of lock-up releases we’ve ever seen,” Kennedy says.

SpaceX stock rockets higher and crashes lower

Since going public, SpaceX stock has been volatile. The IPO was priced at $135 and quickly zoomed over $201 within its first week as a public company. Since then, it’s been a fast and bumpy ride lower. In mid-July, shares broke below the IPO price, and they traded toward a low of $111 per share this week. That’s a loss of roughly 45% for anyone who bought at the peak.

Morningstar’s Owens, who believes the stock is significantly overvalued even after its recent declines, says the lockup overhang is likely part of the story behind the decline: “It’s conceivable that a good deal of the recent slump in SpaceX stock is precisely in anticipation of the dilution from the lockup.”

Index funds likely to absorb more SpaceX shares

Another way the rising float will play out is among index funds that hold SpaceX stock, which will need to buy more shares as the stock’s weighting in benchmarks increases. For fund investors, that means growing exposure to SpaceX in their portfolio.

The reason for this knock-on effect ties back to how a stock’s weighting in indexes is calculated, which reflects a company’s market capitalization adjusted for the float. If the stock price stays the same, a tripling of the number of shares in the public float—such as could happen with SpaceX by the end of September—would triple the company’s market cap. That in turn would mean SpaceX’s weighting would also triple. This doesn’t happen in real time, however, as index providers typically review float quarterly.

Morningstar analyst Zachary Evens, who follows passive strategies, points to the Invesco QQQ Trust QQQ as an example of how the lockups could play out in an index fund. The Invesco ETF held roughly 39.7 million shares of SpaceX on July 22, which was worth $4.57 billion and constituted a 0.98% weight in its portfolio. When the SpaceX float-adjusted market cap triples, the Nasdaq index would treat the stock as a $675 billion company, placing it between Walmart and Intel, he says. Walmart was the 12th-largest stock in the QQQ portfolio as of July 22.

“Every lockup expiration is an opportunity for SpaceX to claim a greater share of cap-weighted index funds,” Evens says. “Typically, stocks earn a greater share of these portfolios because of rising in price. SpaceX is different; it will also claim a higher weight if its stock price increases, or if its float percentage goes up.” He says that’s a critical point. “Over the next year, the stock’s float percentage is likely to increase, increasing the stock’s float-adjusted market cap and therefore its weighting in many index funds. However, it’s still not likely to be a top holding in many index funds soon, given its very low starting float and current total market capitalization around $1.5 trillion.”

The rising weight for SpaceX in index funds means those strategies will act to absorb some of the issuance. But Owens doesn’t think that will be enough to tip the balance. “Unless something changes the fundamental story or sentiment—like for the better—the supply from these lockups will outweigh demand even from index funds," he says.