Want to Invest in SpaceX? Don’t Buy the Stock. Do This Instead.
Now that Space Exploration Technologies (SPCX +0.34%), aka SpaceX, is finally a public company, individual investors can finally invest in the crown jewel of Elon Musk’s business empire in a straightforward way. It’s a two-for-one space and artificial intelligence (AI) juggernaut, a unique company that’s riding two of Wall Street’s hottest growth trends.
But buying SpaceX stock might not be the smartest way to invest right now. The intense hype, excitement, and a low initial float have combined to push SpaceX to an astronomical valuation. If you buy shares now, they could prove a drag on your portfolio if SpaceX cannot sustain its lofty premium.
Instead, consider getting your exposure to SpaceX through an exchange-traded fund (ETF), such as the Invesco QQQ ETF (QQQ +1.14%).
Image source: Getty Images.
More diversified exposure that can grow
The Invesco QQQ tracks the Nasdaq-100, one of the U.S. stock market’s most prominent indexes. SpaceX was added to the Nasdaq-100 on July 7, less than a month after its IPO. When you buy a share of the Invesco QQQ, you’re getting a little slice of SpaceX stock, plus exposure to more than 100 other top U.S. companies.
That diversification helps protect your portfolio from the risk of SpaceX stock collapsing. If you’re interested in SpaceX for its AI upside, the Invesco QQQ still aligns with that theme. The technology sector currently accounts for about 68% of the ETF, with Nvidia, Micron, Microsoft, and Tesla among its top holdings.
Today’s Change
(1.14%) $8.08
Current Price
$719.82
Key Data Points
AUM
$473B
Dividend Yield
0.42%
Expense Ratio
0.18%
Top Holdings
NVDA
7.88%
AAPL
7.46%
MU
4.67%
The Nasdaq-100 weights the position of each of its components based on its percentage of publicly available shares — i.e, its float. So despite SpaceX’s massive market cap, the stock has started at approximately 1% of the index because its float when it IPOed was only roughly 5%. However, SpaceX’s float will increase as the lockup periods for its pre-IPO stakeholders expire over the next year, so it will gradually become a larger component of the Invesco QQQ. That will provide a nice incremental ramp-up period, which could prove more comfortable for investors than jumping into the stock with both feet.
Diversified, but not totally risk-free
Investing in SpaceX via the Invesco QQQ could protect investors from SpaceX’s volatility, but the ETF’s value fluctuates too. The AI boom has launched many tech stocks on extraordinary trajectories, but it’s impossible to know how long their gains will last. Things could unravel quickly in the AI sector, especially if the hyperscalers and neoclouds pouring hundreds of billions of dollars into data centers pull back on their capital expenditures.
Even a well-diversified bucket of tech stocks can suffer nasty pullbacks when the economy or the stock market turns south.
Technology is playing an increasingly central role in modern life and the global economy. A tech-focused investment strategy makes sense, especially over the long term, as AI, space, and other emerging industries mature. Just make sure you’re not leaning more into the tech sector with your portfolio than you realize.
