Passive Investors Concerned About Unwanted SpaceX Stock in Index Funds

The stock value of SpaceX has taken off like a rocket since the company went public a week ago, but some people who didn't choose to buy SpaceX stock are worried they could end up owning a piece of the company anyway. NPR's personal finance reporter, Stephan Bisaha, joins us.

Well, one of those investors is Kelsea Jordan in San Diego. She works in HR, wants to retire early and she goes with this slow and steady approach, investing broadly in the overall stock market. And she thinks SpaceX and other tech companies are way overvalued.

I personally don't think SpaceX or a lot of these AI companies right now are a good bet.

Remember, SpaceX is a literal moonshot company, wanting to do things like putting orbiting data centers in space and send rockets to Mars. And some investors are really excited to take that bet. At the close of market Thursday, the stock was trading at about $185 a share, but that's about three times what the research and investment firm Morningstar thinks it's worth.

Well, that's because Jordan is like a lot of us. She's a passive investor. She owns index funds. These are collections of dozens, often hundreds of stocks, meant to give you a piece of many different companies. The idea here is owning a broad range of stocks is just less risky than trying to pick a few winners. Lots of Americans own these funds often through their retirement accounts and casting that wide net is how SpaceX could end up in Kelsea Jordan's portfolio and yours.

Well, it's different because a couple of these firms who make these indexes recently changed their rules. Normally, a company that has just gone public, like SpaceX, has to wait a good while to join indexes. But a couple, notably the tech exchange called the NASDAQ, changed their rules to add these large IPOs much faster, like days instead of months or years. SpaceX is going to be added to the NASDAQ 100 in a few weeks. Other exchanges, like the S&P, did change their rules. They require companies to wait at least a year and until they can show their profitability. And Jordan does not like that these other indexes have changed to benefit companies that have not proven themselves on the market for very long and are still in their really early, volatile days of trading.

Are we using retail investors in people's retirement accounts to kind of pump up these companies that aren't profitable, might never be profitable and their IPOs? Now Elon Musk is a trillionaire and a lot of people don't even have a choice of whether or not they're going to be invested in SpaceX.

And it's not just that people are concerned about SpaceX. There are two other mega IPOs likely in the pipeline later this year, both also AI companies - OpenAI and Anthropic. And that could add even more risk if AI is generally overvalued, that we could be in a bubble.

Well, first, a lot of them don't think this is a bad bet. They said that even if the company's goals are ambitious, it's already achieved a lot, from Starlink satellite internet to regular space flights that NASA now relies on. And even those analysts at Morningstar who argued SpaceX's IPO was overvalued, they told me in an email that the risk to investors is low. That's because only a tiny portion of SpaceX's stock was made public, so indexes will weigh in much lower than other big companies. It will take a long time for SpaceX to get close to the weight of something like Apple, Microsoft or Nvidia. As for Kelsea Jordan, she doesn't like the rule changes, but she's not changing her strategy.

It's not like there's a lot of other options besides putting your money under a mattress or trying to take stock. And we know statistically that doesn't work for most people. So just going to keep calm and carry on.