SpaceX Stock Is Down 48% From Its High. Here's Why ETFs Are Loading Up Anyway.

Space Exploration Technologies (NASDAQ: SPCX) closed at $118.24 per share on July 23 -- down 48% from its all-time high of $225.64 per share from June 16 -- which was the third trading session after its June 12 initial public offering (IPO).

However, several popular exchange-traded funds (ETFs) will continue buying SpaceX, even if its price keeps falling, because of their float-based weighting systems. The float is the number of shares available on the open market (in this case, the Nasdaq Stock Market) for public buying and selling. Float-based weighting systems will create substantial demand for SpaceX over the next several months as the float increases.

Here's why investors need to be wary of SpaceX's impact on the buying behavior of ETFs -- and the ripple effects this behavior has across the market.

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SpaceX's IPO changed the game

Today's largest companies by market cap all went public at a small fraction of their current value. Investors who bought Apple and Microsoft on the Nasdaq in the 1980s enjoyed life-changing gains. But SpaceX is different.

It built up a megacap valuation in the private markets and raised capital through several funding rounds over a multidecade period. So by the time it went public, it was so large that the indexes and ETFs had to adopt new rules to gradually build positions without artificially driving up the price.

The solution is float-adjusted market cap, which means the Nasdaq-100 and ETFs like Invesco QQQ Trust, Vanguard Total Stock Market ETF (NYSEMKT: VTI), Vanguard Growth ETF, Vanguard Mega Cap Growth ETF, etc., are buying SpaceX and weighting it based on a multiple of its float rather than its market cap. As of June 30, SpaceX is the 110th-largest holding in the Vanguard Total Stock Market ETF, right behind ServiceNow, even though SpaceX's market cap is over 15 times higher than ServiceNow's.

ETFs are about to buy a lot more SpaceX stock

SpaceX's float is about to increase substantially in August, beginning two days after SpaceX's Aug. 4 second-quarter 2026 earnings report.

On Aug. 6, 20% of early release eligible shares will be unlocked, which could drastically increase SpaceX's float if insiders sell their shares on Nasdaq. Once the float represents a large enough share of SpaceX's outstanding shares, SpaceX will be weighted by its market cap -- which is roughly the size of Meta Platforms' (NASDAQ: META). This means that before the end of the year, SpaceX will become a top-three holding in the Vanguard Communications Services ETF (NYSEMKT: VOX), a top-10 holding in the Vanguard Total Stock Market ETF, Vanguard Growth ETF, Vanguard Mega Cap Growth ETF, Vanguard Russell 1000 ETF, Vanguard Russell 1000 Growth ETF, and the Vanguard Large-Cap ETF, and probably a top-15 holding in the Vanguard Total World Stock ETF.

To illustrate just how massive the ETF buying influence will be, consider that, as of June 30, nine Vanguard ETFs collectively held $6.1 billion in SpaceX stock. SpaceX raised a total of $85.7 billion by selling 555 million shares at $135 each, and by underwriters exercising options to buy more shares. That means the total position of these Vanguard ETFs alone, which doesn't even factor in the Invesco QQQ Trust and ETFs operated by other investment management companies, was 7.1% of SpaceX's initial float.

The Vanguard Total Stock Market ETF alone is so massive that it holds $39.3 billion in Meta Platforms stock -- which again has a similar market cap to SpaceX. Once SpaceX's float is large enough, and the Vanguard Total Stock Market ETF weights it based on its market cap rather than float, the Vanguard Total Stock Market ETF will hold close to 3% of all of SpaceX's shares outstanding. Once SpaceX is added to the S&P 500 (likely next June), I'd expect the three largest S&P 500 ETFs by net assets -- the Vanguard S&P 500 ETF, the iShares Core S&P 500 ETF, and the SPDR S&P 500 ETF Trust -- to collectively hold over 5% of SpaceX's outstanding shares.

ETFs' insatiable appetites for blockbuster IPOs won't end with SpaceX

There are two key takeaways for investors regarding the impact of ETFs on SpaceX.

The first is that ETFs will continue loading up on SpaceX as its float grows, even if its stock price goes down, which is the opposite of how ETFs typically work. For example, Micron Technology made up 1.8% of the Vanguard Total Stock Market ETF as of June 30 -- ahead of Meta Platforms even though its market cap is higher -- simply because it ran up so much in the first half of the year.

The second takeaway is that, despite the buying power of ETFs, SpaceX stock has been absolutely crushed in July. Not only is it down big from its highs, but it's now down around 12% from its IPO price, even though SpaceX received a $300-per-share price target from Morgan Stanley. That's a red flag that investors are souring on SpaceX, or at least questioning its valuation. And the sell-off is especially concerning given that we have yet to enter the period when restrictions on insider shares are lifted.

SpaceX is in a league of its own in terms of its total addressable market and technology. But the company went public at such a lofty valuation that it was doomed to undergo extreme volatility right out of the gate. Investors may want to consider conducting a portfolio review to see if they own any ETFs that are buying SpaceX and will continue buying more SpaceX shares in the coming months. If that is the case, it's important to make sure you are comfortable with that dynamic and to recognize that it will likely repeat when those same ETFs buy Anthropic and OpenAI in a similar fashion.

Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Meta Platforms, Micron Technology, Microsoft, ServiceNow, and Vanguard Growth ETF. The Motley Fool has a disclosure policy.