SpaceX’s Upcoming IPO Draws Interest
The buzz around SpaceX’s initial public offering (IPO) is quite significant. It’s not just any IPO; it’s poised to be the largest in history. If the company successfully raises $75 billion, it would be valued at $1.77 trillion, landing it among the top ten most valuable companies in the world.
A recent change in the indexing policy is helping streamline SpaceX’s entry into the Nasdaq-100, which tracks the top 100 non-financial stocks, allowing for a quicker process than usual—weeks instead of months, or even years.
However, there are investors expressing concerns about SpaceX’s valuation, which some Wall Street analysts suggest could be over 50% inflated. This has led certain investors to seek alternatives to minimize their risk. For those looking to steer clear of SpaceX, there’s an ultra-low-cost exchange-traded fund (ETF) available that still offers exposure to leading growth stocks.
SpaceX’s Position in the Market
Index funds that are weighted by market cap tend to encompass all major growth stocks, while sector-specific ETFs exclude non-sector options. This makes sector ETFs an attractive choice for gaining significant exposure to a limited selection of stocks.
Take, for example, Exxon Mobil and Chevron, which together comprise 35.3% of the Vanguard Energy ETF. Similarly, Amazon and Tesla account for more than 40% of the Vanguard Consumer Discretionary ETF, while Alphabet and Meta Platforms represent an astonishing 47.3% of the Vanguard Communication Services ETF.
It’s likely that SpaceX will enter the communications sector, thanks to its Starlink network and social media platform X, both of which are major revenue streams. Should this occur, tech sector ETFs might not incorporate SpaceX.
The Tech Sector’s Growth Potential
The Vanguard Information Technology ETF is on track for strong performance, surpassing the S&P 500 for the fourth consecutive year, largely due to its significant holdings in the semiconductor industry. It features a solid concentration of stocks like Nvidia, Broadcom, and Intel.
While semiconductors have driven hefty gains within tech, there are also ETFs focused on AI applications beyond just the foundational infrastructure. Companies like Apple are integrating AI into daily life, while Microsoft and Oracle are making substantial investments in AI technologies. As AI develops, it seems probable that businesses more directly connected to end-users will reap the most benefits, rather than just those involved in semiconductor production.
Although tech stocks may not come cheap, their earnings growth is noteworthy. The Vanguard Tech ETF boasts an incredibly low expense ratio of just 0.09%, meaning it costs only $9 for every $10,000 invested.
A Simple ETF Choice for Avoiding SpaceX
As time goes on—and if SpaceX maintains its strong reputation—it could become a major holding in various indexes such as the S&P 500 and Nasdaq 100, as well as in total market and growth ETFs.
While some actively managed funds may suggest steering clear of highly anticipated IPOs like SpaceX, these options often come with elevated fees. Thus, for investors willing to take a chance and opting for growth stocks instead of SpaceX, the most straightforward and cost-effective choice would be the Vanguard Tech ETF.
