SpaceX's debut on the public market has triggered a surge in leveraged exchange-traded fund (ETF) trading, with more than $10 billion changing hands in the first week, a period shortened by a holiday. The activity has raised alarms about the potential for amplified losses among retail investors, as these financial products can magnify both gains and declines.
The stock closed Thursday at $185, down 3.6% on the day, but still comfortably above its initial public offering (IPO) price of $135. Earlier in the week, shares had soared as high as $225.64 before retreating for two consecutive sessions, reflecting the intense volatility surrounding the highly anticipated listing.
Leveraged ETF Trading Dominates
According to data from Strategas Securities and Bloomberg, cited by CNBC, 11 leveraged ETFs linked to SpaceX were launched shortly after trading began. These funds aim to double the daily percentage move of SpaceX shares, but because they reset daily, long-term returns can deviate significantly from the underlying stock's performance. The Leverage Shares 2X Long SPCX Daily ETF led the pack with $4 billion in volume, followed by the Leverage Shares 2X Short SPCX Daily ETF at $2.56 billion and the GraniteShares 2x Short SpaceX Daily ETF with $765 million. The busiest session was Tuesday, when leveraged SpaceX ETFs saw $4.2 billion in trading.
ARK Innovation ETF Sees Record Flows
The ARK Innovation ETF, managed by Cathie Wood, experienced a record $4.6 billion inflow late last week, only to see a $6.2 billion outflow the next session as SpaceX hit the public market, according to Bloomberg. This pattern suggests that some large investors used the fund as a proxy to gain indirect exposure to the SpaceX IPO, a strategy known as IPO arbitrage. The rapid inflows and outflows raise questions about whether long-term holders of the fund were affected by the sudden shifts in exposure and performance.
ARK subsequently rotated back into Tesla, acquiring 54,815 shares valued at approximately $21.9 million, as reported by Barron's. Tesla remains the top holding in ARK Innovation at 9.7%. As of June 12, ARK also held about 3.29 million shares of SpaceX.
SpaceXAI Revenue Projections
Brett Winton, chief futurist at ARK, projected in a June 15 note that SpaceXAI could generate close to $550 billion in annual revenue and $400 billion in pre-tax earnings from connectivity by 2035. He cautioned that these forecasts have limitations and should not be relied upon, but highlighted that orbital AI servers and lower costs could differentiate SpaceXAI from earth-centric competitors.
Market Volatility and Regulatory Warnings
The tight public float and high valuation of SpaceX shares have led analysts and portfolio managers to warn of potential early swings. Kat Liu, an analyst with IPOX Schuster, noted that "some degree of profit-taking is not surprising" after the stock's initial surge, as reported by Reuters. The broader space sector also felt the impact, with Rocket Lab and Planet Labs each falling roughly 3% and AST SpaceMobile losing about 7% on Thursday.
Both the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have issued warnings about leveraged and inverse ETFs, which seek daily targets and can lead to rapid losses if held for extended periods, especially in volatile markets. The risk is heightened with single-stock ETFs, as they lack diversification.
Debt Issuance on the Horizon
SpaceX bankers are planning to meet with investors as soon as next week to discuss a bond sale of at least $20 billion, according to Reuters. This comes after SpaceX announced a $60 billion all-stock deal to acquire Anysphere, the maker of the AI coding tool Cursor. While the equity side has financed much of Elon Musk's next moves, debt buyers may proceed more cautiously.
