The SpaceX initial public offering (IPO) is in the spotlight for all the right reasons. Not only is SpaceX the largest IPO in history, but raising $75 billion at a $1.77 trillion valuation would make SpaceX one of the 10 most valuable companies in the world.
Updated index policies will expedite SpaceX's entry into the Nasdaq-100 (the 100 largest non-financial stocks in the Nasdaq Composite) through a fast-track process that could take weeks instead of months or even years.
But investors who believe that SpaceX is ridiculously overvalued may be looking for ways to minimize their exposure. After all, some Wall Street analysts say SpaceX is overvalued by more than 50%.
Here's an ultra-low-cost exchange-traded fund (ETF) investors can buy to avoid SpaceX while still getting exposure to top growth stocks.
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SpaceX will only be in one sector
While many market-cap-weighted index funds and growth-focused ETFs include all megacap growth stocks, sector ETFs exclude non-sector names. This makes sector ETFs one of the best ways to get outsize exposure to a handful of stocks.
For example, ExxonMobil and Chevron make up a combined 35.3% of the Vanguard Energy ETF, Amazon and Tesla are over 40% of the Vanguard Consumer Discretionary ETF, and Alphabet and Meta Platforms make up a staggering 47.3% of the Vanguard Communication Services ETF.
SpaceX will likely be added to the communications sector because its Starlink network of low-Earth-orbit broadband and mobile satellites and its social media platform X are critical revenue streams. If that happens, then tech sector ETFs will not buy SpaceX.
The tech sector has plenty of ways to reward growth investors
The Vanguard Information Technology ETF (VGT 6.14%) is on track to outperform the S&P 500 for the fourth consecutive year thanks to its massive exposure to the semiconductor industry. The ETF has benefited from concentration in chip stocks like Nvidia, Broadcom, Micron Technology, Advanced Micro Devices, Intel, and semiconductor equipment manufacturers Applied Materials, Lam Research, and KLA.
NYSEMKT: VGT
Key Data Points
While semiconductors have been driving the bulk of tech sector gains, the ETF is also a great way to invest in artificial intelligence (AI) use cases rather than just the AI infrastructure build-out. Apple's ecosystem will empower everyday AI usage. Microsoft and Oracle are massive cloud computing and software companies that are investing heavily in AI. The sector is chock-full of software-as-a-service and cybersecurity companies that are developing AI tools.
As AI evolves, companies closer to end-use cases -- such as enterprise and consumer customers -- may generate the bulk of the value added from AI, rather than semiconductors benefiting from today's supply/demand imbalance.
The tech sector is far from cheap, but its earnings growth rate is impeccable. And the Vanguard Tech ETF features a mere 0.09% expense ratio, which is just $9 for every $10,000 invested.
A low-cost ETF for avoiding SpaceX
Over time (and if it maintains its high valuation), SpaceX will become a top holding in S&P 500 and Nasdaq-100 index funds, total market funds, and growth ETFs.
Although there may be some actively managed funds that build a case around avoiding red-hot IPOs like SpaceX, those funds may also come with high fees. So the simplest, low-cost option for risk-tolerant investors who want to buy growth stocks but not SpaceX is the Vanguard Tech ETF.
