SpaceX's potential $1.75T valuation can't be justified by a traditional "sum-of-the-parts" analysis of its current businesses. The premium reflects a venture-style bet on unproven, future projects like Starship, essentially offering public investors a chance to act as late-stage VCs.

The primary driver for institutional investors in the SpaceX IPO isn't the company's valuation but the "relative return" risk. The fear of underperforming peers who buy in is a more powerful motivator than the fear of the stock being overvalued, creating intense buying pressure.

SpaceX arranged to be included in major indices like the NASDAQ 100 in just 15 days, versus the standard 90-day cooling-off period. This forces passive index funds to buy shares amidst peak hype, creating artificial demand and sidestepping normal price discovery mechanisms.

For companies like SpaceX, Nasdaq now allows index inclusion in just 15 days (down from six months) and artificially inflates weight by treating a 5% float as 15%. This creates a massive, predictable, and forced buying event from index funds, which must sell other holdings to accommodate the new stock, distorting the market.

NASDAQ altered its rules to allow SpaceX early entry into the NASDAQ 100 index, just 15 days post-IPO. This forces index funds to purchase billions of dollars worth of stock on a specific date, creating a predictable, short-term demand spike for early investors regardless of the company's long-term fundamentals.

By offering only a small fraction of its shares ($75B out of a trillion-dollar valuation), SpaceX is creating a supply-demand imbalance. This classic IPO strategy forces index funds and institutional investors to buy into a potential price bubble, risking significant losses when more shares eventually hit the market.

The first-day surge in an IPO's stock price represents value transferred from the company to institutional investors who bought at a deliberately underpriced offering price. Retail investors who buy after this 'pop' are often left purchasing inflated shares while insiders cash out on the manufactured frenzy.

The immense hype surrounding the SpaceX IPO creates a dynamic where fund managers feel it's riskier to miss out on potential gains than to invest in a potentially overvalued company. If the IPO fails, many will fail together, but missing a massive success would be a fireable offense, driven by herd mentality.

Gurley argues that investment banks intentionally underprice IPOs to create artificial demand and a day-one "pop." This allows their institutional clients to profit by selling into the retail-driven frenzy, leaving average investors buying at inflated prices.