SpaceX (SPCX) shares may be poised for a significant demand boost as the Nasdaq 100 Index prepares for its quarterly rebalance later this month. According to a Bloomberg report, the adjustment could increase the company's weighting in the index, potentially triggering billions of dollars in passive buying from index funds and ETFs.
Weighting Methodology and Lockup Expirations
The Nasdaq 100's weighting methodology uses a calculation that takes the lower of a company's total outstanding shares or three times its free-float shares. For SpaceX, this has historically resulted in a lower weighting due to a small free float. Currently, SpaceX holds a 1.25% weighting, making it the 19th-largest constituent, despite having the sixth-largest market cap in the index at over $2 trillion.
However, as lockup restrictions expire, more shares become available for trading. Over one billion SpaceX shares have already been released, increasing the free float to nearly 30% of outstanding shares, up from less than 10% after its June IPO. This expansion could push SpaceX's weighting to as much as 2.25% following the upcoming rebalance, according to JPMorgan strategists led by Min Moon.
Potential $15.5 Billion in Passive Buying
JPMorgan estimates that such a weighting increase could translate into roughly $15.5 billion in net passive buying from funds tracking the Nasdaq 100. With approximately $1.7 trillion in assets tracking the index, including the Invesco QQQ Trust (QQQ), funds will need to adjust their holdings to align with the new weights.
"The market price is going to get shoved around here by, to some degree, forced buying," said Ed O'Gorman, CEO of River Wealth Advisors, in the Bloomberg report. "It is going to be some time until I think you really get a good read on what the market truly thinks about the stock."
Stock Sideways After IPO Volatility
SpaceX's June IPO generated intense interest, but the stock has since traded sideways between $133 and $150 over the past four weeks, near its $135 IPO price. The upcoming index adjustment could provide the catalyst needed to break out of this range.
"Either some of the newly unlocked shares would sell into the presumed buying that might occur, or the stock could rally because it could get a big pickup from the demand from indexers," said Steve Sosnick, chief strategist at Interactive Brokers. "It should get more demand from QQQ and the like."
More Lockups on the Horizon
SpaceX's first major lockup expiration in August coincided with its earnings release, raising concerns of a selloff. However, insiders largely retained their holdings, supporting the stock. Another unlock is scheduled for Wednesday, with roughly 319 million shares becoming eligible for sale. Over one billion additional shares are expected to be unlocked by the end of October, and another 1.3 billion after the third-quarter earnings report in mid-November.
As the free float expands, SpaceX's weighting in the Nasdaq 100 could rise further, potentially creating additional demand from passive funds. This dynamic is reminiscent of other stocks that have seen significant index-driven buying, such as the recent Robinhood rally and the DRAM ETF surge.
Investors will be watching the rebalance announcement closely, as the potential for forced buying could provide a short-term boost to SpaceX shares. However, the long-term outlook remains uncertain as the market digests the increasing supply of shares.
This article is for informational purposes only and does not constitute financial advice.
