SpaceX is set to receive a boost from a potential increase in its weighting within the Nasdaq-100 index. This comes as lockup expirations in August, September, October, and November release more shares to the public. As a result, the Nasdaq-100, along with the Morningstar US Total Market index, will rebalance in mid-September, increasing SpaceX's weighting by approximately 3.4 times. The Russell 1000 index will also see a larger increase later this year.
Initially, SpaceX's inclusion in these indexes had a relatively small weighting because only about 5% of the company was offered to the public in its IPO. The Nasdaq-100, which has fewer constituents, already had the highest weighting and is projected to fully market-cap weight SpaceX once 33.4% of its stock is publicly available, likely by year-end. The fast-tracked inclusion into indexes like the Nasdaq-100, FTSE Russell, and MSCI has led to predictions that passive investors could own about 30% of SpaceX's free float within 15 days of trading, significantly higher than the 4% under previous rules.
This rebalancing is expected to generate billions of dollars in demand for SpaceX stock from index-tracking funds and mutual funds benchmarked against these indexes. For instance, its entry into the Nasdaq-100 was projected to trigger an estimated $4.3 billion in passive inflows. However, this forced buying by index funds will coincide with early investors and insiders selling off their shares. Many early investors, who held over $600 billion worth of SpaceX stock as of June 30, are eager to reduce their concentration risk after massive gains.
The selling pressure from early investors and the buying pressure from index funds create a volatile environment for SpaceX stock. While early investors may sell to diversify, index funds are obligated to buy, irrespective of their investment outlook. This dynamic could lead to significant short-term price fluctuations, potentially creating buying opportunities if selling pressure drives the price down, especially given the company's long-term growth potential in AI and communications technologies. Investors focused on the S&P 500 will avoid this volatility for now, as SpaceX is not eligible for that index until at least a year after its IPO.
