SpaceX shares could get a boost from Nasdaq 100 rebalancing
The key is the combination of a little-discussed rule in the tech-heavy benchmark’s construction and a staggered series of lockup periods for shareholders of Elon Musk’s satellite and space exploration venture that has limited the number of shares available to trade.
Nasdaq determines a company’s weighting in the index based on a calculation of its market value that factors in its outstanding shares or 3-times its free-floating shares, whichever is lower. This means a stock with a low free float, which excludes shares held by insiders or those subject to lockups, will not have its full market value used to calculate its weighting.
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For SpaceX, which has a small free float because of lockup restrictions, that leaves it with a weighting of 1.25% in the Nasdaq 100, which is 19th biggest, despite sporting the sixth largest market capitalisation in the index at above $2 trillion.
But that weighting is expected to rise after the index’s next rebalancing, which is set to be announced on Friday after the bell and take effect on Sept 21. That’s due in part to the fact that more than one billion shares have now been released from lock-up restrictions, boosting its free float to nearly 30% of SpaceX’s outstanding shares from less than 10% after the IPO.
SpaceX’s weighting could hit 1.51% after the rebalance, forcing $12.4 billion of net passive buying from index funds and ETFs, according to revised estimates by JPMorgan Securities strategists led by Min Moon in a note published Tuesday. Roughly $1.7 trillion in assets track the Nasdaq 100 as of the end of second quarter, according to Nasdaq, including the Invesco QQQ Trust Series 1 exchange-traded fund, better known by its ticker symbol QQQ. SpaceX shares were down roughly 1% in early trading Tuesday.
As more SpaceX shares are unlocked over the next year, the company’s free float will continue to rise, meaning its Nasdaq 100 weighting could potentially increase even more. “The market price is going to get shoved around here by, to some degree, forced buying,” said Ed O’Gorman, chief executive officer at River Wealth Advisors. “It is going be some time until I think you really get a good read on what the market truly thinks about the stock,” he said.
