Shares of SpaceX (NASDAQ: SPCX) have been trading in a tight band recently, but a wave of fresh buying could be on the way as the Nasdaq-100 index undergoes its quarterly weight reset later this month. The catalyst hinges on a little-known clause in the rules of this tech-heavy benchmark, combined with the staggered expiration of lock-up periods for shareholders of Elon Musk's satellite and space exploration enterprise, which together limit the number of shares available for trading.
Nasdaq determines a company's index weight using a market-cap calculation that compares its total share count against three times its free-float shares, applying the lower of the two figures. For stocks with a smaller free float—which excludes insider holdings or shares still under lock-up restrictions—the weight is calculated without using the full market value. Due to lock-up provisions, SpaceX has a relatively small free float, which currently caps its Nasdaq-100 weight at 1.25%, ranking 19th, even though its market capitalization exceeding $2 trillion places it sixth in the index.
Billions of SpaceX shares are slated to unlock next year, but the weight is expected to climb after the index's next rebalance. The results of that reset are scheduled to be revealed after Friday's close and take effect on September 21. This is partly because over one billion shares have already emerged from lock-up restrictions, lifting the free float from less than 10% of total shares outstanding right after the IPO to nearly 30% now. According to estimates from strategists at Morgan Stanley, led by Min Moon, SpaceX's weight could rise to 2.25% following the reset, which would compel index funds and ETFs to generate $15.5 billion in passive net buying. Data from Nasdaq shows that approximately $1.7 trillion in assets tracked the Nasdaq-100 as of the end of the second quarter, including the Invesco QQQ Trust Series 1 exchange-traded fund, more commonly known by its ticker QQQ.
As more SpaceX shares come out of lock-up over the next year, the company's free float will keep expanding, meaning its Nasdaq-100 weight is likely to grow further. Ed O'Gorman, CEO of River Wealth Advisors, noted that "at some point, the market price here is going to be shoved by forced buying. I think it will take a while before you really get a clear read on what the market truly thinks of this stock." After the record-shattering IPO in June that sparked weeks of intense volatility, SpaceX's stock has settled down. Over the past four weeks, the shares have been trading sideways, holding between $133 and $150, right around its $135 IPO price. With few fundamental catalysts in the near term, the index rebalance could provide the momentum needed for a breakout.
Steve Sosnick, chief strategist at Interactive Brokers, remarked that "either some of the newly unlocked shares will be sold into what could be anticipated buying, or the huge uptick in demand from index funds will push the stock higher. It should get more demand from QQQ and similar funds." Nasdaq is not the only index provider using this weighting methodology. S&P Dow Jones Indices, which manages the S&P 500, also applies free-float-adjusted market caps in some of its metrics. Two years ago, when Berkshire Hathaway sharply reduced its stake in Apple, it raised the free-float value of Apple shares, and analysts at Piper Sandler estimated at the time that this would trigger $40 billion in buying from passive funds.
Although SpaceX was also added to the Russell 1000 index in June, S&P 500 rules require a stock to have at least one year of trading history before inclusion. As a result, it won't be eligible for the S&P 500 until mid-2027 at the earliest. SpaceX's first lock-up expiration in August coincided with its inaugural earnings report, sparking concerns of a massive sell-off based on the theory that a sudden surge in share supply would overwhelm demand. However, the anticipated selling never materialized after the second unlock, which occurred a week later, as insiders largely held onto their stakes, boosting investor confidence and underpinning the stock price. More than one billion shares are set to unlock by the end of October, and following the third-quarter earnings release in mid-November, another 1.3 billion shares will become eligible for trading.
O'Gorman from River Wealth stated, "The bigger event—the one that really tells the story—won't happen until November when the earnings trigger unlocks a flood of shares into the market."
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