SpaceX stock could see massive buying on Nasdaq 100 rebalance: will SPCX rally?

SpaceX shares could be on the verge of a fresh demand wave as the Nasdaq 100 Index prepares for its quarterly rebalancing later this month, potentially giving Elon Musk's space company a powerful boost from passive investors, according to a report by Bloomberg.

The stock has been largely rangebound in recent weeks following a volatile debut, but an obscure feature of the Nasdaq 100's weighting methodology, combined with a series of shareholder lockup expirations, could change the supply-demand equation.

The next Nasdaq 100 rebalance is due to be announced on Friday after the market closes and take effect on Sept. 21.

A weighting adjustment could unlock billions in demand

Nasdaq determines a company's weighting in the index using a calculation of its market value that takes into account either its total outstanding shares or three times its free-floating shares, whichever is lower.

That distinction matters for SpaceX because a relatively small portion of its shares has been available for public trading due to lockup restrictions on existing shareholders.

As a result, SpaceX currently has a 1.25% weighting in the Nasdaq 100, making it the index's 19th-largest constituent by weight.

That is despite the company having the sixth-largest market capitalization among companies in the benchmark, at more than $2 trillion (approx. ₹188 trillion).

The situation is now changing as previously restricted shares become eligible for trading.

More than one billion SpaceX shares have already been released from lockup restrictions, taking the company's free float to nearly 30% of its outstanding shares from less than 10% immediately after its June IPO.

That increase could push SpaceX's Nasdaq 100 weighting to as much as 2.25% following the upcoming rebalance, according to estimates from JPMorgan Securities strategists led by Min Moon.

Such an increase could translate into roughly $15.5 billion (approx. ₹1.5 trillion) in net passive buying from index funds and exchange-traded funds that track the Nasdaq 100, JPMorgan said.

QQQ and index funds could become major buyers

The potential demand is significant because roughly $1.7 trillion (approx. ₹159.8 trillion) in assets tracked the Nasdaq 100 as of the end of the second quarter, according to Nasdaq.

That includes the Invesco QQQ Trust Series 1 ETF, widely known by its ticker QQQ.

When a company's weighting in an index rises, funds designed to replicate that benchmark generally need to increase their holdings to maintain alignment with the index.

That could create a powerful source of demand for SpaceX shares at a time when the stock has lacked a major fundamental catalyst.

"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, according to the Bloomberg report.

"It is going be some time until I think you really get a good read on what the market truly thinks about the stock."

SpaceX shares have settled after IPO volatility

SpaceX's June IPO generated intense investor interest and was followed by weeks of volatile trading.

The shares have since lost much of that momentum.

Over the past four weeks, the stock has traded sideways between $133 and $150, remaining close to its $135 IPO price.

The upcoming index adjustment could therefore provide the catalyst needed to push the shares out of their recent trading 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 in the report.

"It should get more demand from QQQ and the like."

The potential buying comes as SpaceX continues to increase the number of shares available to public investors.

More lockups are set to expire

SpaceX's first major lockup expiration in August coincided with its initial earnings release and had raised concerns that a sudden increase in available shares could trigger a major selloff.

Those fears were not realized.

Even after a second lockup expiration a week later, insiders largely retained their holdings, helping support the stock and giving investors greater confidence that the additional supply would not overwhelm demand.

The company faces another unlock on Wednesday, when roughly 319 million additional shares held by select insiders are scheduled to become eligible for sale.

More than one billion additional shares are expected to be unlocked by the end of October.

Another 1.3 billion shares will become eligible to trade after SpaceX reports its third-quarter earnings in mid-November.

As the free float expands over the coming year, SpaceX's weighting in the Nasdaq 100 could rise further, potentially creating additional demand from passive funds.

SpaceX could see billions in passive buying after a Nasdaq 100 rebalance boosts its index weighting as more locked shares become tradable.