The share price of space exploration company SpaceX (SPCX) has recently been trading in a narrow range, but this situation may soon be broken. With the Nasdaq 100 Index conducting its quarterly weighting reset later this month, a wave of passive buying driven by index funds may be on the way. According to Nasdaq’s compilation rules, when calculating component weights, the index compares three times the company’s total shares outstanding or its free-float shares, and takes the lower value as the basis for market capitalization calculation. For companies with a smaller free float, their index weight does not fully reflect their total market capitalization.
Affected by previous lock-up restrictions, SpaceX’s free-float share ratio was relatively low. As a result, although it ranks sixth among index components with a market capitalization exceeding $2 trillion, its weight in the Nasdaq 100 Index is only 1.25%, placing it nineteenth. However, with more than 1 billion shares being released from lock-up restrictions, its free-float share ratio has increased from less than 10% at the initial public offering (IPO) stage to nearly 30%. The Morgan Stanley strategist team estimates that after this reset, SpaceX’s weight may rise to 2.25%, which will force funds tracking the index, including the Invesco QQQ Trust Series 1 ETF with approximately $1.7 trillion in assets under management, to rebalance their portfolios, with an expected net passive buying of about $15.5 billion.
After the record-breaking IPO in June triggered significant volatility, SpaceX’s share price has recently calmed down, and over the past four weeks, it has largely remained within the range of $133 to $150, close to the IPO price of $135. In the absence of fundamental catalysts, this index weighting reset is viewed as a potential catalyst for the share price. The chief strategist at Interactive Brokers pointed out that the market will observe whether the supply of newly unlocked shares meets the index buying demand, or whether a surge in demand drives the share price higher. Similar mechanisms exist in other indexes as well; for example, S&P Dow Jones Indices also uses free-float market capitalization to determine weights.
Although the first lock-up expiration in August raised concerns about selling pressure, insiders have largely retained their equity holdings, which has supported the share price. Subsequently, at the end of October and after the November earnings release, more than 1 billion shares and 1.3 billion shares, respectively, will be gradually unlocked. Analysts believe that the real test may come in November, when a large supply of shares floods the market, which will more clearly reflect the market’s true view of this stock. In addition, because the S&P 500 Index requires stocks to have been traded for at least one year before they can be included, SpaceX will not qualify for inclusion until at least mid-2027.
Taken together, SpaceX is currently in a critical trading window. On the one hand, the weighting reset of the Nasdaq 100 Index will generate strong passive buying demand in the short term, which is expected to provide upward momentum for the stock price that has been consolidating in a range. On the other hand, the gradual unlocking of large batches of restricted shares over the coming months constitutes potential supply pressure. These two forces will interact and compete in the period ahead, and the true direction of market pricing may not become clear until after the November earnings report and the subsequent large-scale lock-up expirations have settled.
