space exploration technologies corp. Officially joined the Nasdaq 100 Index today. This is an important milestone for the company, as the Nasdaq 100 is one of the world’s most important stock market indexes. SpaceX listed on the Nasdaq exchange through an IPO on June 12. By becoming a public company, SpaceX is eligible to join major stock market indexes.
The Nasdaq-100 tracks the 100 largest non-financial companies listed on the Nasdaq exchange. The index consists primarily of fast-growing technology companies.
Why did SpaceX join the Nasdaq 100 Index?
Nasdaq changed its rules earlier this year to allow new public companies to enter the index more quickly. Previously, companies had to wait at least three months after an initial public offering to join the Nasdaq 100 index. Under the new rules, companies now need only 15 days after their IPO to qualify.
“Given that SpaceX is the largest IPO in history, all the different index providers need to look at their own rules and make sure they are fit for purpose,” Peter Haynes, head of index and market structure research at TD Securities, said, according to CNN.
Why is this important to investors?
Joining the Nasdaq 100 index means billions of dollars can automatically flow into SpaceX stock. This is because many investment funds exactly replicate the Nasdaq 100 Index. The funds must buy every company added to the index to match its performance. More than 200 investment products track the Nasdaq 100 Index.
Together, these funds manage approximately $800 billion in assets. As these funds buy SpaceX stock, demand for the stock is likely to increase. According to Investopedia, many investors believe this additional demand could support SpaceX’s stock price. Investors who already own the Nasdaq-100 ETF will now automatically own some SpaceX stock as well.
Also read: SpaceX plans to launch Starlink mobile service to challenge Verizon and AT&T
How influential is SpaceX?
Although SpaceX has a market capitalization of over $2 trillion, it won’t immediately become one of the largest companies on the index. That’s because Nasdaq also looks at how many stocks can be traded freely. SpaceX sold less than 5% of its shares to the public during its IPO.
Due to the smaller number of stocks available, its starting weight in the Nasdaq 100 Index is smaller. According to CNN, if an investor owns $100 worth of the Nasdaq 100 Index Fund, he or she will currently invest only about $1 in SpaceX. Over time, SpaceX’s weighting in the index is likely to increase as more stocks become available for trading.
Chris Beauchamp, chief market analyst at IG Group, told Reuters that “we knew this was going to happen so the impact would be pretty limited” on Nasdaq.
Beauchamp added, “You can expect the impact to be felt across the entire index. You’ve seen it over the past month in the Nasdaq model itself, which has been struggling to chase any further all-time highs we saw earlier this month.”
How has the stock performed?
SpaceX shares opened at $150 on their first day of trading. After the IPO, the stock quickly climbed to highs around $225. Since then, the stock price has fallen back from its highs. Before joining the Nasdaq 100, the stock traded at just above $160. That’s still about 7% higher than the IPO opening price. However, the stock remains well below its post-IPO peak.
What happens next?
Investors are now awaiting SpaceX’s first earnings report as a public company. The earnings report is expected in late July or early August. After the earnings release, some early investors and company insiders may be allowed to sell their shares after the lockup period expires.
A lock-up period prevents insiders from selling shares immediately following an IPO. According to Investopedia, the end of the lock-up period doesn’t mean everyone will sell, but it will increase the number of shares that may enter the market. The listing of more shares may increase price volatility.
What do analysts say?
Wall Street analysts are slowly starting to pay attention to SpaceX. Wedbush recently gave the stock an “outperform” rating. Wedbush also set a price target of $190 per share. According to Investopedia, many other major banks have not yet begun researching the company.
Goldman Sachs told Reuters SpaceX is well-positioned to grow its space, connectivity and artificial intelligence businesses. “We believe the company is well-positioned to expand its differentiation in space, connectivity and artificial intelligence,” the Goldman Sachs analysts added.
Analysts at Deutsche Bank said, “SpaceX is deploying Artificial Intelligence Infrastructure on the ground and eventually in orbit, positioning it as a leading ‘haloscaler’ that can ultimately deliver computing at the lowest cost,” via Reuters.
Could SpaceX join the S&P 500?
Since S&P’s rules haven’t changed, SpaceX won’t be eligible to join the S&P 500 for at least a year. To qualify, SpaceX also needs to report profits for four consecutive quarters. It took Tesla about 10 years after going public to enter the S&P 500 index.
How can investors avoid SpaceX?
Some investors may not want to invest in SpaceX due to concerns about CEO Elon Musk or the company’s valuation. According to CNN, one way to avoid SpaceX is to invest in an S&P 500 index fund, since SpaceX is not yet included in the index.
Investors can also choose Dow Jones Industrial Averagecurrently neither SpaceX nor Tesla. International stock index funds are another option for investors looking to reduce exposure to U.S. technology companies.
What should investors pay attention to going forward?
Investors will be paying close attention to SpaceX’s earnings, future forecasts, and financial performance. They will also monitor how many new shares enter the market after the lock-up period ends. SpaceX’s weight in the Nasdaq 100 could increase over time if more shares come to market.
According to CNN, the larger weight will give SpaceX a greater impact on the performance of the Nasdaq-100 index. Analysts expect the stock to remain volatile in the coming months as the market reacts to earnings, new share sales and investor demand, according to multiple news reports.
