Key Points
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The Nasdaq altered its rules to fast-track megacap IPOs into the Nasdaq-100 index.
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Weightings of the Nasdaq-100 are based on the valuation of a company’s free-float shares, not total market cap.
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SpaceX is likely to account for less than 1% of the Nasdaq-100.
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When SpaceX makes its market debut on June 12, it’ll be the largest initial public offering (IPO) in the stock market’s history. Unsurprisingly, it has come with a lot of hype, but also a lot of scrutiny because of how the IPO is expected to be treated.
The S&P Dow Jones Indices, which manages the S&P 500, considered altering its rules to fast-track SpaceX as well, but it faced significant backlash and decided against it after a vote. The Nasdaq, however, altered its rules to fast-track SpaceX into its Nasdaq-100 index. Let’s take a look at what that means.
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How have the Nasdaq rules changed?
Traditionally, to be included in the Nasdaq-100, a company would need to have traded for at least three months and meet a liquidity threshold. However, the Nasdaq changed its rules, and now, to be included, a company only needs to be valued in the top 40 of Nasdaq companies in its first week, and then it can join after 15 trading days.
Whenever SpaceX is added to the Nasdaq-100, investors in the Invesco Nasdaq-100 ETF (NASDAQ: QQQM) will automatically gain exposure to SpaceX. Since it mirrors the index, it won’t be optional.
Notably, though, this rule change doesn’t apply to the Nasdaq Composite.
How much of QQQM will SpaceX make up?
QQQM contains 103 companies across all non-financial sectors. Here are its top 10 holdings before the SpaceX IPO:
| Company | Percentage of the ETF |
|---|---|
| Nvidia | 8.30% |
| Apple | 7.51% |
| Microsoft | 5.16% |
| Micron Technology | 4.47% |
| Amazon | 4.39% |
| Alphabet (Class A) | 3.57% |
| Advanced Micro Devices | 3.49% |
| Alphabet (Class C) | 3.31% |
| Tesla | 3.25% |
| Broadcom | 3.04% |
Data source: Invesco. Percentages as of June 5.
With a $1.77 trillion market cap, SpaceX would instantly be the seventh-most valuable company in QQQM (as of market caps on market close on June 5). That doesn’t mean it’ll instantly join its top holdings, however.
Although QQQM is weighted by market cap — meaning larger companies account for more of the fund — it doesn’t look at its total valuation. It’s based on a company’s free-float market cap, which is the value of its shares that are available to the public.
Since SpaceX will have a relatively small free float of shares, its free-float market cap will be much lower than its $1.77 trillion valuation. It’s likely to be closer to $75 billion. But once the Nasdaq adds its 3x multiplier — intended to prevent large companies with small free floats from being excluded — SpaceX will be weighted in the index at around $225 billion.
If you’re a QQQM investor, you should expect less than 1% of the fund allocated to SpaceX.
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Stefon Walters has positions in Apple and Microsoft. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Broadcom, Micron Technology, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
