SpaceX Could Join the Nasdaq in Record Time After Its IPO. Here's Why That Matters.
Key Points
The SpaceX IPO could gain entry into the Nasdaq-100 index in record time.
That addition could result in altering the complexion of some popular ETFs.
It could also set a precedent for other ballyhooed IPOs in the future.
SpaceX hasn't yet officially filed plans for an initial public offering (IPO). Still, the word on the street is that Elon Musk's company could soon do just that, setting the stage for one of the most anticipated IPOs ever.
Underscoring SpaceX's likely status as one of the most eagerly awaited IPO stocks in years is that, in terms of sheer size, Musk is swinging for the fences. The space company is reportedly looking to raise $75 billion at a $1.75 valuation. If it's successful in its quest to raise that $75 billion, SpaceX will be the largest IPO ever, more than doubling the $29.4 billion raised by Saudi Aramco in its 2019 IPO.
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Those factoids make SpaceX's initial share sale compelling, but there are other reasons to be interested as well. For fans of exchange-traded funds (ETFs) and investors just learning how to invest in index funds, the SpaceX IPO may have profound implications. Here's the skinny on that situation.
The other record SpaceX could break
Alone, the fact that the rocket and satellite company is looking to raise $75 billion at a valuation of $1.75 trillion is jaw-dropping. Simply put, that's rarefied IPO air. But that $75 billion isn't the only record SpaceX stands to break.
The other one hinges on the company listing on the Nasdaq stock exchange, which positions the stock for inclusion in the Nasdaq-100 Index. That gauge usually rebalances once a year, in December, but due to the gravity (space pun) of the SpaceX IPO, Nasdaq approved updates to that index's rebalancing schedule.
In plain English, as of May 1, Nasdaq-listed companies ranking in the top 40 by market capitalization will be eligible for Nasdaq-100 entry after just 15 trading days, provided they're not financial services firms, which are excluded by that benchmark. SpaceX will almost certainly clear all those hurdles.
As a result, the stock could quickly appear in ETFs tracking the Nasdaq-100, including the Invesco QQQ ETF (NASDAQ: QQQ) and the Invesco NASDAQ 100 ETF (NASDAQ: QQQM), and as a top-10 holding in those ETFs. So at some points, those ETFs will be credible avenues for exposure to SpaceX stock.
But wait. There's more. Those two ETFs aren't the only games in town when it comes to Nasdaq-100 trackers. As of last December, there were more than 200 globally listed instruments with combined assets under management north of $600 billion benchmarked to the Nasdaq index. Any ETF, index fund, or other products tracking the Nasdaq-100 will have to add shares of SpaceX, assuming the stock lists on the Nasdaq, implying a lot of capital could swiftly flow into the stock.
Criticism and floodgates
The possibility of SpaceX gaining "preferred" inclusion in the Nasdaq-100 isn't free of criticism. At least one expert has expressed concerns about an index provider altering its methodology to ensure its parent index earns a prestigious listing.
In the indexing world, those are valid points, but SpaceX could proceed undaunted. Not only that, but the fast-track entry precedent set by Nasdaq could pave the way for winning listings for the Anthropic and OpenAI IPOs, which are expected later this year. Like SpaceX, those companies would qualify for swift inclusion in the Nasdaq-100.
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Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
