SpaceX's increased weighting triggered $12.4 billion in passive buying, but the challenge of unlocking 2.3 billion shares is still ahead.

The upcoming buying spree for SpaceX is not driven by improved fundamentals, but rather by a mechanical consequence of a little-noticed index compilation rule being triggered—the lifting of lock-up periods on shares that drive up the weighting is also the biggest potential source of selling pressure in the coming months.

The Nasdaq 100 index's quarterly rebalancing, scheduled to take effect on September 21, is expected to increase SpaceX's weighting from 1.25% to approximately 1.51%. According to calculations by JPMorgan strategist Min Moon's team, this adjustment will trigger approximately $12.4 billion in passive net buying.

The direct driving force behind the weighting leap was the increase in the free float ratio from less than 10% after the IPO to nearly 30%—after more than 1 billion restricted shares were released from lock-up, the index rules automatically amplified the inclusion weight of this giant with a market value of over 2 trillion US dollars.

However, the lifting of restrictions is not over: by the end of October, over 1 billion shares will become tradable, and after the Q3 financial report in mid-November, another approximately 1.3 billion shares will follow suit, totaling over 2.3 billion shares. The interplay between short-term mechanical buying and medium-term supply shocks is becoming the core variable in SpaceX's Q4 pricing.

As of press time, SpaceX shares were up 0.06% on Tuesday, near a two-month high.

Weighting doubling mechanism: A chain reaction of a jump in the free float ratio

The Nasdaq 100's weighting is based on the lower of total outstanding shares and three times the number of freely tradable shares. Stocks with a low free float ratio have their market capitalization discounted when included in the calculation—free float excludes insider holdings and restricted shares.

SpaceX was in a similar situation previously. Due to share lock-up restrictions, its free float was less than 10%, and despite a market capitalization exceeding $2 trillion and ranking sixth in the index, its weighting was only 1.25%, ranking 19th. With over 1 billion restricted shares released from lock-up, the free float rose to nearly 30%, directly triggering a recalculation of the weighting.

According to calculations by JPMorgan strategist Min Moon's team, once the weighting rises to approximately 1.51%, it will generate approximately $12.4 billion in net passive buying demand.

According to Nasdaq, approximately $1.7 trillion in assets tracked the Nasdaq 100 index as of the end of the second quarter, including the well-known Invesco QQQ ETF (ticker symbol QQQ). The rebalancing plan will be announced after the market closes on Friday. With more shares becoming tradable over the next year, the free float ratio continues to rise, and SpaceX's weighting may increase further.

2.3 Billion Shares Released from Lock-up: A Supply Surge Behind Short-Term Buying

The jump in the free float ratio is essentially a result of the lifting of restrictions on the sale of shares, and even larger amounts of shares to be released are yet to come.

According to the timetable, more than 1 billion restricted shares will be released from lock-up by the end of October; after the release of the third-quarter financial report in mid-November, another 1.3 billion shares will become tradable, bringing the total to more than 2.3 billion shares.

The initial release of shares in August (coinciding with SpaceX's first financial report) triggered concerns about a large-scale sell-off, but most insiders held their shares and the selling pressure did not materialize.

Ed O'Gorman, CEO of River Wealth Advisors, believes the real turning point will come when the November earnings report triggers the lifting of the lock-up period, at which point a large number of shares will enter the market.

Interactive Brokers chief strategist Steve Sosnick said the newly unlocked shares will either be sold to potential passive buyers or the share price will rise due to increased demand for index funds, with products like QQQ expected to generate more demand.

Divergence between bulls and bears: Can passive buying offset the selling pressure from the lifting of share lock-up restrictions?

In the short term, the passive buying of approximately $15.5 billion is relatively certain; in the medium term, the scale and pace of selling pressure from the lifting of share restrictions depend on the willingness of insiders to reduce their holdings, and the two constitute the biggest expectation gap at present.

Over the past four weeks, SpaceX's stock price has been trading sideways between $133 and $150, fluctuating around its IPO price of $135, lacking fundamental catalysts. Ed O'Gorman points out that the market price will be driven to some extent by forced buying, and it will take some time to truly understand the market's perception of the stock.

Similar rules are not unique to Nasdaq. The S&P Dow Jones Indices also use free-float adjusted market capitalization for weighting; two years ago, after Berkshire Hathaway reduced its stake in Apple, Piper Sandler estimated it would trigger approximately $40 billion in passive fund purchases.

SpaceX was included in the Russell 1000 index in June of this year, but the S&P 500 requires at least 12 months of trading history, meaning it will not be eligible for inclusion until mid-2027 at the earliest, leaving room for further passive buying.

The lifting of the trading ban triggered by the Q3 earnings report in mid-November will be a crucial moment to test the true market depth of SpaceX and determine the short-term outcome of the bullish and bearish battle.

Risk Warning and DisclaimerInvesting involves risk; please exercise caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Any investment decisions made based on this information are at your own risk.