There's been a fair bit of volatility around Space Exploration Technologies (SPCX +0.45%) within just its first few weeks of trading. The stock, also known as just SpaceX, briefly reached astronomical levels that put its valuation higher than Microsoft's, as it approached $3 trillion in market cap. It ended up retreating back to around the level it was at on its first day of trading, as there have already been big swings thus far.
There could be even more volatility ahead, as the Nasdaq has recently loosened rules around which stocks can join the Nasdaq-100. SpaceX could be eligible to join the index after just 15 trading days, and that means it could be part of the index as early as next week.
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Why this could lead to a surge in SpaceX's stock
The Nasdaq-100 rebalances regularly to reflect changing valuations. The index is comprised of the 100 most valuable non-financial stocks on the Nasdaq exchange, based on market cap. With SpaceX already at $2 trillion and among the most valuable companies in the world, it's a lock to join the index. And now with the Nasdaq making it easier to do so, it's simply a matter of time before it happens.
The day that it joins the index is expected to be July 7. Once that happens, many portfolios will have exposure to SpaceX simply by owning exchange-traded funds that track the Nasdaq-100, including the highly popular Invesco QQQ Trust. This creates forced buying, which can have significant upward pressure on the space stock, pushing it to new heights.
NASDAQ: SPCX
Key Data Points
Should you buy SpaceX stock before its inclusion in the Nasdaq-100?
SpaceX's stock may get a bump up from getting added to the Nasdaq-100, but that doesn't mean the rally is going to last. This is still a fairly expensive stock to own, with tremendous downside risk given that the company isn't profitable and it's spending heavily on artificial intelligence and space. Investors who invest in funds that track the index may also be tempted to sell them in an effort to reduce risk. It's by no means a slam dunk that SpaceX's stock is going to take off next week.
Plus, what's ultimately most important when investing is looking at the big picture, which includes not only a company's growth prospects but also its fundamentals and valuation. SpaceX isn't an attractive buy due to both its lack of profitability and extremely high valuation. It still has a lot to prove, which is why I'd tread carefully with it; taking a wait-and-see approach may be best.
