Should You Buy SpaceX Before It Joins the Nasdaq-100 On July 7?
Key Points
SpaceX will soon be part of the Nasdaq-100, which is expected to drive $4.3 billion in passive inflows.
Index inclusion doesn't affect SpaceX's long-term value.
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Space Exploration Technologies (NASDAQ: SPCX) will join the Nasdaq-100 on July 7, after Nasdaq adjusted its rules to provide a "Fast Entry" option for eligible companies. Funds that track the Nasdaq-100, including the Invesco QQQ Trust, will need to buy SpaceX stock after market close on July 6.
JPMorgan estimates that this could drive $4.3 billion in passive inflows into SpaceX. Considering SpaceX has a tiny float -- only about 4% -- that kind of investment may push the price up. Should you buy before then to take advantage?
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There are a few problems with this strategy. Any boost SpaceX gets will be temporary and unrelated to its long-term value. It could pull back just as quickly, in which case you don't come out ahead unless you take your profits immediately. This is trading, and it's much riskier and far less effective for building wealth than investing.
Also, most investors who follow SpaceX know when it's joining the Nasdaq-100. It's a good bet that plenty of people will buy the stock in anticipation of its index inclusion, which could lead to a much smaller bump than expected, or none at all.
It only makes sense to buy SpaceX if you think it's a good investment. While this space stock has potential, it's extremely risky and volatile. This is a company worth over $2 trillion as of June 30, despite losing $4.9 billion last year. Numbers like that matter much more than inclusion in the Nasdaq-100, and they're one of the reasons you may be better off waiting to invest in SpaceX.
Should you buy stock in Space Exploration Technologies right now?
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JPMorgan Chase is an advertising partner of Motley Fool Money. Lyle Daly has positions in Invesco QQQ Trust. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
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