SpaceX’s rapid entry into the Nasdaq-100 has pushed Elon Musk’s rocket company into index funds that track the benchmark, giving ordinary investors exposure to a stock they may not have chosen on purpose.
The move followed a Nasdaq rule change that allowed a newly public company large enough for the index to join on its 15th trading day. Reuters reported that SpaceX had requested the change before its listing. SpaceX joined the Nasdaq-100 on July 7, which meant funds designed to mirror that index had to buy the stock whether their managers loved the business, hated the governance, or were just trying to keep tracking error from becoming a career problem.
The worry is not that one company instantly detonates the index fund model. Burton Malkiel, author of the 1973 book A Random Walk Down Wall Street and one of the best-known advocates of index investing, told The Verge he would “think twice” about buying SpaceX as an individual stock because he views it as overhyped. He also said SpaceX is not a reason to avoid index funds.
How SpaceX gets into passive portfolios
An index fund tries to match a benchmark such as the S&P 500 or Nasdaq-100. If the benchmark adds a company, the fund buys it. If the company becomes a larger share of the benchmark, the fund’s exposure rises. If the stock falls and its weight shrinks, the fund holds less of it at the next rebalance.
That mechanical buying can matter around an IPO. Research from Harvard Business School cited by The Verge indicates index-fund demand may have contributed to SpaceX’s initial IPO pop. The Wall Street Journal reported that index funds could also help absorb selling when employee lockup periods expire, reducing pressure on the share price.
SpaceX’s market value was above $1.5 trillion, according to The Verge, but less than 5 percent of the company’s shares were sold in the IPO. Because Nasdaq adjusts for shares available to trade, SpaceX initially counts in the index more like a smaller company than its headline valuation suggests. Bloomberg’s Matt Levine noted that more shares tied to 180-day lockups could become sellable after SpaceX reports second-quarter results, expected in mid-August.
The governance problem is very real
The main objection is control. The CEO of CalPERS and the New York state and city comptrollers sent SpaceX a letter criticizing what they called its “novel and extreme governance structure.” Their concern: Musk holds majority voting rights, and SpaceX has limited shareholders’ litigation rights.
That structure matters because large index managers vote shares on behalf of fund investors. In a typical public company, shareholders can use votes and proposals to push back on management. With SpaceX, according to the letter cited by The Verge, outside shareholders have far less leverage.
SpaceX is also arriving in public markets at a moment when major indexes are already crowded with technology and AI-linked companies, including Nvidia, Apple, Microsoft, Amazon, Alphabet, Broadcom, and Meta. Malkiel told The Verge that market concentration is a familiar criticism of index funds, but argued that a small minority of stocks has historically produced much of the market’s return.
The S&P 500 has not fast-tracked SpaceX, Bloomberg reported, which could create wider performance gaps between funds tracking the S&P 500 and those tracking the Nasdaq-100. For investors who want no SpaceX exposure at all, The Verge noted that S&P 500 funds or some environmental, social, and governance funds may exclude it, though ESG funds use different criteria and often charge higher fees.
SpaceX president Gwynne Shotwell also donated SpaceX shares to Trump Accounts, CNBC reported. Business Insider reported that President Donald Trump said the gift was worth $325 million. That donation puts another layer on the same problem: SpaceX is not just a rocket company in a spreadsheet. It is a Musk-controlled company whose stock is now embedded in more passive portfolios by index design.
This story draws on original reporting from The Verge.
