Animal Spirits Podcast - Talk Your Book: How SpaceX Got Into the Nasdaq 100

Starting point is 00:00:00 Today's Animal Spirits Talk Your Book is brought to you by Invesco. Go to Invesco.com. To learn more about the NASDAQ 100 ETF QQ and their whole other innovation suite of ETFs. Invesco.com to learn more. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing, and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Redhol's wealth management. This podcast is for Involves. informational purposes only and should not be relied upon for any investment decisions. Clients of Ritthold's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. Michael, you always give me flack about my grander petting capabilities. I think it's a gift.

Starting point is 00:00:50 You think it's a crutch sometimes. Someone asked us, I don't know, two years ago, what's the best way to invest in AI? And I said, my grand reputage is just own the NASDAQ 100. I think that's the easiest way you're going to get the winners. The winners will rise to the top. Listen to this stat. We talked about Micron a little bit and how it's now the third largest company in the QQQETF, right? Pretty crazy.

Starting point is 00:01:12 It's over a 5% position. As of April, 26, and we're recording this on June 29th, 2026, in April of 2026, Y charts has the ability to look back at the holdings over different months and different time periods. Micron was not in the top 10 of the cues in April. Two months ago, today it's the third largest holding. That happened really, really fast, right? And that's what I meant by the cream rises to the top. The winners will sort themselves out.

Starting point is 00:01:44 It's not like this was a three-year thing. This was a three-month thing. Wow. Of going from outside the top 10 to the third largest holding in the index. I'll do you one better. Or not to one up you. I will do you one equal, Ben. micron year to date is up 290 percent it is added alone 5.2 percent to the year to day performance for the

Starting point is 00:02:05 NASDAQ 100 if you own the cues 5.2 percent of your year to date gain is from micron another 2.8 percent is from AMD and this is in order 2.5 percent is from Intel, 17 from applied materials and one five each from lamb research and sand disk. And, uh, All right, so let me do some math, Ben. Not exactly the household names that you'd expect. But that's the AI trade. So the top, and then Slam Research on Sandus and KLA Corp and Marvel and Cisco and Western Didge. These are all AI.

Starting point is 00:02:39 So, Ben, take a bath, sir, you nailed it. But we didn't talk about Google or meta or Microsoft or even Nvidia in there. That's pretty wild when you think about it. You know what? How the changes have times, Ben. we went 30 minutes talking about the cues. And to your point, not once, I don't think, did we mention a Mac 7 name? Literally.

Starting point is 00:03:04 No, no, no. I just said, how come Micron is so much bigger than a meta? Yeah, which is, you're right. Micron has twice the size in the index as meta. Pretty crazy. We've talked to Paul Schroeder before. Paul is the director of Factor in QQQ Equity Product Strategy. And of course, we talk about the biggest topic everyone's been talking about in recent months.

Starting point is 00:03:22 SpaceX IPO, when will it be included in the index? How does the NASDAQ 100 methodology work? Michael, I feel like you've been very schooled on this. This has been something that you've poured your heart and soul into last month. Index methodology. Oh, well, we were getting questions. Yes. So we go into the whole thing, how the NASDAQ 100 works, how they make these decisions, how big of a position SpaceX will be, all that and more. Here's our conversation with Paul Schroeder from Invesco. Paul, welcome back. Hey, thanks for having Michael. good to be here. All right, we'll start with a question that I should know the answer to. In fact, I do know the answer to this. But for the audience, who doesn't, for stocks to get into the NASDAQ 100,

Starting point is 00:04:04 do they need to be listed on the NASDAQ exchange? That's correct. That's the only real hard and fast requirement to be included within the NASDAQ 100 is that you need to be listed on the stock exchange, but also not be a financial. Okay. All right. I'm starting with the hard-hitting questions. question number two. This is an index that has been thought of as a tech forward, innovation-based. I'm sure there are tons of companies that want to be included in the NASA 100 for reasons that are very obvious. It's got the brand recognition and the cachet. And then, of course, there's the fund flows, which don't hurt. Is it simply the top market cap companies, or is there more to it than that? There is a little bit more to that. With the rule changes that occurred, it used to be.

Starting point is 00:04:53 just the straight market cap weighted index with certain rules in place to keep it compliant with registered investment company concentration rules. But they essentially switch to a lesser of function where they're looking also and taking an account free float as more of a weight determiner, especially for some of these companies that do have a lower free float. So it did get a little bit more complex, but at the end of the day, the largest companies are still getting the largest weights. How do you make sure that the integrity of the intent of the NASDAQ technology is maintained? So like what if, for example, the most boring company in the world wants to go from, I don't know, the New York Stock Exchange over the NASDAQ and you say, hey, wait a get out of here.

Starting point is 00:05:42 Walmart, no offense. Like this, or actually, you know what, Walmart is pretty innovative. Whatever. Clorox, like the Estogie Consumer Staples Company, what if they want to come? Would you welcome the business? Like, how would that work? Yeah. So you're exactly right. With the methodology of the NASDAQ 100 being as simplistic as it is, a company like you mentioned, Walmart moving in in January because they switch listings if Clorox wanted to switch, you know, name any of these consumer stable companies that I think a lot of people wouldn't necessarily associate with the tech heavy NASDAQ 100. They would be included if their market cap included them. you know, if it was high enough.

Starting point is 00:06:23 With all that being said, though, you know, I would welcome it. You know, even though NASDAQ 100 has been pretty tech heavy, 50 to 60%, you know, depending on which classification system you're looking at, it's outperformed the tech sector, which I think is most interesting, while having 40% less of that exposure. But I think overall what NASDAQ is really striving to do is to have the NASDAQ 100 be not just large-cap growth benchmark, but just a large cap in general for the U.S. market.

Starting point is 00:06:55 So I think listing on NASDAQ has shown you very well for your company. If you do that overall, you also see NASDAQ winning the IPO rates through the years and obviously getting notable changes like Walmart to their exchange overall. So I would welcome those sort of companies to come in because I'm very confident in the companies that are already there with providing that tech innovation weight overall. I'm sorry. I've got just one more, and I was going to let you speak,

Starting point is 00:07:26 but this is very timely. We got an email from a listener, and it said, the subject line was core portfolio change. And it said, hey, guys, most people probably use the S&P 500 as a core piece of their portfolio.

Starting point is 00:07:40 The investment world is always changing. Dow Jones, S&P, now we have the NASIC 100. I've always done 60 to 70% S&P as my core. Then I have my random. Okay. Looking back at the last 20 years since tech has taken over the world, the NASDAQ 100 has outperformed by 4 to 5% over 20 years.

Starting point is 00:07:59 The NASDAQ 100 is more concentrated. Of course, is it time to split our core portfolio to 50-50 NASDAQ 100 to S&P. And the truth is, Paul, I didn't respond to this person, even though we are branded as personal emails, personal responses. I kind of, not to be rude to the emailer because we love all emails. Ben, do you agree this is like an email from 2018? What do you think it's a little too late for that? What?

Starting point is 00:08:22 Yeah. Listen, the S&P 500 is SP 500. But people have been thinking more and more about the NASDAQ for a long time now. I think the brand is there probably to be a more core position. Paul, I'm sure you hear that a lot, like that most, a lot of investors do have that as an anchor in their portfolio now. Correct? 100%. It's been a pretty consistent narrative that we've seen.

Starting point is 00:08:43 I mean, NASDAQ-100. QQQQM account for 27. percent of all AUM within the large cap growth ETF category in the U.S. We are the 500 pound gorilla there within that space. And that is because more and more people, especially since COVID, have used the Q's and QQQQQM as the core part of their portfolio.

Starting point is 00:09:04 So it's a quarter of all large cap growth money is now somehow tied to the NASDAQ 100. Is that you said? That's correct. Wow. Oh, wow. That's probably bigger than I thought. So a lot of people obviously are already there.

Starting point is 00:09:15 Let's talk about the rocket ship in the room. Are you surprised at the degree to which people have seemingly cared about index inclusion rules in the past month or so? Because there obviously are people who have very strong opinions about this. And it seems like a lot of people are maybe learning on the fly about how this all works when it comes to a large IPO. I'm just curious if you're surprised at the degree to which the attention that this SpaceX IPO has gotten in terms of index inclusion. Yeah, I would agree with that statement over and over, Ben. Like, this has been one of the busiest times that I've had in my job covering the

Starting point is 00:09:51 queues for the past six years now that I've seen. You know, I mean, 2023 was pretty busy when Nazek 100 went through a special rebale, but that was about a week and a half long. This has been pretty consistent over the last month. And I think it's a convergence of a few different timely topics, right? Obviously, everyone loves talking about Elon Musk, what's he's doing, whether you like him or not. And then the valuation of SpaceX, you know, before pre-IPO, people were saying 1.5 to 2 trillion. We haven't seen an IPO like that before.

Starting point is 00:10:24 So I think all those different things have raised interest among investors along with the change of the fast century rules that NASDAQ released in May. There was a certain cohort of people who do not like Elon Musk, do not like the inclusion. Oh, you're changing the rules. I think this rule changes, frankly, overdue. Now, maybe it hasn't been necessary because private companies have been staying private for so long that we haven't had IPOs of this size. But I think it'll be weird if the NASDAQ 100 was not in the index.

Starting point is 00:11:04 Wait, what did I just say? SpaceX in NASDAQ. What did I say? I said NASDAQ? Yeah. Yeah. Okay. I think it would be weird if a multi-trillion dollar market cap company was not in the index.

Starting point is 00:11:17 And I think what NASDAQ, I know you work for Investco, what they're doing with a NASDAQ 100 in terms of making sure that it is not overrepresented in the index and adjusting for the float makes a lot of sense. So it's not like investors have to swallow $2 trillion of Elon Musk. Can you talk about what that inclusion is going to look like and how you all are adjusting for what's available? I really appreciate how NASDAQ approach fast entry in general. And as you alluded to, fast entry isn't something that's completely new. Other index providers have had it, right? Russell, MSCI, Crisp, they all have fast entry provisions. So it's nothing new.

Starting point is 00:12:05 And Michael, to the point that you made, I would be surprised if a company like SpaceX which definitely has the pedigree of being a NASDAQ 100 company wasn't included. So throughout all the conversations I've had over the past few weeks, it comes down to, okay, how is it going to be weighted, right? And basically looking at free float versus total market cap. And if that free float number is less than one third of the total market cap, NASDAQ applies a flat 3x multiplier to that free float to give you the modified market cap weight. So I know that's a lot of jar.

Starting point is 00:12:39 and what does this actually look and feel like with SpaceX? So SpaceX today has a free float of approximately $85 billion. Their total market cap is closer to $1.75 to $2 trillion. So that is definitely under that one-third threshold. You multiply that $85 billion times three, which gives you the weight. It comes in to the NASDAQ 100, which will be after the close on July 7th. They just made that announcement on Friday. and it'll probably be at a weight between 1.2 to 1.4%

Starting point is 00:13:12 depending on how the market moves, not just SpaceX, but the other components of the NASDAQ 100 as well. So the amount of attention that it's gotten, the inclusion, I'm glad that it's there because you have a lot of individual investors that are saying,

Starting point is 00:13:29 maybe I should just go out and buy SpaceX, but when you see SpaceX trade between $150 and $229 in the first few weeks of trading, And it's like, how do you commit serious capital to that without worrying about the extra volatility that might come with it? NASDAQ 100 allows, you know, at a pretty decent way compared to some of these other indexes to give you exposure to a company. I'm curious, maybe you could walk us through some of the history.

Starting point is 00:13:53 Like, how flexible are these committees, have these committees been in the past? Because I think some people think that it's just totally robotic and there's rules that you follow and you have to follow the rules. But obviously, the market environment is changing. index providers are changing with it. Just maybe walk us through how much flexibility there is in this process. I think with an index like NASDAQ 100, there's a phenomenal amount of flexibility, but I think what's more important, there's a great deal of transparency, right?

Starting point is 00:14:22 We know any investor could go and look up the methodology of NASDAQ 100 and see if a company is going to be included or not, if it lists newly listed IPO. Just to contrast that versus S&P, which is a fantastic company. but they ruled that they are not adding a fast entry provision. You know, they did that last month through a consultation process, and they still have their 12-month seasoning process. They also have a profitability screen and then also a committee, right? So I think when looking at these different ETFs, you have to assess and if investing in an

Starting point is 00:14:58 IPO is important to you. We've also heard the exact opposite where I don't want to invest in these newly IPOs because they're not profitable, right? I think you need to take all those different things into account about how these different index providers approach it and choose the one that aligns best with how you think. So one of the big narratives around the private markets is the fact that these companies are staying private longer. It is taking it much longer to come public. You know, we're talking about multiple potentially trillion dollar IPOs this year.

Starting point is 00:15:27 We've already had one. And some people think, well, hey, we're being left out. And it's kind of funny to think, I think over the last 15 years, the NASDAQ 100 I look today, is up almost 20% per year. So it's like 19% in change. We're recording this in late June. Do you think that investors really are missing out a lot by not having some of these private markets

Starting point is 00:15:48 come public earlier? Or do you think that really, because the massive behemoths have, and mega caps have had a big part in all the gains, that it really wouldn't have as big of an impact as people think? Where I would say we've probably seen the greatest effect, Ben has been within small cap, right?

Starting point is 00:16:04 I mean, if we rewind the clock 25 years ago, traditional path, company goes public. They're probably listed as a small cap company or a mid-cap company and they make their way up. I think you can attribute that as part of the reason small-cap has underperformed over the past 10, 15 years. But I think overall, when you think about investing in private markets, it's a lot more complex than investing in public markets. You also are seeing more and more companies like Invesco and other asset, managers, providing other ways to gain access to that, which I think is most interesting. Now, whether or not that's still an appropriate investment for that investor, you know, only they could decide that probably with the help of the financial professional because they

Starting point is 00:16:48 are more complex. But what I appreciate is how there has been more availability to access these private markets. And during this time, while you see all these different valuations come out about whether they call them unicorn companies or these private companies that have grown in valuation at the end of the day. We still have broader market indexes performed very well throughout the time. So I wouldn't necessarily say investors have missed out, especially over the last three years with the trade primarily being tech-driven, AI-focused. There's so many different investments out there available as a way to slice and dice that. And I think appropriately, as these companies do go to go public, they are being included.

Starting point is 00:17:33 Why do you think the NASDAQ 100 has outperformed some other tech benchmarks? Like part of me thinks it's sort of random, but the app format seems to be persistent enough that it's, and the size, like 4% to 5% a year, makes me question that assumption of it being random. Like, is there anything, is it just market caps beating in everything? Is it that simple? Well, I think over the past three or five years, right, everything's done well, even though NASDAQ 100 has returned just under 20% per year, right?

Starting point is 00:18:10 Where I think it comes down to dispersion in the market, right? How concentrated is that performance? And where is the performance being driven from? We've had a handful of companies up until this year drive that strong outperformance. They are NASDAQ listed companies. They've grown to be very large, right, and have been a key contributor of that outperformance. But I think when you look at it from a longer-term basis, what you generally tend to see are more innovative and technologically focused companies list on the NASDAQ stock exchange.

Starting point is 00:18:47 We quantify that by looking at how they focus on R&D, what sort of patents they're filing. And what we really feel, what has driven that longer-term outperformance is these companies, is these companies' abilities to innovate and already have a product in place when there's a seismic shift that happens with how consumers behave. You look at COVID, for example, right? When the world changed overnight, world shut down,

Starting point is 00:19:11 there were companies inside there that were well positioned for that work-from-home environment. If you go back in time, though, and take a look at whether it was the dawn of the Internet, the dispersion of smartphones and how they affect our lives, social media, which obviously is more of a plan like ad revenue. NASDAQ 100 companies are at the center adjacent of all those

Starting point is 00:19:33 throughout the 21st century. You have these companies who have become the conglomerates of the 21st century as well. So I think of a company like Amazon, which started off as an online bookstore, trying to put Barnes & Noble out of business. They're now one of the largest web service providers in the world. Right? So they went from two different areas of the market

Starting point is 00:19:52 and where they're focusing, you know, and it's, they saw the market trend and it have moved there pretty well. That's pretty consistent through many of these names at our NASDAQ 100 heavyweights, which most importantly has driven the strong fundamental growth that we've seen in the companies. We all know that although short-term price may fluctuate, what drives long-term performance, it's fundamentals, right? Price follows fundamentals. You see earnings and revenue growth outpaced out of the S&P 500 and the Russell 1,000 growth, which is the true driver of the longer-term outperformance you've seen, Michael. It is interesting because I did this a couple months ago, where I looked at, I mentioned

Starting point is 00:20:31 the NASDAQ 100 is up almost 20% per year, the last 15 years. I think earnings were up 15% per year, 14%. So it's like, you're right, the fundamentals have been driving this. Is there any part of you, and I'm asking to put your analyst hat on here, that's concerned that the performance has been so strong in the NASDAQ, that going on 15, 20 years, and of high double-digit performance. Does that concern you at all from a cyclical perspective? The prevalent outperformance that we've seen from Q's and QM have made my job a lot easier through the years. And that's one thing that does make me worry. Right. I mean, if you think about it

Starting point is 00:21:05 in the context of today, where I'm sure you're hearing from your listeners, right, this is another tech bubble like we saw back in 1999 and 2000, right? You know, you have only a few companies driving the performance, you know, whether it's government intervention or regulation. or any other numbers, you know, whether it's private credit and the risk with that, the large cap expense these companies are doing. Sure, those are concerns that I do have. You know, what I really rely on, though, is that I'm just, when we run those fundamental growth numbers, right, we're just not looking over the past few years. We're looking at long-term trends that have taken place over the past 25 years. You talked in NASDAQ, the index was incepted back in

Starting point is 00:21:50 1985 technically, QQQQ didn't come around until 1999. That fundamental growth story, even with the tech bubble, is still in place going back further. Right. So these are longer term trends in the market where, of course, you're going to go through periods of outperformance, underperformance with anything. But when that does happen, I'm confident with the value that these companies have shown, the balance sheets that they have and the cash flow they've produced. All right. I'm looking at the holdings. And this surprised me. In order. Ben, listen up. All right. Invidia 1. Apple 2. No surprises there.

Starting point is 00:22:30 Number 3. Micron. What? Number 4. Microsoft. Number 5. Amazon. Number 6, 7, 8, 9, 10, 11, 12. Number 13, meta. Micron is more than twice as large in the NASDA 100 as meta. And Paul, I'm going to put my Sherlock Holmes hat on here for a second. Is that because Mark Zuckerberg owns so much that it is not counted in the free flow adjustment? Not necessarily. What I would say that comes down more to is just where meta has been in the earnings that we've seen. If you think back to Q1's earnings announcement,

Starting point is 00:23:17 from META and where they've been, they've obviously been very vocal, and they have spent a bunch on trying to have their AI buildout come to speed with, I think those announcements coming to like invest for disappointment. I think another key factor specific to META that we've seen is taking a look at their CAPEX versus their free cash flow. And their free cash flow started to turn negative back in Q1 with the Q1 earnings announcement. Paul, sorry to cut you off. I'm talking the weighting of the of the of the companies in the index what is what does all of the fundamental stuff have to do with it is it aren't we talking market cap we we are but i mean that market cap is a a pure function of the per share price right and if investors aren't liking their earnings

Starting point is 00:24:05 announcements they're not liking how much they spend they may look at free cash loan say that concerns me a little bit and they start selling meta right that's going to affect their total market cap and affect their weight within QQQ and the NASDAQ 100. Michael, are you thinking that meta should be a bigger, a bigger weighting? Meta's market cap is larger than Micron. And yet Micron is a 5.7% weight. This is as of June 27th. Micron is 5.7%.

Starting point is 00:24:30 The meta is 2.6%. It's twice as large, more than twice as large. Last I looked, Meta's free float was around 80 to 85%. Right? So I don't have microns offhand. but what you'll see though in between quarterly rebalances is that you may see

Starting point is 00:24:50 positions that have performed really well or really poorly move slightly right and at the quarterly rebalances NASDAQ will rerun the waiting methodology not necessarily make new additions or subtractions but re-rank them

Starting point is 00:25:07 well another example of this is like not to belabor the point but Walmart is the same size as applied materials basically it's 30 basis points larger. But the Walton family owns so much of Walmart that its full market cap is not in the index. That is correct. So Paul, how much so when you do these quarterly rebalances for the NASDAQ100, how much turnover is there typically when that happens? A few percentage of points, not that much. I mean, on average, QQQQ and QQM are turning over anywhere between 6 to 8% on an annual basis, right? So it's not a huge number with most of that, 5 to 6% coming in the annual.

Starting point is 00:25:43 Reconstitution. So that's where most of it is coming from. The quarterly rebalances are primarily just to make sure that the integrity is in line with the true method, with the methodology. How much interest is there? And I know this may be a tough question to answer. Is there a lot of interest in the Js, the next generation, the juniors, or people just more paying attention to the mega caps? Because that's what's worked for so long. There has been more interest within KKK through the year where we're actually seeing organic flow come into it. And I think it is because if you think back basically since October of last year, right, where cracks within certain parts of the AI trade showed up,

Starting point is 00:26:26 questions about private credit, how's CAPEX being funded, along with software getting smacked pretty good. People have started to diversify. Obviously what we've seen happen in Korea and really what's been happening within KQQQJ, over the past 10 months is that AI trade starting to broaden out outside of GPUs, right? Everyone was so focused on GPO's from 23 through end of 24, 25. The move we saw memory prices start to rise back in 2025 pretty dramatically, not just like RAM prices, but also storage prices as well,

Starting point is 00:27:04 where you see companies like Sandus, Western Digital, Seagate performed very well, all companies that were once in QQQJ. So I think what we're naturally seen in the market, and it's expressed very well I think in the Q's and J, is that with any new technology, you do see a broadening out. I think at the end of the day, we are going to see winners and losers. But I think

Starting point is 00:27:27 concerns over how MAG7's been performing along with concentration in mega cap in general, more people have been broadening out. And now that performance is there and has been there for the past 12 to 18 months, people have been moving more into Jay. Paul, for people who want to learn more about the cues or Invesco and their whole suite of innovative ETFs, where do we send them?

Starting point is 00:27:47 Yep. They'd go to Invesco.com. Perfect. Thanks, Paul. Thank you. Thank you. All right, thanks to Paul. Remember check out Invesco.com to learn more, other NADTAC 100 ETF and all their other

Starting point is 00:27:59 ETFs. Email us, Animal Spirits, and the compound news.com.

Animal Spirits Podcast - Talk Your Book: How SpaceX Got Into the Nasdaq 100

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