Investing

Could Palantir (PLTR), MicroStrategy (MSTR), and Axon Enterprises (AXON) All Join the QQQ Tomorrow?

Eric Bleeker

Published: December 12, 2024 2:22 pm

Last Updated: December 12, 2024 2:26 pm

If you’re invested in companies like Palantir (Nasdaq: PLTR), MicroStrategy (Nasdaq: MSTR), or Axon Enterprises (Nasdaq: AXON), tomorrow is a day that should be circled on your calendar. 

The Nasdaq-100 is expected to announce a rebalancing (or ‘reconstitution’) tomorrow that could see several companies added to the index. Let’s break down why Nasdaq-100 inclusion is such a major event and which companies could be added next. 

Key Points in This Article 

• The Nasdaq-100 is expected to announce its annual reconstitution event tomorrow. 
• Companies that could see removal from the Nasdaq-100 include Moderna and Super Micro Computer. On the other hand, companies like Palantir, MicroStrategy, and Axon Enterprises are leading candidates to join the index. Each company would see more than $1 billion of buying as ETFs following the index add shares. 
• If you’re looking for top growth investing ideas – make sure to grab a complimentary copy of our “The Next NVIDIA Report.” One of the stocks mentioned in this article has an in-depth research report, and we detail why a ‘next wave’ of spending could reshape the AI space. 

What is the Nasdaq-100

You’ll often hear financial media cite “The Nasdaq,” but that could be referring to multiple things. The Nasdaq Composite Index (Index: .IXIC) currently has 3,285 constituents. It includes almost all companies traded on the Nasdaq stock market and was formed in 1971. 

Meanwhile, the Nasdaq-100 is an index of 100 of the largest companies trading on the Nasdaq stock market, with a focus on companies in telecom, retail, information technology, and biotechnology. The index was formed in 1985. 

You might note that the Nasdaq-100 has an industry focus. This is important because it excludes companies from industries like financials (more on this later). 

Why The Nasdaq-100 Is Important 

Getting into the Nasdaq-100 is particularly important because exchange-traded funds that track it have recently surged in popularity. The most popular Nasdaq-100 ETF is the iShares QQQ Trust, Series One (Nasdaq: QQQ), which is most often just called ‘The QQQ.’ 

The QQQ has $329 billion in assets under management. However, it is worth noting that there are leveraged ETFs tracking the Nasdaq-100 (such as the TQQQ) and also ETFs from other companies such as ProShares. In total, there is more than $550 billion in assets under management tracking the Nasdaq-100. 

You might also notice that companies like Vanguard don’t have a Nasdaq-100 ETF. That’s because products following the Nasdaq-100 pay additional fees to the Nasdaq stock market’s parent company. 

Why Palantir, MicroStrategy, and Axon Enterprises Might Be Joining the Nasdaq-100

So, as you now see, getting into the Nasdaq-100 is important because a significant amount of capital following the index flows into stocks after their inclusion. 

The idea that Nasdaq-100 inclusion is valuable isn’t lost on major companies. A Palantir director recently tweeted that their rationale for moving to the Nasdaq stock exchange was for Nasdaq-100 inclusion, and the potential for share price gains when that happens. The tweet was later deleted, but it’s no secret that as the amount of AUMs in popular ETFs increase, inclusion into indexes like the S&P 500 and Nasdaq-100 has become a major stock catalyst. 

That’s important to know because the Nasdaq has a rebalancing scheduled for December 23rd. Indexes periodically remove stocks that have fallen below certain thresholds such as market capitalization and replace them with stocks that better fit the index.

But, the date to watch isn’t December 23rd, because an announcement from the Nasdaq should come before then. It’s expected that the announcement will happen tomorrow, December 13th. 

Bloomberg’s Senior ETF Analyst Eric Balchunas – who is not affiliated with the Nasdaq but is an expert in the field – recently tweeted out his predictions for what companies would likely be included in this latest rebalancing. 

Here’s a summary of the impacts of his prediction:

As you can see above, Palantir, MicroStrategy, and Axon Enterprise being added would contribute anywhere from $1.264 billion to $3.749 billion in new buys to the stocks as ETFs added these companies. The size of the additions is related to their market capitalization, with Palantir being the largest of the group. 

Moderna is well-known from Covid, but its market capitalization has sunk recently. Shares are down 45% in the past year, and the company is worth $16 billion. It’s currently the lowest-weighted stock in the QQQ. 

Super Micro Computer may fall out of the Nasdaq-100 as it continues to battle delisting from the index and has seen its own market capitalization fall to $22.2 billion. It is currently the 4th smallest position in the QQQ. 

What Happens if Stocks Like Palantir Aren’t Added?

Of course, no stock getting added to an index is purely ‘free money.’ There the possibility – albeit slim – that none of the above stocks gets added to the Nasdaq-100 tomorrow. Other potential contenders include stocks like eBay (Nasdaq: EBAY) and DraftKings (Nasdaq: DKNG). 

Stocks that investors pile into ahead of index inclusion have dropped dramatically when announcements came out that didn’t include the company. Just this week, Applovin (Nasdaq: APP) saw its worst day in two years after the S&P 500 didn’t include the stock in its rebalancing last Friday. The S&P 500 instead added Workday (Nasdaq: WDAY) and Apollo Global Management (NYSE: APO) instead.

Both stocks were smaller than Applovin at the time of the announcement, but many factors are considered by the investment committees that decide which stock joins an index next. By contrast, Applovin had been added to the Nasdaq-100 in November. It replaced Dollar Tree in an event outside the Nasdaq’s ‘reconstitution’ announcement that’s scheduled for tomorrow. 

Another consideration could be whether MicroStrategy’s business classification plays a role. As we noted earlier, the Nasdaq-100 doesn’t target financial stocks. That would normally exclude MicroStrategy, as its software business is just a tiny fraction its value. The company now trades mostly on the value of Bitcoin holdings in its treasury. 

However, MicroStrategy is still classified as a software company. There is some debate around whether MicroStrategy will be included, but the Nasdaq’s standard continue to be opaque. The agency that sets industry classifications – the Industry Classification Benchmark – could reclassify MicroStrategy as a financial company as soon as March. 

Whether that weighs into the decision to add MicroStrategy to the Nasdaq-100 is anybody’s guess. 

One final note: the annual Nasdaq changes will likely be announced in the evening. Last year the press release went out at 8 p.m. ET. In last year’s announcement, six companies were added while six were removed. 

So, if you’re glued to a computer screen all day waiting for a share price jump, you can take a break. Companies like Axon and MicroStrategy should see a bigger move come Monday.