The space stock rally is about front running Nasdaq 100 index inclusion

Thematic ETFs - which aim to invest in a high-growth investment theme - have always been products more for artists than scientists.

Products for artists in that they give investors the flexibility to define economic sectors as they see fit. And for that reason can be genuinely useful. 

But not always for scientists to the same extent, as they have two demonstrable weaknesses.

First: a lot of them are high-fee closet trackers. AI ETFs are a current example. Their performance correlates in some cases very closely with low-fee vanilla tech sector ETFs. 

Second: they're often launched at times when publicity and valuations are peaking. Morningstar has been documenting this for years, finding that investors in thematic ETFs missed roughly two-thirds of their funds' returns over a five-year period by buying high and selling low.

Which brings us to space ETFs.

Space stocks are performing strongly

Space stocks have had a remarkable run. The NYSE-listed Procure Space ETF (UFO) has delivered gains of more than 100% over the past twelve months, more than triple the return of the S&P 500. 

Individual space stocks have been even more striking: Rocket Lab (RKLB) is up roughly 250% over the past year, while Planet Labs (PL) is up around 75% year to date (disclosure: the author owns shares in Planet Labs). The valuations in some cases look stretched. Rocket Lab is trading at around 66x trailing sales while still loss-making.

This rally has been driven by three forces: SpaceX halo effects, space ETF inflows, and Nasdaq 100 index arbitrage trades, listed here in reverse order of importance.

The SpaceX halo effect

SpaceX is planning an IPO targeting a valuation of US$1.75 trillion and a raise of up to US$75 billion; the largest IPO in history. The entity coming to market will be a combined SpaceX and xAI entity, after Musk completed the merger in February 2026. A cynical read is that bundling xAI (with its potentially insurmountable cost curve) into SpaceX creates a way out for xAI’s early backers.

The underlying business nonetheless has genuine momentum: SpaceX revenue grew 63% in 2024 to approximately $14.2 billion, driven by Starlink, which now serves over 9 million subscribers globally.

The result is a halo effect for listed space names - most obviously Rocket Lab, AST SpaceMobile (ASTS) and Planet Labs - which are benefiting from association with SpaceX.

Space ETF inflows

Index inclusions and ETF flows always matter for share prices. Atlassian has fallen this month in anticipation of Nasdaq 100 index removal.  

But for space they matter more than usual. The universe of pure-play public space stocks is small: the main names are Rocket Lab, Planet Labs, AST SpaceMobile, Intuitive Machines (LUNR) and Redwire (RDW). Because the investable universe is concentrated, each of these names carries large weight in the indices, and inflows translate directly into meaningful share purchases.

The space rally is about front running Nasdaq 100 inclusion

The significance of potential Nasdaq 100 index inclusion is the most important driver.

In the case of SpaceX, the arbitrage is obvious. Nasdaq launched a consultation in February 2026 on a proposed "fast entry" rule that would allow a newly listed company into the Nasdaq 100 within 15 trading days of IPO, provided its market cap ranked in the top 40 of current index members. There used to be a minimum wait of three months.

That rule was approved on 30 March and takes effect 1 May. The timing is not coincidental: Nasdaq has faced criticism (such as this in the Financial Times) for engineering a rule change that amounts to a bribe to attract the SpaceX listing over the competing NYSE bid.

The mechanics matter. Inclusion in the Nasdaq 100 triggers mandatory buying from every index fund and ETF tracking the benchmark, including the US$300 billion-plus QQQ. The other major space stocks that have rallied are also approaching Nasdaq 100 inclusion territory and very probably rallying for a similar reason. 

Investors buying space stocks today are, consciously or not, making a bet on index inclusion as much as on the commercial space industry. The fundamentals may eventually justify the valuations. But the near-term driver is front-running forced buying from index funds. This is considerably less romantic than the thesis many investors have in mind.