Published on: December 3, 2024, 02:02h.
Last updated on: December 3, 2024, 02:02h.
The yearly reconstitution process for the Nasdaq 100 Index (NDX) started last Friday, with DraftKings (NASDAQ: DKNG) possibly joining the index when the results are revealed on December 13.
The possibility of DraftKings joining NDX depends on Nasdaq’s decision on the number of stocks to add or remove from the index. In 2023, seven stocks were added and seven were removed during the rebalance.
If DraftKings is to join NDX this year, Nasdaq may have to expand the selection pool. As of November 29, DraftKings ranked ninth in market capitalization among Nasdaq-listed stocks that are not NDX members. The company has come close to joining NDX before but hasn’t made the leap.
With a current market capitalization of $21.42 billion, DraftKings is larger than a few of the bottom NDX members, suggesting Nasdaq may need to add more stocks this year for DraftKings to join. The likely candidates for NDX inclusion are Palantir Technologies (NASDAQ: PLTR) and MicroStrategy (NASDAQ: MSTR).
Pathway to DraftKings NDX Membership
Currently, DraftKings is part of the NASDAQ Next Generation 100 Index, a group of the top 100 non-financial Nasdaq-listed companies outside of the NASDAQ-100 Index.
The Index consists of securities of the next generation of Nasdaq-listed non-financial companies; that is, the largest 100 Nasdaq-listed companies outside of the NASDAQ-100 Index,” according to Invesco.
Out of the four gaming stocks in the next generation index, DraftKings has the best chance of earning an NDX promotion this year.
While there is a significant exposure to consumer discretionary stocks in NDX, there are currently no gaming stocks in the index. FanDuel parent Flutter Entertainment (NYSE: FLUT) and Las Vegas Sands (NYSE: LVS) are the largest US-listed gaming stocks by market value, but they trade on the NYSE, making them ineligible for NDX membership.
NDX Inclusion Could Be Boon for DraftKings
If DraftKings joins NDX, it would be a major achievement as the stock is currently not a member of NDX or the S&P 500.
The move would attract more active and passive funds that benchmark to NDX to buy shares of DraftKings. Currently, only 108 ETFs hold DraftKings shares, but this number would increase with NDX inclusion.
When new stocks are added to an index, both active and passive funds tracking the index must buy shares of the newly added stock. DraftKings would join ETFs like Invesco QQQ (NASDAQ: QQQ) and Invesco NASDAQ 100 ETF (NASDAQ: QQQM) with over $358 billion in combined assets under management.