Rivian’s Nasdaq 100 Exit: Minimal Market Impact?

Investors of electric vehicle manufacturers, Rivian Automotive and Lucid Group, are grappling with another hiccup. However, this time, it might not be a significant worry. Rivian, also recognized as RIVN on the stock market, is on its way out of the Nasdaq 100, a key index comprising top non-financial firms listed on the Nasdaq exchange. From June 20, it will be substituted by ON Semiconductor.

The yardstick for inclusion in the index primarily revolves around market capitalization, along with factors like trading volumes. The market value of Rivian has plummeted roughly 66% since early 2022, standing at about $14 billion. Contrastingly, ON Semi has experienced a roughly 50% leap in market capitalization, now valued around $40 billion.

Inclusion in an index can stabilize a stock’s investor base, given the funds that track that particular index, explains Barron’s. Still, Rivian’s departure from the Nasdaq 100 might not significantly impact its stock. Funds tracking the Nasdaq 100 collectively invest hundreds of billions of dollars. It’s a considerable sum but pales compared to the roughly $16 trillion indexed to the S&P 500. The S&P 500 triggers significantly more buying and selling.

Ultimately, a company’s stock value is linked to its earnings and cash flow. But other factors like valuations and liquidity also play a part. Rivian isn’t part of the S&P 500 and isn’t poised to join any time soon since the S&P requires consistent profitability for eligibility.

The future of Lucid Group may mimic that of Rivian. Lucid, with a market capitalization of about $13 billion, has seen its stock drop about 75% since the beginning of 2022. Both companies have faced challenges in escalating production, faced growing EV competition, and seen diminishing investor enthusiasm due to rising interest rates. These aspects will continue to weigh more heavily on their stocks than Nasdaq 100 inclusion.

Photo courtesy of Rivian.