This is shaping up to be a historic year for the stock market. SpaceX, already one of the most important startups in the world, is expected to have its first public offering on June 12. The company hopes to raise $75 billion at a cost of $1.8 trillion, making it the largest IPO ever.
And some big companies, like OpenAI and Anthropic, are expected to have their own big IPOs this year.
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The offerings come as three major market indexes have proposed new acceleration processes to add large IPOs more quickly. And while the Nasdaq and Russell indexes have embraced those changes, the S&P Dow Jones Indices, which S&P 500 and related references, which were announced on June 4 that they will not use.
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“No changes will be made to the eligibility criteria, including screens for financial efficiency, harvest time, or minimum IWF (investable weight factor), for the S&P 500, S&P MidCap 400, or S&P SmallCap 600 due to the consultation of S&P Dow Jones Indices regarding the treatment of the mega-cap company, “the existing index company will not have changes in this existing company. statement.
Let’s examine what that means for the SpaceX IPO specifically and for investors looking to buy the stock when it goes public.
SpaceX will not immediately outperform the S&P 500 index
The S&P 500 is an index made up of the 500 largest companies in the US and is generally considered one of the best barometers of the health of the stock market.
Currently, there are only six US-based companies with a market capitalization larger than the $1.8 trillion claimed by SpaceX — Nvidia, an apple, Alphabets, Microsoft, Amazonagain Broadcom. So, SpaceX will eventually have a prominent place on the index — but not right away.
A rule considered – and rejected – by S&P Dow Jones Indices was to cut the 12-month waiting period in half and waive the requirement that the company be profitable.
Now, the former SpaceX can be listed on the S&P 500 in mid-2027, and only if it has four out of four positive earnings under generally accepted accounting principles (GAAP). It must also have a market capitalization of at least $22.7 billion — a hurdle the company will easily clear.
When a company is listed on an index, there is a lot of buying at the exchange-traded funds that track the index. Some of the largest and most well-known funds are market-weighted, which means they would need to buy enough SpaceX stock to make it the seventh largest weight in their ETFs (taking SpaceX’s $1.8 trillion market cap).
An example is Vanguard S&P 500 ETF(NYSEMKT:VOO). Broadcom currently has a market cap of about $1.8 trillion and makes up 3.2% of VOO, which itself has total assets of $1.7 trillion. So, to achieve that weight, VOO holds $51.3 billion in Broadcom stock, or about 12.8 million shares.
When you consider all other market-weighted ETFs will be buying the same — the SPDR S&P 500 ETF Trust as well as iShares Core S&P 500 ETF are just two examples — it’s easy to see how index funds will increase the incredible value of SpaceX stock.
That is why companies that are included in the index list can see the stock price. But that won’t happen to SpaceX in the S&P 500 for at least a year.
But there will be other options for investors
While the S&P Dow Jones Indices don’t change the rules, the Nasdaq and Russell do — meaning funds that track their index families will own SpaceX much faster than the S&P 500. The Nasdaq-100including the 100 largest non-financial companies in the US, will be able to add SpaceX on its 15th trading day. And the Russell 1000which tracks the 1,000 largest US-based companies, would put it on the company’s fifth trading day.
Therefore, popular currencies such as Company Invesco QQQ Trust(NASDAQ:QQQ)with nearly $500 billion in assets under management, it would be necessary to add SpaceX relatively quickly. It will be so with iShares Russell 100 Growth ETF(NYSEMKT:IWB)with assets of $131 billion.
And investors will still be able to buy SpaceX shares directly or through an ETF that directly covers artificial intelligence, space, technology, or other avenues.
While the benefits of the S&P 500 inclusion will be delayed for at least a year, there will still be plenty of momentum behind SpaceX stock once it goes public.
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Patrick Sanders has positions in Invesco QQQ Trust and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Broadcom, Microsoft, Nvidia, and the Vanguard S&P 500 ETF. The Motley Fool has a policy of disclosure.
SpaceX Won’t Get the Fastest Entry into the S&P 500. Here’s What That Means for Investors. was first published by The Motley Fool
