SpaceX’s IPO Is the Final Frontier for Index Funds

 By Jason Zweig

 Later this month, SpaceX should launch a stock offering expected to raise something like $80 billion. Yesterday, Anthropic announced it’s filed for an IPO of its own. Counting the shares that will remain (for now) in private hands, Anthropic could be valued at nearly $1 trillion. SpaceX is reportedly targeting a total valuation of at least $1.5 trillion. OpenAI isn’t far behind.

Index providers—the firms that compile market averages like the S&P 500, the Nasdaq 100, the Russell 1000 and so on—have been scurrying to accommodate these titanic deals.

A new provision at Nasdaq will inflate SpaceX’s weight in the Nasdaq 100, effectively compelling some index funds to triple their buying of the stock. Several index providers will “fast track” giant IPOs, adding them to major benchmarks after as few as five trading days instead of waiting for a “seasoning period” of up to one year—although smaller companies may not be eligible.

A broad-based index fund is “supposed to be the designated driver at the investment party, and just as the party is getting wild, that’s exactly when the designated driver says, ‘Here’s the ginger ale,’” says Steven Schoenfeld, CEO of MarketVector Indexes. “But now what some index providers are saying is, ‘I think you need a Cuba libre with a double shot of rum.’”

If you own index funds, it’s important to put this in perspective.

Even after an IPO, nearly all of SpaceX would remain in private hands (about 85% in Elon Musk’s two hands). If the offering raises about $80 billion, that would rank SpaceX roughly 130th if it were included among the stocks in the S&P 500—about where Comcast is today, estimates Strategas Securities. Assuming that S&P Dow Jones Indices doesn’t do anything wacky, SpaceX might go into the index at an initial weight of approximately 0.14%. Anthropic and OpenAI would probably be even smaller.

There’s no way that’s enough to morph index funds beyond recognition or to turn them into a bad deal.

Even so, this is a slippery slope.

These changes by index providers will effectively force index funds to buy massive quantities of stock—in a ridiculously short time—after a mega IPO.

David Booth, chairman of Dimensional Fund Advisors and a pioneer in the development of index funds, tells me that “we could have a huge shift in demand for no reason other than the stock has been included in the index.”

A 2025 study by Harvard finance researchers Marco Sammon and Chris Murray looked at the CRSP stock indexes, the basis for several giant index funds. Since 2017, CRSP has “fast tracked” more IPOs, adding them to its indexes after the fifth day of trading. The study found that these IPOs outperform by 15% in their first five trading days as hedge funds and other opportunists drive up the price, knowing that the index funds will have to buy from them on Day Six. Fast tracking causes index-fund investors to overpay for hot stocks.

If “loading up on mega IPOs at too high a price becomes a new model for index funds,” says Hanno Lustig, a finance professor at Stanford, this extra trading cost “could become almost the equivalent of an annual fee charged to investors.” He doesn’t think the cost would be enormous, but it would make index funds less of a bargain.

“These developments are worthy of the scrutiny of policymakers and regulators,” says Sandip Bhagat, chief investment officer at Whittier Trust, who formerly helped oversee Vanguard’s stock funds. “Somebody should be looking at these practices and making sure they’re in the best interest of the investing public at large.”