SpaceX, the hottest and most highly valued private company, is going public on June 12 in the largest IPO in history. The company plans to raise as much as $75 billion, with the IPO priced at $135 per share, targeting a valuation of approximately $1.8 trillion.
Index Rule Changes for Mega-Cap IPOs
Major index providers are rolling out new "fast entry" rules for blockbuster IPOs. The Nasdaq-100 has already reduced its waiting period for inclusion from three months to just 15 trading days.
FTSE Russell has approved a rule change allowing large companies to enter the Russell Top 500 Index after just five trading days, rather than waiting for a quarterly review.
However, S&P Dow Jones Indices has decided not to change the eligibility criteria for mega-cap IPOs seeking inclusion in the S&P 500. To qualify, a company's most recent quarterly earnings and earnings for the prior full fiscal year must both be positive.
Profitability requirements kept Tesla (TSLA) out of the index for more than a decade after its IPO. Under the current rules, SpaceX, as well as OpenAI and Anthropic should they go public, would have to wait at least 12 months before becoming eligible. The wait could be even longer if they remain unprofitable.
With approximately $20 trillion in assets indexed or benchmarked to the S&P 500, this decision could have a significant impact. Funds tracking the index buy constituent stocks regardless of price.
New additions to major indexes are generally weighted based on float, or the number of shares available to public investors. However, the Nasdaq-100 has never been fully float-adjusted. Instead, the index will apply a weighting equal to three times the float for SpaceX and subsequent large IPOs.
As a result, SpaceX's weighting in the Invesco QQQ (QQQ) and Invesco NASDAQ 100 ETF (QQQM) is expected to be approximately 0.6%.
Which ETFs Own and Will Own SpaceX
Investors have already poured money into ETFs that offer pre-IPO exposure to SpaceX, including the Baron First Principles ETF (RONB), the Entrepreneur Private-Public Crossover ETF (XOVR), and the Tema Space Innovators ETF (NASA).
Space-focused ETFs that are expected to add SpaceX shortly after its debut have also attracted significant interest. Investors should remember that the space investment theme extends well beyond SpaceX. While space ETFs have performed well, the IPO is only one of several factors driving their gains.
SpaceX is also likely to appear in many AI-focused ETFs. In its prospectus, the company emphasized its AI ambitions. In fact, it estimates a total addressable market of $28.5 trillion, with AI accounting for most of that opportunity.
Additionally, more than 20 leveraged and inverse SpaceX ETFs are expected to launch within days of the IPO. These products are designed for short-term trading and are generally not suitable for long-term investors.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
