Potential IPOs of SpaceX, OpenAI, and Anthropic Could Mean For You
Why These IPOs Are Different
IPOs happen every year, but companies like SpaceX, OpenAI, and Anthropic are unique because of their potential size. Some estimates place SpaceX's valuation near $2 trillion, which would immediately make it one of the largest publicly traded companies in the world.
Because of their scale and prominence, index providers such as S&P, Russell, CRSP, and FTSE are already evaluating how these companies might be incorporated into major benchmarks once they become public.
Will These Companies Be Added to Index Funds Immediately?
Historically, newly public companies have often waited several months—or longer—before being added to major indexes. Index providers typically have rules regarding trading history, public share availability, profitability, and other factors.
However, given the size and significance of these potential IPOs, some benchmark providers are accelerating their inclusion timelines. In certain cases, newly public companies could potentially be considered for index inclusion within days rather than months
How Much Impact Could They Have on Broad Market Indexes?
One common misconception is that a company with a trillion-dollar valuation automatically becomes a dominant position in index funds.
In reality, most indexes use a "free-float" methodology, which means only shares available for public trading count toward a company's index weight.
For example, if only a small percentage of a company's shares are publicly available after its IPO, its initial weight in broad market indexes may be significantly smaller than many investors expect.
As a result, even a company as large as SpaceX may initially represent only a modest portion of broadly diversified index portfolios.
Could Their Influence Grow Over Time? Yes.
Following an IPO, insiders and early investors are often subject to lock-up periods that restrict when they can sell shares. As those restrictions expire and more shares become publicly available, a company's weight in indexes may gradually increase.
Of course, future index weights will also depend on stock performance, market conditions, and any adjustments made by index providers.
What About Actively Managed Funds?
Unlike index funds, actively managed funds are not required to purchase newly public companies.
Each fund manager follows a specific investment process and set of criteria. Some may invest shortly after an IPO, while others may wait until additional financial history becomes available.
Are IPOs Historically Good Investments?
While high-profile IPOs often generate significant media attention, history suggests investors should approach them with caution.
Research cited by investment managers indicates that IPOs have historically underperformed comparable existing public companies over the first several years following their debut. This doesn't mean every IPO will disappoint, but it does serve as a reminder that investor enthusiasm and investment outcomes are not always the same thing.
The excitement surrounding a new public company can sometimes lead investors to overlook valuation, risk, and long-term fundamentals.
What Should Investors Do?
For most investors, the most prudent approach is often the same approach that has historically served them well: maintain a disciplined, diversified investment strategy aligned with their long-term goals.
If obtaining direct exposure to a specific IPO is important, purchasing shares directly may be more effective than attempting to gain exposure indirectly through index funds or specialty products.
The Bottom Line
SpaceX, OpenAI, and Anthropic are remarkable companies that could play important roles in shaping the future. Their eventual public offerings will undoubtedly attract significant attention from investors and the media alike.
However, successful investing is rarely driven solely by excitement. If you have a strong desire to own one of these companies, keeping the position to a small percentage of your portfolio can help balance that interest with prudent risk management. Investors should also recognize that many of these companies are likely to find their way into broad-market ETFs and index funds over time, meaning exposure may eventually occur naturally as part of a diversified investment strategy.
To Your Properity,
Kaizen Financial Advisors, LLC
