A few days ago, we discussed the recent wave of IPOs involving major technology companies.
Here, we take a closer look at some additional aspects.
From the Garage to the Stock Market: When Giants Are Born in Private Markets
For much of the modern history of financial markets, investors have watched great companies grow after they had already gone public. Microsoft went public in 1986, Amazon in 1997, and Google in 2004.
For much of the modern history of financial markets, investors have watched great companies grow after they had already gone public. Microsoft went public in 1986, Amazon in 1997, and Google in 2004.
As we can see, these three companies have generated extraordinary returns since their IPOs, with annualized returns (CAGR) of 22%, 32%, and 26%, respectively.
Even Tesla, which went public in 2010, is now one of the world’s most valuable companies. However, it spent years in the public markets before reaching its current size.
The next generation of technology giants may follow a very different path.
Following SpaceX’s IPO, OpenAI and Anthropic could also reach the public markets in the coming months. Together, these companies could go public with a combined valuation close to $4 trillion. At the time of writing, SpaceX is already valued at more than $2 trillion, while the other two are expected to be worth around $1 trillion each.
Note: In Spanish, 1 billón means one million million (1,000,000,000,000). Throughout this article, we use the Spanish meaning of billón. In English, a Spanish billón corresponds to one trillion, while one billion means 1,000 million (1,000,000,000).
As a result, these three companies could already rank among the largest companies in the world before most investors even have the opportunity to buy their shares.
This raises an important question: if the most significant phase of value creation now takes place in private markets, what role remains for public markets?
Traditionally, stock exchanges also served to provide companies with capital to finance their growth. Investors accepted the risks associated with younger companies in exchange for the opportunity to participate in their long-term expansion. Today, however, many of the most innovative technology companies remain private for much longer. SpaceX is a clear example, supported by abundant venture capital, sovereign wealth funds, and private investors. Others, such as OpenAI and Anthropic, have also benefited from substantial backing from private investors combined with meteoric growth.
By the time they go public, these companies may already have millions of customers, globally recognized brands, and valuations measured in hundreds of billions of dollars.
Index Providers Are Adapting to the New Environment
For investors, however, another change could prove even more significant. Historically, newly listed companies often had to wait months—or even years—before being included in major market indexes. This gave investors enough time to analyze financial results, understand the business model, and form an opinion about the company’s valuation.
Today, however, this process could accelerate. Recent changes to Nasdaq’s rules allow exceptionally large IPOs to be considered for index inclusion much more quickly than in the past. Under certain circumstances, a newly listed company can be reviewed within days and added to the Nasdaq-100 within just a few weeks.
The reason is straightforward. Index providers increasingly face a dilemma: if a company worth $1 trillion or $2 trillion remains excluded from major benchmark indexes for several months, those indexes risk becoming less representative of the markets they are intended to track.
Indeed, the rise of mega private companies is forcing index providers to adapt. This means that investors holding index funds or ETFs could gain exposure to companies such as SpaceX, OpenAI, or Anthropic much sooner than would have been possible in the past. In some cases, a company could move from private ownership into the portfolios of millions of investors through ETFs and index funds within just a few weeks.
We will see later that the initial weight of these companies in the indexes may not be particularly large. Even taken together, they could initially account for only a relatively modest share of the Nasdaq-100. But that is not the most interesting aspect of the story. The fundamental change is the acceleration of these companies’ life cycle, as they move ever more rapidly from private markets to public markets and, consequently, into indexes and potentially into indexed investment portfolios.
For decades, it was companies that adapted to the rules of the public markets. Today, however, index providers are increasingly divided over how to deal with large private companies once they go public.
A New Role for Public Markets?
This raises a broader question. If venture capital, sovereign wealth funds, and private investors capture much of the growth phase, while public-market investors only enter the picture once companies have already reached trillion-dollar valuations, are public markets becoming less of a vehicle for raising capital and more of a mechanism for distributing corporate ownership?
There is no denying that the SpaceX case strongly supports this view. We will see what happens once the lock-up period—the period during which pre-IPO shareholders are prohibited from selling their shares—comes to an end.
Therefore, the key question is not simply whether SpaceX, OpenAI, or Anthropic deserve the valuations currently being discussed. The market will ultimately decide that. A more interesting question is emerging: are investors gradually losing access to the earliest—and potentially most profitable—stages of corporate growth?
In the past, companies became giants after going public. The next generation may become giants before listing. The debate is no longer just about the valuations of these companies, but also about how public markets should integrate them once they begin trading. As trillion-dollar private companies enter the public markets, index providers increasingly face the challenge of balancing two competing objectives: accurately representing the market while preserving the criteria that have historically governed index inclusion.
As we shall see, however, this does not affect the major indexes as much as one might think.
Major Iindexes Should Not Change That Much
When you look at how the major benchmark indexes actually work, however, the story is far less “dramatic.”
For now, other factors come into play—at least as long as the rules remain unchanged.
Valuation alone does not determine a company’s weight in an index.
Even if SpaceX reaches an extraordinary valuation, most major indexes use free-float-adjusted market capitalization. In other words, what matters is not simply how much the company is worth, but how many shares are actually available for public investors to trade—those that are not held privately and therefore contribute to the stock’s market capitalization.
For now, SpaceX’s free float is very limited.
More than 90% of the company remains in the hands of private shareholders. This significantly limits its initial weight in major indexes.
By comparison, companies with much larger free floats include Microsoft, with approximately 99%, Nvidia, with around 95%, and Amazon, with roughly 90%.
SpaceX is not part of the S&P 500 and will not be in the near term. S&P Dow Jones decided not to change its eligibility rules. SpaceX must meet GAAP profitability requirements (a profit in the latest quarter and positive cumulative earnings over the previous four quarters), yet it reported a loss of approximately $4.28 billion in the most recent quarter. As a result, the earliest possible eligibility date has been pushed back to June 2027.
The short-term mechanical buying pressure will therefore come from the Nasdaq-100 (with an estimated weight of around 0.47% to 0.70%) and the Russell indexes—not from the S&P 500.
Even if it were eventually included in the S&P 500, its weight could be as little as 0.1%.
SpaceX is estimated to enter the index at approximately the 130th position by size, giving it a weighting similar to that of mid-sized S&P 500 companies despite its enormous overall valuation.
The impact will therefore depend heavily on which index we are looking at.
In broad-market indexes (the ones we generally use at inbestMe), its weighting could remain relatively small. By contrast, as we have seen, exposure could be higher in certain technology indexes, particularly following recent methodological changes.
This highlights the importance of understanding these situations in order to make better decisions about which indexes you use—or plan to use—for your portfolio, and how much weight you assign to each of them.
When news emerges about future IPOs of giants such as SpaceX, OpenAI, or Anthropic, it is worth looking beyond the headline valuation.
Without question, the points discussed at the beginning of this article remain relevant. Investors seeking to capture value from some of these companies may need to consider investing at earlier stages through private markets, while accepting the additional risks involved.
For most investors, however—those investing through index funds—there will probably be nothing they need to do.
The methodology of each index will incorporate these companies automatically and according to its own weighting rules, essentially in the same way it has done ever since these major indexes were created. That is, after all, the fundamental idea—or philosophy—behind index investing.
Companies that truly deserve to be included in the major indexes will eventually find their way into them. And when they do, a well-constructed indexed portfolio will automatically incorporate them, without investors needing to take action or attempt to anticipate their inclusion.
