The three mega-AI IPOs I’ve been talking about for a while now are all about to make an offer that fund managers can’t refuse. And that’s not necessarily a good thing for mainstream investors in the long run. This is independent of the ongoing discussions of AI Bubbles and other fundamental arguments.
What’s not so good is that the major market indices who also run marketplaces, are competing to have these companies list on their exchange.
NYSE vs Nasdaq kind of competition. Since they also run the major market indices that then drive trillions of mutual fund and ETF vehicles that drive their ‘passive investments’, these new public stocks are likely to be ‘accelerated’ for approval into these indices. Fast-tracked in days vs months and years it normally takes for these companies to ‘season’ publicly.
”SpaceX is targeting a June IPO at a $1.5-1.75 trillion valuation. It merged with xAI in February and plans to raise up to $50 billion – the largest IPO in American history.”
”OpenAI is targeting Q4 2026. It just raised $110 billion at a $730 billion valuation from Amazon, SoftBank, and Nvidia. It projects a $14 billion LOSS this year. It doesn’t expect to turn a profit until 2029 or 2030. It trades at 65 times revenue.”
”Anthropic is valued at $380 billion. Also expected to list this year.”
”Now here’s where it gets dangerous for passive investors:”
First, consider the SCALE:
”From 2016 to 2025, the ENTIRE US IPO market raised $469 billion total. These 3 companies alone want to raise more than that in a single year.”
”But it gets WORSE.”
”S&P Dow Jones, Nasdaq, and FTSE Russell are ALL considering fast-track rules that would shove these companies into major indexes within DAYS of going public – bypassing the standard 12 month seasoning period.”
”Roughly $24 trillion in passive funds is tied to the S&P 500 alone. Those funds MUST buy whatever gets added.”
”So a company like OpenAI that’s burning $14 billion a year, valued at 65x revenue, with no path to profitability for four years could become a mandatory holding in your 401k before it even reports a single quarterly earnings as a public company.”
”Nasdaq is proposing a “Fast Entry” rule: inclusion after just 15 trading days. SpaceX reportedly made early index inclusion a CONDITION of choosing Nasdaq over the NYSE.”
Of course Elon made sure these arrangements were in. As well as the ability for his investors to potentially not to have the regular six month lock up restrictions to sell their shares into the immediate flood of passive index buying globally.
”Index providers aren’t rewriting rules because these companies earned their place. They’re rewriting rules because SpaceX is too big to ignore and too lucrative to lose to a competing exchange.”
”If all 10 of the largest venture-backed companies go public and get fast-tracked, their combined weight could reach 4.5% of the S&P 500 – more than the ENTIRE energy sector.”
”Companies that collectively lose billions per year could outweigh every oil and gas producer in America inside the most important retirement index on Earth.”
”This is the passive indexation trap I’ve been warning about.”
”You don’t get to choose. You don’t get to vote. The index committee decides, the ETFs execute, and your retirement savings follow orders.”
“Whether professional investors think SpaceX is the stock of a lifetime or a grossly overvalued Elon Musk conglomerate, they will be under intense pressure to buy into its initial public offering at a $1 trillion–plus valuation. The most important question for many of them will be: Can I really afford to sit this out?”
“Heightening Wall Street’s fear of missing out was Nasdaq’s approval on Monday to loosen the rules covering when stocks can join its indexes. Now, big enough companies can enter its large-cap index just 15 days after they are listed publicly on the exchange, even if they’re thinly traded. That’s a change from the three-month waiting period and much larger stock float previously required.”
“Musk and his bankers are well aware of the buying pressure they’re putting on fund managers. They’ve got something like $75 billion worth of stock to sell. And if Musk’s army of small investor followers know big buyers are waiting to pounce, they’re likely to bid up SpaceX’s share price in the first days of trading.”
“Those big buyers after the IPO would include Invesco’s $363 billion QQQ exchange-traded fund and nearly every manager of a U.S. large-company mutual fund. Other more widely tracked indexes, including the S&P 500 and the Russell 1000, are also considering loosening their rules for including stocks in their indexes.”
“The new index rules also create new risks for Wall Street, said Patrick Healy, CEO of the Issuer Network, which consults for companies planning for IPOs. The new Nasdaq 100 rules, for instance, cut the time to join the index from three months to 15 days. They also cap how much weight a thinly traded stock can have in the index, but even with that limit, SpaceX could be weighted up to three times the market value of its tradeable shares—forcing index funds to buy a disproportionate amount of a stock with limited supply.”
It’s not clear if the regulators will focus on these issues in the current environment. But for regular investors, it may be time to be aware of this in their passive fund allocations. And consider some shift from market-weighted to equal weighted passive mutual funds and ETF s at least.
Regardless of one thinks of this AI Tech Wave. And as usual, none of this is investment advice. Just some high level context. Stay tuned.
(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here)
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