SpaceX: The 800-lb Gorilla Entering the Room

The biggest kids play in the biggest playgrounds. In the stock market, the biggest playgrounds are the S&P 500 and the Nasdaq 100. Every time you buy an index fund based on those indexes, you are buying all of the stocks within them. The composition of those indexes is altered from time to time, typically entailing a relatively smaller company being replaced by a similarly small competitor. That is about to change.

Huge IPOs are Shaking Up Index Funds

The pending IPOs of SpaceX, Anthropic, and OpenAI are primed to join these indexes at the top tier as some of the largest companies in the world. This shift has massive implications for everybody else. SpaceX has filed an IPO registration statement projecting a value in the range of $1.75 to $2 trillion. Neither Anthropic nor OpenAI has filed a registration statement yet, but the last private funding round for each approached $1 trillion, making projected IPO valuations of $1 trillion or more a logical estimate for each.

Here is a simple, jargon-free guide to what this might mean for individual stocks you own, how the rules are changing, and why some of the world’s biggest tech stocks are about to get “pushed aside.”

  • The Slice-of-Pie Problem (Index Dilution)

The S&P 500 is a market-cap-weighted index. This means the bigger a company’s total value, the bigger its “slice” of the S&P 500 pie. Currently, five massive tech giants rule the playground: Nvidia (NVDA), Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), and Alphabet (GOOG/GOOGL). Together, they take up nearly 30% of the entire index.

But the pie can never be more than 100%. If SpaceX enters the index at $2 trillion, it instantly becomes the third or fourth largest company on the playground. To make room for SpaceX’s massive new slice, every other company’s slice must shrink. The same holds true for Anthropic and OpenAI; because each is expected to enter the index at a high valuation, everyone else’s slice must contract.

  • The Domino Effect: Why Tech Giants (and the Rest of the Index) Will Be Sold

If you own an S&P 500 or Nasdaq 100 index fund, your fund manager has a strict job: mirror the pie precisely. When SpaceX, Anthropic, and OpenAI join the index, fund managers cannot just print new money to buy the shares. Instead, they must engage in a massive rebalancing act that forces them to sell proportional fractions of the other 500 stocks.

Because the top five tech giants hold the largest slices, they will experience the largest forced selloffs, totaling billions of dollars. The index funds will use that cash to buy billions of dollars of SpaceX, Anthropic, and OpenAI stock to stay in line with the index. This means your index fund isn’t growing or shrinking in total value; it is simply shifting its weight out of the current big tech stocks (and everything else) and into rockets and AI.

Here is an estimate of the impact of adding all three companies to the S&P 500 Index1:

Current S&P 500 Index Value: $58 trillion

Add the estimated value from SpaceX, Anthropic and Open AI: $4 trillion

Subtract the estimated value from three stocks removed from the Index; $15 billion

New Total Index Value = $61.985 trillion

If the market value of the S&P 500 index funds is $4.75 trillion, then roughly $309 billion of stock must be sold from these funds to accommodate the three IPOs, as follows:

$4.75 trillion x (1- ($57.95 T / $61.985 T) ~ $309 billion

Using the same math for the NASDAQ 100 Index funds yields another roughly $40 billion of sales from the other 97 stocks in the NASDAQ 100 index.

Obviously, it is highly unlikely that all three IPOs would be admitted to the indexes simultaneously. The point is that there will be some significant selling of the remaining index stocks when these very large companies are added to the respective indexes.

In addition, the “automatic buying” of legacy tech stocks derived from new cash flowing into index funds will be reduced. Every new dollar invested will buy a little less legacy tech than it used to buy. With massive data center investments sucking all the free cash from the hyperscalers, tech buybacks are likely to be weaker this year too. In short there is likely to be a significant reduction of structural demand for these stocks in 2026, especially as these IPOs are added to the indexes.

Sector Influences

It’s not just the broad indexes that will be affected; sector indexes will be similarly impacted depending on how index providers define these companies. SpaceX could easily fit into the technology sector, the communications sector, or even the industrials sector. Exactly where these pending IPOs are assigned will dictate the hyper-local influence of each, but the macro results remain the same: the new IPOs are added, and everything else is, to a degree, subtracted.

If you own individual stocks rather than the broad index, this is far from Armageddon. However, there could be a sudden value shift when these IPOs are added and structural demand for legacy tech is reduced.

Timing

When does all this happen? That is still somewhat up for debate. Inclusion into these large indexes is based on a strict set of rules that are ill-prepared for the massive events on the horizon. As a result, changes are currently being considered.

Historically, a company couldn’t just walk into the S&P 500 on day one. It had to wait at least a year, prove it was consistently profitable, and ensure at least 10% of its shares were available for the public to trade (the “public float”). Because SpaceX is so massive, it is difficult to keep it out of the S&P 500, even if its early milestones don’t match traditional accounting metrics. Standard & Poor’s is currently asking Wall Street for feedback on relaxing the entry rules for “megacaps” (companies worth over $112 billion).

The following changes are currently under consideration:

  • Drop the profit rule: Allow giant companies in even if they aren’t turning a consistent, GAAP-eligible profit yet.
  • Slash the waiting time: Let them into the index after just six months instead of a year.
  • The Deadline: S&P will finalize and launch these new rules on June 8, 2026.

Nasdaq Has Already Made Some Decisions

Nasdaq has created a “Fast Entry” rule allowing megacap IPOs to join the Nasdaq 100 index in just 15 trading days. The speed of index entry is reportedly a key reason that SpaceX has chosen to list its stock on the Nasdaq exchange.

The Bottom Line for You

If you are a long-term investor who buys broad index funds, you don’t need to do anything. The automated systems behind your funds will handle the buying and selling for you.

However, if you hold individual securities in these indexes, you should not be surprised by some short-term stock market turbulence—the bigger the company, the bigger the ripple effect. As these massive funds dump portions of Nvidia, Apple, and others to accommodate SpaceX, the stock prices of today’s tech leaders could face downward pressure, while SpaceX will experience an unprecedented wave of buying.

On the positive side, you can be assured there is a substantial amount of nimble capital from institutional players awaiting the buying opportunities that result from this “shift,” potentially dampening the effect. However, there is little question that the character of these indexes will be altered literally overnight.

Have a great week!

1 Market and ETF size estimates obtained from Google

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Palumbo Wealth Management (PWM) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where PWM and its representatives are properly licensed or exempt from licensure. For additional information, please visit our website at www.palumbowm.com.

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status, or investment horizon. You should consult your attorney or tax advisor.

The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

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All information has been obtained from sources believed to be dependable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information, and it should not be relied on as such.

The views expressed in this commentary are subject to change based on the market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that no such statements are guarantees of any future performance, and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

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By: Adam