Mega-IPO candidates, including SpaceX, may encounter significant delays in their aspirations to join the S&P 500 Index following the rejection of a proposal to relax the profitability requirements set by S&P Dow Jones Indices. The index committee announced that it would maintain its rule that mandates companies to have generated positive net income for the previous year, including the most recent quarter.
Analysts at Evercore ISI have shared insights indicating that SpaceX is unlikely to achieve annual net income until 2027. This suggests that, under current regulations, the company may not be eligible for S&P 500 inclusion until 2028 at the earliest. According to Jay Ritter, an emeritus professor from the University of Florida, the eventual inclusion of these mega-IPOs into the index seems inevitable unless their business models fail. He commented on the importance of timing, noting that a delayed entry could benefit the companies by allowing for a more liquid market due to larger capital floats.
The announcement comes just as SpaceX, formally known as Space Exploration Technologies Corp., prepares for its trading debut on June 12. The company is targeting a staggering valuation of $1.8 trillion, surpassing six existing companies in the S&P 500 and even exceeding the market capitalization of Tesla, another of Elon Musk’s enterprises. While SpaceX aims to enter indices such as the Nasdaq 100 later this month, it is noteworthy that Nasdaq Inc. has amended its rules to allow quicker entry, reducing the waiting period from three months to just 15 trading days. FTSE Russell has also adopted a similar shortened timeframe.
SpaceX is not alone in considering a public offering. Companies such as Anthropic PBC and OpenAI are also reportedly planning IPOs within the year, but they may face similar barriers to entry in the S&P 500. Anthropic’s expected operating profit of $559 million in the June quarter doesn’t guarantee profitability in subsequent periods due to increased spending on computing resources. OpenAI, likewise, anticipates operating at a loss in the foreseeable future.
From a broader corporate strategy perspective, some experts suggest that running at a loss is not necessarily irrational, citing companies like Amazon and Uber, which took years to join the S&P 500 after going public. This sentiment was echoed by Lawrence Creatura of PRSPCTV Capital LLC, who remarked that while these companies might be excluded from the S&P 500 for now, their long-term growth prospects remain promising.
Howard Silverblatt, a former senior index analyst at S&P Dow Jones, highlighted the difficulty in defending the net income requirement, labeling it one of the most challenging rules to uphold. He emphasized the value of adhering to Generally Accepted Accounting Principles (GAAP) for the integrity of the index, noting that SpaceX is among those investing more in research and development than they are yielding in profit.
Additional research from Goldman Sachs and Evercore ISI indicates that SpaceX’s capital expenditures could exceed $360 billion by 2030, a significant increase from over $20 billion last year. Goldman Sachs projects that SpaceX will reach a positive free cash flow of more than $72 billion by 2031 after recovering from projected losses of $105 billion in 2029.
The immediate repercussions of any change to the inclusion rules would have resulted in significant passive investment flows—approximately $14 billion for SpaceX, $8 billion for OpenAI, and nearly $9 billion for Anthropic, according to Bloomberg Intelligence. While some market watchers expressed concerns about the decision to uphold the existing rules, others welcomed the commitment to maintain them. Michael Antonelli, a market strategist at Baird, remarked that the S&P 500 remains a premier stock-market index globally, and believes the organization is unlikely to alter rules simply due to high-profile companies like SpaceX.
