SpaceX and Other Mega IPOs May Face Extended Wait to Join S&P 500 Index

S&P 500 Index Committee Rejects Proposal to Relax Profit Requirement for Mega-IPOs

The S&P Dow Jones Indices' index committee has declined to remove a rule that requires companies to generate positive net income for the past year, including the most recent quarter, for inclusion in the S&P 500 Index. This decision comes as mega-IPO candidates such as SpaceX, led by Elon Musk, prepare to enter the market.

According to research analysts at Evercore ISI, SpaceX is not expected to generate positive net income on an annual basis until 2027. If the rule remains in place, this could mean that SpaceX's entry into the S&P 500 Index is delayed until 2028. Despite this, some analysts believe that SpaceX will eventually be added to the index, unless its business model fails.

The decision to maintain the profitability requirement is seen as a positive development by some, as it ensures that companies entering the S&P 500 have a more liquid market. Jay Ritter, University of Florida emeritus professor and director of the IPO Initiative, noted that "given the low floats and the huge amounts of money indexed to the S&P 500, I think it's good that they'll wait until the stocks have a more liquid market."

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SpaceX is set to start trading on June 12 with a target valuation of $1.8 trillion, which would be larger than all but six companies in the S&P 500. The company is also expected to enter the Nasdaq 100 index as soon as the end of this month. Unlike S&P, Nasdaq Inc. has changed its rules to allow for quicker entry into the index.

Other companies, such as Anthropic PBC and OpenAI, are also weighing IPOs and may face similar hurdles to SpaceX. According to Bloomberg News, these companies are expected to be valued at more than $1 trillion each if they go public.

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The profitability requirement is seen as a key factor in maintaining the integrity of the S&P 500 Index. Howard Silverblatt, former senior index analyst at S&P Dow Jones, noted that "there are companies that are spending more on R&D than are making profits, even though they might have profitable lines."