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When it comes to the SpaceX IPO, there are two distinct groups of people I’ve spoken to over the past few weeks.
One group is anxious to get in on what they see as one of the most anticipated IPOs since Facebook. They want access to the IPO price before shares begin publicly trading.
The other group is more concerned about potential market distortions. They see headlines about index providers changing rules to account for SpaceX and other mega-IPOs, and they worry about whether mutual funds or ETFs they own could be required to buy, sell, and rebalance in ways that negatively impact their holdings or the broader market.
Those sound like different concerns, but they share the same problem: both focus too much on IPO day.
I’m going to address both groups of investors: first, the investors focused on IPO access, and then the investors worried about index-fund effects.
Before I do, a quick reminder that my new book, The Perfect Portfolio, is coming out September 22. There is a link at the top of this episode’s page in your podcast app where you can sign up for updates every other Saturday, including behind-the-scenes looks at the publishing process, early chapter previews, and subscriber-only webinars.
Now, let’s start with the first group of investors who want access to the IPO price.
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The IPO price is not the price most investors get
Back in Episode 244, I talked about the SpaceX IPO and how IPOs work in general. If your main question is whether you can get access to the IPO price, that episode is a good companion to this one.
Here’s the quick version:
The IPO price and the market price are not the same thing.
The IPO price, also called the offer price, is set before the stock begins trading publicly. The market price is the price you see once the stock begins trading on an exchange. For most individual investors, that market price is the first realistic price they can access.
This is why IPO headlines can be misleading. When you hear that an IPO “popped” 30% on day one, that return is usually tied to a price most investors could not actually get.
That distinction matters when looking at IPO research. Jay Ritter’s data shows that IPOs have often rewarded investors who received shares at the offer price. But for investors buying after public trading begins, the long-run record is much less exciting. Ritter’s data show that IPOs from 1980 through 2024 had negative average market-adjusted and style-adjusted three-year returns when measured from the first public closing price.
So if you’re an investor who is eager to buy the SpaceX IPO–or any of the anticipated mega IPOs whether that’s Anthropic, OpenAI, Stripe, or Databricks–ask yourself are you trying to capture that one day pop by getting allocated shares before trading? And there’s no guarantee that a one-day pop even happens. But I think it’s worth being clear about why you want to buy an IPO.
Because whenever I talk to investors interested in accessing an IPO, nobody is describing their excitement as a get-rich-quick impulse. They usually say the company is “the future” or that it could be a great investment for decades.
Maybe that will be right. But if your investment case for SpaceX or any other mega-IPO depends on getting the IPO price, that sounds less like a multi-decade thesis and more like a hope for a first-day pricing advantage.
But if you truly believe a company is a great multi-decade investment, then missing the IPO price should not destroy the thesis.
So hopefully those thoughts along with Episode 244 help address the investors focused on IPO access.
Now let’s tackle the second question: what happens when a company this large enters the investment market ecosystem?
Index inclusion is not automatic
This is where some of the concern around SpaceX and other mega-IPOs comes from.
Companies are staying private longer, which means some businesses may come public at enormous valuations. That creates a challenge for index providers. If an index waits too long to include a newly public company that represents a meaningful part of the public market, the index may become less representative. If it moves too quickly, it may create trading and liquidity concerns.
Recently, that balancing act has made some investors uncomfortable. Historically index providers have required new listings to season for several months following their entry into public markets, but several major index providers have accelerated the timelines or lowered the barrier for entry (see: Some Indexes Accelerate Entry for Massive IPOs).
When an index provider changes its rules ahead of a massive IPO, it can look like the rules are being rewritten around one company. And because so much money tracks indexes, those methodology changes matter.
But I would be careful not to overstate the concern. Index providers have changed methodologies before. Markets evolve, and indexes evolve with them. Index investing is great, but it has never been perfect. Securities have always entered and exited indexes, and those changes have always created some buying and selling around the edges.
The question is not simply whether an index adds SpaceX quickly. The more important question is how much weight SpaceX receives once it is added.
Float and lockups explain the real index impact
To understand why a trillion-dollar company may not immediately become a huge index holding, you need to understand free float.
Free float is the portion of a company’s shares that is actually available for public investors to buy and sell. Shares held by founders, employees, early investors, directors, or other insiders may not be freely tradable right away.
In other words, total market value tells you what the whole company is worth. Float-adjusted market value tells you how much of the company is available to public investors.
This is the heart of the valuation disconnect.
Based on the assumptions in this Morningstar/CRSP white paper, SpaceX could have a total valuation of $1.75 trillion and an initial public offering of $75 billion. That would be an enormous IPO in dollars. But $75 billion is only about 4.3% of a $1.75 trillion company. As a reminder, these are assumptions used to estimate potential index effects, they are not predictions.
Using those assumptions, SpaceX would initially receive a 12-basis-point weight in the CRSP US Total Market Index. That is 0.12%. Put differently, for every $10,000 invested in a fund tracking that index, the initial SpaceX exposure would be about $12.
That is why investors can hear “$1.75 trillion valuation” and still see a small initial weight in a total-market index. The headline focuses on the value of the whole company. The index math focuses on the tradable slice.
But the first-day float is not necessarily permanent.
After an IPO, insiders and early investors are often restricted from selling for a period of time. That restriction is called a lockup. When the lockup expires, more shares may become available to public investors.
When more shares become available, the company’s float can rise. When float rises, the company’s index weight can rise, even if the company’s total valuation does not change.
Morningstar/CRSP studied IPOs from 2013 through 2025 and found that free float tends to start low, then rise sharply around 180 calendar days after the IPO, which is a common lockup expiration window. For mega-cap IPOs, the paper says median free float historically rose from roughly 10% to about 50% to 60% by the end of the lockup period.
That is why the later event can matter more than the initial IPO inclusion.
Using the same SpaceX assumptions, Morningstar/CRSP estimated that SpaceX’s weight in the CRSP US Total Market Index could rise from 0.12% at initial inclusion to 1.33% at 50% float, assuming the company’s valuation stayed at $1.75 trillion.
So the index-impact conversation is less about IPO day and more about what happens as more shares become available.
Just as importantly, index inclusion does not always mean every fund trades the full amount at the same moment. Index changes are often announced in advance, fund managers can manage implementation within the constraints of their benchmark, and CRSP’s own methodology phases certain float-driven changes over five days through a transitional reconstitution process.
That does not mean there would be no trading impact. It means the initial impact would likely be much smaller than investors might assume from the headline valuation alone.
Could mega-IPOs distort the market?
So, could mega-IPOs distort the market?
Maybe at the margins. But the impact is not simply tied to headline valuation. It depends on which indexes add the stock, how much weight the stock receives, how much float is available, and how fund managers implement the trade.
That is why the market-composition story is also more gradual than many headlines suggest.
In the Morningstar/CRSP analysis, SpaceX is assigned to industrials, while OpenAI, Anthropic, Stripe, and Databricks are assigned to technology. If all were included at current assumed valuations and 50% float, Morningstar/CRSP estimated that the industrials weight in the CRSP US Total Market Index would rise by about 1.1 percentage points, while technology would rise by about 0.4 percentage points.
That is a measurable change, but not a dramatic one.
So yes, mega-IPOs could affect index funds and market composition. But the impact is likely to be staged, rules-based, and more gradual than the headlines imply.
The bigger story comes after IPO day
That brings us back to the two groups from the beginning.
If you are focused on getting access to the IPO price, remember that most investors do not get that price in meaningful size. And if the long-term investment case depends on getting the IPO price, it may not be as long-term as it sounds.
If you are worried about index-fund distortions, remember that index inclusion does not mean full-size exposure on day one. Different indexes have different rules. The S&P 500 is not fast-tracking SpaceX. And for indexes that do add mega-IPOs quickly, the initial weight can still be limited by float.
More broadly, I do not think investors need to avoid diversified mutual funds or ETFs just because those funds may eventually own SpaceX or another mega-IPO. Index funds are not perfect, but they remain one of the best tools investors have for getting broad, low-cost market exposure.
IPO day will get the headlines. That is when people talk about whether the stock popped or flopped. That is when investors feel the urgency.
But for long-term investors, the bigger story unfolds over time.
Mega-IPOs may change parts of the market, but not all at once. Their impact depends on index rules, public float, lockup expirations, and how funds rebalance.
The right response is not to chase day-one access or panic over index headlines. It is to understand the mechanics, keep the excitement in perspective, and stick with a plan that does not depend on one IPO to succeed.
Resources:
- How Will the Mega-IPOs Change the Face of the U.S. Stock Market? (Morningstar)
- Some Indexes Accelerate Entry of Massive IPOs (Charles Schwab)
- Jay Ritter IPO Data Page
The Long Term Investor audio is edited by the team at The Podcast Consultant
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