The SpaceX IPO is already upending the stock market

Elon Musk's trillion-dollar-plus SpaceX isn't a public company yet, but its size and ambitions are already upending the stock market and sparking questions over the power and influence wielded by such behemoths.

Why it matters: The IPO, expected next month, would signal the start of a new AI era for the public markets, potentially valuing SpaceX as much as $2 trillion.

The big picture: OpenAI and Anthropic are also expected to IPO this year — possibly translating into $5 trillion in value in the markets, estimates venture capitalist and MIT research fellow Paul Kedrosky.

• The new stocks will hit the markets like a tsunami, he says.
• The IPOs will trigger an enormous wave of demand from investors who will pull money out of other assets to buy — sort of like how the ocean pulls back before it crashes over the beach and into the surrounding area upending everything.
• The "scale and consequences" will be massive, he says.

The latest: The S&P 500 is considering changing its rules to fast-track SpaceX's inclusion into the benchmark index.

• If that happened, it would guarantee lots of buyers for the stock — index funds, which make up an increasingly large share of the market, would effectively be forced to invest.

Friction point: Critics say the changes are unfair and distort the stock market.

• "The rules are being rewritten to benefit IPO issuers and early-stage insiders, and your capital is the tool being USED to enrich them," writes long-time investor George Noble on Substack.
• The proposal is "egregious," argues WSJ columnist James Mackintosh, saying that it is an acknowledgement that there are different rules for the big companies.

Yes, but: The market is changing to accommodate these mega IPOs, not because of some conspiracy, but because the indexes want to reflect reality.

• "Investors want indexes to be representative of the market," says Jay Ritter, the director of the IPO initiative at Warrington College of Business at the University of Florida.
• "These companies likely would be included sooner or later unless they totally collapse, so it's mainly a question of timing."

Catch up quick: Nasdaq has already changed its rules for SpaceX to allow for fast-tracking onto the Nasdaq 100 index, which features the biggest tech companies.

Where it stands: The S&P is considering changing the rules for companies it calls "MegaCaps," defined as those with a value that puts it within the top 100 largest by market capitalization. The three proposed changes are:

• There would no longer be a requirement that a company be profitable. (We'll know if SpaceX is profitable or not when its prospectus is made public.)
• The 12-month wait to get included on the index would be cut to six months.
• A requirement that a company needs to offer up at least 10% of its stock to the public would be eliminated. (SpaceX reportedly will have just a 5% float.)

Follow the money: In the 1980s and '90s, most companies that went public were profitable. But in this century, most haven't been, Ritter says.

• "Some of these rules were decided on many decades ago, when the world was a bit different from now."

What to watch: If the proposed rule changes are approved by the May 28 deadline, they would take effect before the market opens on June 8, presumably ahead of the IPO.