S&P 500 Rejects Fast-Track for SpaceX and AI Firms

S&P Dow Jones Indices has refused to alter its eligibility rules for the S&P 500, denying SpaceX accelerated entry after its upcoming IPO. The June 4 decision also blocks a potential fast track for AI companies OpenAI and Anthropic after their expected public offerings.

S&P Dow Jones Indices upholds all core eligibility criteria. The index provider conducted a monthlong consultation on possible changes for so-called MegaCap companies with unprecedented market capitalizations. In its final decision it stated that no changes will be made to the eligibility criteria including financial viability screens, seasoning period, or minimum investable weight factor.

SpaceX will therefore not gain accelerated access to passive investment funds. Even after the standard yearlong wait, SpaceX, Anthropic, and OpenAI may struggle to deliver the consistent profitability necessary to qualify for the S&P 500.

Proposed waivers would have fit SpaceX's IPO structure. The consultation weighed shortening the seasoning period for new IPOs from 12 months to six months. It also considered waiving the investable weight factor requirement so that MegaCap companies need not make at least 10 percent of their shares publicly available and waiving profitability requirements for the latest quarter and the previous four quarters.

Such changes would have accommodated SpaceX's plan to offer approximately 3 percent of its IPO shares to public investors. SpaceX is currently unprofitable with a growing debt load that has reached $29 billion because of its spending on AI infrastructure.

Billions in passive fund flows will not be triggered. Bloomberg Intelligence estimated that swift S&P 500 entry would have triggered $14 billion of passive fund buying for SpaceX, more than $8 billion for OpenAI, and $4.6 billion for Anthropic. This stems from $7.5 trillion in passively managed funds that follow the S&P 500 by purchasing shares according to their proportional representation in the index.

Vanguard and Fidelity brokerage giants both offer passive investment funds that track the S&P 500 composition. The news will likely come as a relief to people concerned about passive investor money and retirement savings plans having greater exposure to the market risks associated with SpaceX's big bet on AI and speculative orbital data center plans.

One limited concession offered for lesser indexes. The S&P Dow Jones Indices changed the investable weight factor rules for lower-profile benchmarks such as the S&P Total Market Index and Dow Jones US Total Stock Market Index. That adjustment could allow an IPO faster entry into those indexes.

AI companies are generally facing more challenges in funding and building expensive AI data centers. They are shifting more of the subsidized costs of running AI services onto customers through usage-based pricing.