To get into the S&P 500, a company is supposed to make some money. The sum of its four quarters of earnings has to be positive—at least GAAP wise—and so does its most recent quarter. That’s a pretty basic rule, decades old and it’s the reason Tesla sat outside of the index until the end of 2020, years after it had become one of the most valuable companies on earth.
Soon, that rule will be broken, likely three times. On purpose.
SpaceX, OpenAI and Anthropic are all independently preparing to go public, at different speeds; SpaceX has released its S-1, Anthropic filed for IPO on Monday and OpenAI is rumored to next quarter. None of those companies yet make money; in fact, SpaceX lost billions last year, and OpenAI and Anthropic are also not profitable. Yet, when they go public, they will be ranked among the largest companies in America; and quickly begin dominating 401Ks and index funds.
A consultation, closed just in time
On April 30, S&P Dow Jones Indices opened what it called a “Consultation on the Treatment of MegaCap Companies.” A MegaCap, according to that document, is any company whose total market capitalization is at least that of the 100th-largest name in the S&P Total Market Index; about $112 billion. Surely, even without access to financial data, it is safe to say that SpaceX, OpenAI, and Anthropic all clear that bar with room to spare.
The consultation put three of the index’s oldest entry requirements up for questioning, all at once: The seasoning period, normally 12 months of public trading before a company can be considered, would drop to six. Then there’s the aforementioned profitability requirement—the four-quarters-of-GAAP-earnings test—which would be waived entirely for MegaCaps.
The final rule they are considering waiving is the minimum float requirement (also known as the 0.10 Investable Weight Factor) which specifies that at least 10% of shares must be actually trading.
The timing of the rule changes is auspicious for the tech giants. Comments closed on Friday May 28. If the changes are adopted, they take effect before the market opens on June 8, and SpaceX is scheduled to begin trading on the Nasdaq on June 12.
The rules existed for a reason
Each of the requirements now on the chopping block was built for some layer of investor protections.
The first, the profitability test is a quality screen: the index is meant to be a list of the country’s leading companies, and “leading” has, until now, meant “profitable.” The seasoning period exists so that a newly public stock’s price has time to settle before trillions of dollars of regular people’s money are pegged to it, because IPOs are often volatile. And the float minimum exists so that index funds are never forced to chase a stock they can’t actually buy (if a company lists only a sliver of shares and locks up the rest).
SpaceX, as an IPO, is on track to test all three: It is unprofitable. It would enter the index within weeks of listing rather than after a year. And it is expected to float on the order of 5% of its stock, with the rest under lockup, at a valuation near $1.75 trillion and a multiple of roughly 110 times revenue.
“They had to bend the rules to get into the Nasdaq index—they would never qualify normally,” Nell Minow, a longtime expert on corporate governance fights, told Fortune. The same logic, she said, now applies to the S&P. “It’s the opposite of what an index is supposed to be. An index is supposed to say, we will do the work for you, we will only put into the index companies that meet these specific qualifications. And then they’re sneaking some in.”
Why you’ll own it either way
Here is the part that reaches into ordinary retirement accounts.
As of December 2024, S&P DJI estimated that $20 trillion was indexed or benchmarked to the S&P 500, with passively managed assets making up approximately $13 trillion of that total. A passive fund doesn’t get to pick and choose, since its entire job is to hold the index as the index is constructed; when a name is added, the fund has to buy it, at whatever the price is. That is manageable when a company seasons into the index slowly, as the rules dictate it, with a liquid market in its shares. It is something else entirely when a roughly $2 trillion company arrives with about 5% of its stock available and a wall of necessitated demand ready to unleash a flood of passive money.
The scale of the forced buying is already being modeled. After Nasdaq adopted its own “Fast Entry” rule in March—letting large IPOs into the Nasdaq-100 after just 15 trading days, effective May 1—Goldman Sachs analysts estimated the change could trigger up to $60 billion in forced buying across the Nasdaq-100 alone. The S&P 500, with its far larger pool of tracking assets, is the much bigger fish.
Minow’s prediction is that the largest institutional holders won’t stand for it. “If I were the head of the California retirement fund, or the New York retirement fund, or one of these multi-billion-dollar retirement funds, I would just pick up the phone and call Vanguard and Fidelity to make me a new index that doesn’t include these companies,” she said.