This year is set to bring a series of large initial public offerings from firms tied to artificial intelligence, drawing intense public attention and investor enthusiasm. Among the anticipated debuts are a near-term SpaceX IPO, followed by Anthropic and potentially OpenAI. These companies aim to raise tens of billions of dollars while many remain far from profitability.
Index-tracking funds play an expanding role
Index-tracking funds and ETFs have grown in importance: they buy stocks according to index weights as part of their mandates, often without regard to current price levels. In response, index providers — including Nasdaq, FTSE (which constructs Russell indexes), and the S&P 500 committee — are moving to accelerate the process by which new listings become part of their measures so that these shares enter benchmark indexes more quickly.
Proposed and implemented rule changes
Nasdaq has proposed a rule that would multiply the index weight of firms like SpaceX. Some indices already allow inclusion within five trading days of listing. The S&P 500 is considering shortening the required time for inclusion from 12 months to six months and removing the profit-based eligibility criterion. If enacted, such changes would enable faster entry for large IPOs.
Artificial demand and investment dynamics
Those proposed and in some cases already enacted changes would generate material, effectively “artificial” demand for shares of companies that have not produced profits and which list at valuations well above their revenues. The article notes that SpaceX’s IPO valuation could be roughly one hundred times its annual revenue. Many mega-IPOs also launch with a relatively small free float because existing investors are contractually restricted from selling immediately.
Measurable effect of rapid index inclusion
Citing Bloomberg, the source highlights the CRSP US Total Stock Market Index’s reputation for rapidly incorporating large IPOs; roughly $1,800 billion in assets track that index, including the Vanguard Total Stock Market fund and ETF. Research indicates that index inclusion itself can move prices: for the CRSP index, entry as early as the fifth trading day has been associated with roughly 15 percentage points of outperformance in some studies.
Market consequences and critiques
As a result, high-profile AI stocks may be bought not only by technology enthusiasts or supporters of figures such as Elon Musk but also by index-tracking funds that are largely insensitive to valuation — funds that often form a substantial part of U.S. retirement savings. Critics argue that index compilers are altering rules in ways that favor new entrants, even though indexes are intended to reflect the whole market’s performance based on prices that already incorporate available information.
A potential risk: structural market distortion
If multiple indices accept the new listings at once, or if Nasdaq increases the weight of these companies, structural demand could produce shortages of tradable shares. That dynamic can squeeze short sellers and create price moves driven more by market structure than by companies’ prospects, resembling a short squeeze in its effects.
Conclusion
Faster index inclusion and other rule changes combined with mega IPOs linked to artificial intelligence can produce significant buying pressure for newly listed shares. Given many issuers’ lack of profitability and small initial free floats, this environment raises the risk of market distortions where index-driven demand, rather than fundamentals, drives short-term price behavior.
