According to a report from the Wall Street Journal, SpaceX is planning on holding its initial public offering (IPO) on June 12. This has the potential be the largest IPO of all-time, reportedly aiming to raise $80 billion. This IPO could soon be followed by Anthropic and OpenAI, both supposedly targeting IPOs in the fourth quarter of this year. This may mean that the three biggest IPOs of all-time could all occur within a six month period. Should you be looking to invest in these IPOs? How will popular ETFs handle including SpaceX and other new IPOs? We’ll try to answer the big questions we have been hearing from Facet members about these upcoming IPOs.
Is it safe to buy SpaceX stock right after the IPO?
Buying companies on the day of the IPO can be extremely risky. The media often reports on companies that experience big price pops after an IPO. For example, Cerebras Systems debuted on May 14th and saw the share price surge 68% in the first day of trading.
However trading in IPOs is extremely risky. According to Bloomberg data analyzing U.S. IPOs over the five years ending in 2025 of at least $50 million. The trading results on the first day aren’t so bad.
- Median price change, first day of trading after IPO: +2.5%
- Average price change: +22.2%
- Percentage of stocks with first day gains: 63%
However, in order to get that first-day pop, you have to be awarded stock at the IPO price. This typically means you have to be some kind of insider, employee, or early investor. Actually buying shares new during the IPO process is extremely difficult.
When an investment bank manages an IPO, they typically reserve the vast majority of shares for their most lucrative clients, such as large institutional investors and hedge funds. Because these institutions purchase massive blocks of stock and generate significant ongoing commission revenue, banks heavily prioritize them during the allocation process. As a result, it is exceedingly difficult for smaller retail investors to secure any IPO shares at the highly coveted initial offering price. Everyday investors are largely shut out of this primary allocation and are usually forced to buy the stock later on the open market, often missing out on the initial first-day price surge.
Why do IPO stocks “pop” on the first day?
Company stocks sometimes experience large increases in price on the first day of trading due to how Wall Street handles these share sales. Typically companies only sell a small amount of shares to the public at the IPO. In the case of SpaceX, the company is reportedly targeting a $1.5-2 trillion total valuation, but will only be selling about $80 billion worth of shares to the public. That means that only 4-5% of SpaceX shares will be available to trade.
This constriction of supply is purposeful. The investment banks and early investors want to see the price rise. This creates momentum on the stock exchanges, and hopefully propels the stock to rise in the future. Remember that generally speaking, founders, executives and early investors aren’t allowed to sell their shares right away. They usually have to wait 180 days before selling, a period called the “lock up.” Therefore those first few months of trading can be extremely important to those investors.
If SpaceX tried to sell a much bigger percentage of the $1.5-$2 trillion in shares, it could risk swamping the market. By only selling a small amount of shares at the IPO, companies hope to avoid that problem.
What are the risks of buying stocks after IPO?
Historically the track record of post-IPO companies presents several risks, with negative returns more often than not. Again, we looked at the same IPO data from Bloomberg, covering all U.S. IPOs over the five years ending in 2025 that were at least $50 million. We examined the total return for those stocks from IPO to through May 19, 2026, including any mergers or delistings.
- Median return of new IPOs: -23.8%
- Average return: 6.3%
- Percentage of IPO stocks with positive returns: 35%.
It gets even worse when you compare these stocks to the broader market, in this case using the S&P 500.
- Median IPO return vs. the S&P 500: -57.2%
- Average return vs. S&P 500: -53.8%
- Percentage of stocks outperforming the S&P: 23%
Part of the reason why post-IPO companies often struggle is related to the 180 day lock-up period mentioned before. There can be a large number of employees looking to cash out. Typically venture capitalists also look to sell shares quickly in order to return capital to their investors. In the case of SpaceX about 40% of the company is owned by venture funds and other outside investors, another 20% from employees, and the remaining 40% owned by Elon Musk.
Even if we assume Musk never sells his shares, that’s still a large percentage of the company shares that might be up for sale in the next six months. This is common with post-IPO companies, and this selling pressure can weigh on the stock price.
It is also true that going public creates new pressure on companies. Private companies don’t typically report financial information to anyone other than their own board and some large investors. After the IPO, companies must release much more detailed information to the broad public.
In addition, all companies go through ups and downs. Some quarters sales are stronger than others, some projects produce better results than others, etc. Public companies have Wall Street analysts closely watching every financial metric, every product launch, and every acquisition. All of this can invite new scrutiny for a company that recently went public. Sometimes it even reveals problems with the business model that weren’t obvious before. All of this can cause the stock to flounder.
Is it worth buying pre-IPO stock?
It is difficult to acquire private company stock pre-IPO, and buying these companies is still quite risky even if you can buy them.
Right now, there is significant investor demand for private company investments, especially in some of these giant private companies we are discussing here: SpaceX, OpenAI, and Anthropic. This has led to the creation of various vehicles allowing smaller investors to purportedly invest in private companies. Some examples of these vehicles include:
- Special Purpose Vehicles (SPV): With an SPV, a fund manager buys stock in one or more private companies, puts the shares into the SPV and then sells shares in the SPV to other investors. In effect, ownership in the SPV is indirect ownership in the private companies.
- Secondary markets: These are marketplaces where private shares can trade between investors. Often the sellers are employees of the private company with relatively small numbers of shares.
- Closed-end funds: Some fund companies have launched funds that invest in a combination of SPVs and/or secondary purchases of private companies.
Buyers should be very careful investing in any of these vehicles. Typically, private companies heavily restrict stock transactions, generally only allowing those approved by the company’s board. Anthropic has warned that they do not approve sales of stock to SPVs. In May the company specifically called out a number of “unauthorized” secondary markets, saying that “Any sale or transfer of Anthropic stock, or any interest in Anthropic stock, offered by these firms is void…”
It seems possible that a large number of people who currently think they own a piece of Anthropic actually do not. In addition, it may be very difficult to know whether you have authorized shares or not. Several of these “unauthorized” secondary markets companies are now claiming that all of the shares they offer are in fact board approved. It will be difficult for investors to know for sure what they own, and what the consequences might be if their shares are invalidated.
If you participate in private investing through one of these vehicles, not only are you taking the normal risks of the company’s performance, you are also taking considerable legal risk. This is definitely a “buyer beware” situation.
When are new IPOs added to index funds and ETFs?
If you are invested in traditional ETFs, the key to how your funds will handle these mega IPOs will depend on how the index providers handle them. In other words, if you have an S&P 500 fund, the key question is when does S&P include these stocks? In recent months, many big index providers have released guidelines for some kind of fast-track inclusion for very large IPOs. Here is how some of the largest index providers will be handling these stocks:
- S&P: Any company with a market cap equal to or greater than the top 100 companies at IPO can be included in S&P indices six months after IPO. This is shortened from the typical 12 months. For example, this likely means SpaceX would join the S&P 500 in December 2026.
- FTSE Russell: Generally Russell rebalances its indices quarterly, at which time eligible IPOs would be added. The current proposal is to consider any company with a market value in the top 500 companies to be considered for fast track inclusion. This would happen on the fifth day of trading. This suggests that SpaceX would be added to Russell indices almost immediately after IPO.
- MSCI: MSCI follows a similar process to Russell, meaning that SpaceX would likely be added to MSCI-based ETFs in the days after IPO.
- CRSP: While CRSP is a less well-known index provider, many of Vanguard’s largest ETFs are based on CRSP indices. CRSP has always included IPOs immediately after issuance. Hence many of Vanguard’s most popular ETFs will be including SpaceX right away.
In all cases, these index providers weigh stocks based on the number of shares that freely trade, often called the “free float.” This means that a stock’s weighting in the index isn’t based on the total value of the company, rather only the amount sold in the IPO to the public. In this case, SpaceX is reportedly selling around 5% of available shares to the public. If we assumed the total market value of SpaceX were $2 trillion, that would put it about equal to Broadcom, which has a 3% weight in the S&P 500. However, if SpaceX only sells 5% worth of its shares, the float-adjusted market cap would be more like $100 billion. That’s about equal to Adobe or Duke Energy, which have about a 0.16% weight in the S&P.
Hence, at least at the outset, SpaceX will have a pretty small weight in most index-based ETFs. That weight could grow as more insiders sell shares over time.
What are the risks of OpenAI and Anthropic IPOs?
There are some special risks related to OpenAI and Anthropic that are worth considering before making any investment. While no date has been set for the IPO of OpenAI or Anthropic, Wall Street is anticipating that both might be going public sometime in the fourth quarter. Clearly these are exciting companies, both at the forefront of the AI revolution.
However, they also present some unique challenges. Both are still not profitable. Historically, both companies have regularly come to investors to raise new capital to keep spending on the data centers and other AI infrastructure necessary to train and operate their models.
This practice may need to evolve as they transition to public companies. If they kept selling new shares to the public, it would dilute existing shareholders, possibly causing the share price to decline. Most public companies only offer new shares infrequently, and generally this only happens when the company is in some degree of trouble. It is certainly possible that OpenAI and Anthropic are an exception to this rule. Maybe the hype around these companies is strong enough to allow frequent share sales without weighing too much on the share price. However, this problem might also be why OpenAI’s CFO is reportedly telling colleagues that the company isn’t ready to be a public company.
There might be other solutions to this spending problem. It could be that as public companies, they adopt a greater degree of cost discipline. After all, Wall Street tends to prefer profits to losses. Maybe the pressure of being public changes how these companies operate. However, it is worth noting that slower spending could cause either company to fall behind competitors in the AI race.
The companies could also use debt to fund spending, which has been increasingly common in the AI space. However, this carries other risks. The more indebted a company is, the more pressure there is to produce positive cash flow quickly or risk falling into bankruptcy.
It is very rare that the market has dealt with companies this large that are also not profitable. How exactly the stock market treats these companies is hard to say, but it is certainly true that it presents a number of risks investors should consider.
How is Facet handling these mega IPOs?
Facet invests primarily in index-based ETFs. Our funds will be following their typical rules for stock inclusion, which means some of our funds will be adding these stocks shortly after the IPO. However, due to the free-float issue, the weightings will be relatively small at the outset. We are comfortable with this approach. We want our investment strategies to reflect the universe of available stocks, so it makes sense to include new companies over time. However, as we have outlined, there are substantial risks to a heavy investment in recent IPOs. Therefore we think having these stocks included in our funds, but at a controlled weighting, is striking a good balance between the risk and opportunity.
