AI, space, and the $3 trillion IPO wave reshaping the stock market
A version of this article originally appeared in Quartz’s members-only Weekend Brief newsletter. Quartz members get access to exclusive newsletters and more. Sign up here.
Saudi Aramco’s 2019 IPO is the largest in history, bringing in over $25 billion. In a few months it will be the third largest, and the year will not be over.
SpaceX is expected to go public in June, raising somewhere between $40 billion and $80 billion at a valuation that could reach $1.75 trillion. OpenAI, currently valued at $852 billion, is targeting a listing that could push that figure past $1 trillion. Anthropic, valued at $380 billion in its most recent funding round, could fetch more than $60 billion in an IPO that some analysts project could value the company at over $640 billion.
Together, three companies are preparing to enter public markets in a single year with around $3 trillion in combined market capitalization.
The records are about to fall, and so are some of the rules. The people responsible for those rules seem to agree that is the right call.
“They’re exceptional in every regard,” said Tomasz Tunguz, a venture capitalist at Theory Ventures who has written about the financial mechanics of the listings. “And we need to make exceptions for them.”
When a company goes public, it does not automatically land in the indexes that most Americans hold in their 401ks and retirement funds. First it has to prove it belongs there.
That means two things. It needs to have been trading long enough for the market to get a real read on its price, typically at least three months. And it needs float, the percentage of a company’s shares that actually trade freely on public markets, as opposed to sitting locked up with founders, early employees and institutional backers.
Float matters because index funds need to be able to buy and sell large quantities of a stock efficiently. A company where only a sliver of shares are available is too volatile to sit inside a portfolio that millions of retirees depend on. The S&P 500 requires 50% public float for inclusion.
SpaceX is reportedly planning to debut with somewhere between 3% and 8% of its shares in public hands.
Getting from there to 50% will take years. Tunguz ran the numbers. “If you need a trillion dollars worth of stock to move into public float and you have four billion dollars trading each day in SpaceX, you’re talking two, three, four years of trading before it qualifies,” he said.
That creates a problem with no clean solution. SpaceX would instantly rank among the six largest publicly traded companies in the United States. An index meant to represent the American stock market that excludes the sixth largest company in it is not really representing the American stock market.
So the rules are changing. Nasdaq approved a new fast-entry rule on March 30, effective May 1, allowing newly public companies to join its flagship index after just 15 trading days rather than waiting the standard three months. It also restructured its minimum float requirement, reducing the weighting of low-float stocks rather than excluding them outright.
The S&P 500, whose inclusion criteria are rarely changed, is reportedly considering a change too. The Center for Research in Securities Prices, whose indexes underpin more than $3 trillion in Vanguard funds, is relaxing its float requirements later this month.
The scale of these listings looks alarming until you zoom out. The U.S. equity market carries a roughly $60 trillion market cap, with about $1 trillion in annual share repurchases, and sees around $100 billion change hands every single trading day.
The numbers suggest the market can handle it, according to Jay Ritter, a finance professor at the University of Florida who has studied IPO markets for four decades. “Even though SpaceX is almost certainly going to be the largest IPO in the history of the world, it’s a little blip in terms of U.S. capital markets,” he said.
Some shuffling will happen. When index funds make room for new mega-caps they have to sell existing positions, and smaller companies in the index feel that pressure. But even three record-breaking IPOs are “just recycling a small fraction of the cash that’s being handed out to investors,” Ritter said.
Which raises a different question. These companies could have gone public years ago. They chose not to. Robust private markets meant they could raise billions without the scrutiny or quarterly earnings pressure that comes with being public. SpaceX has been flying rockets for two decades. OpenAI launched ChatGPT in 2022 and became a household name without ever selling a share on a public exchange.
The consequence of waiting is that investors are now paying for all the growth that already happened. SpaceX’s implied price-to-sales ratio of around 60 puts it in territory where very few companies have historically delivered returns that justified the entry price. Nvidia went public in 1999 at a market cap of under $600 million giving it substantial upside potential. It is worth more than $4.6 trillion today. But for every Nvidia there were hundreds of companies from that era that nobody under 40 has ever heard of.
So why come to market now? Private markets have limits. OpenAI just closed a $122 billion funding round, the largest in private market history. But the company plans to spend $600 billion over the next five years on semiconductors and data centers alone. Even at that pace of fundraising, the math does not work without public markets.
The timing is also not entirely coincidental. IPOs also tend to cluster when confidence is high, said Chester Spatt, a former chief economist of the SEC and finance professor at Carnegie Mellon. Once one major company signals it is ready, investment banks use that momentum to nudge others. The window, once open, tends to pull companies through it.
“When the ownership perceives valuations are reasonably strong and there’s going to be a lot of demand,” Spatt said, “that’s when companies come to market.”