In the previous two parts of our series on IPOs, we’ve looked at the mechanics of IPOs, along with what investors might want to consider when assessing an IPO opportunity. This final piece examines how the anticipated wave of large IPOs might affect investor portfolios. We review how broad-market indexes will be affected by large IPOs. Second, we’ll examine how concentration among the largest names in the broad market may evolve given expectations for multiple large IPOs. Finally, we’ll present some considerations around how investors may want to think about risks tied to individual stocks following the upcoming wave of IPOs.
Index Inclusion
Historically, market indexes such as the S&P 500, Russell 1000 or NASDAQ Composite haven’t included recent IPO stocks in an index. The methodology for each index varies, but traditionally, stocks have been required to be publicly traded for quarters or even years before being eligible for inclusion. These methodologies are being tested as companies have stayed private longer and are now going public as larger, more mature businesses. Two major index providers, FTSE Russell and NASDAQ, have recently amended their methodologies to allow large IPOs into their indexes more promptly.
FTSE Russell, which offers the Russell 1000 index, has stated it will add SpaceX to the index in June. An analysis by FTSE Russell indicated that, at a $1.5 trillion valuation, the SpaceX IPO would equate to an initial weight of 0.11% in the Russell 1000 index. Given that SpaceX is targeting a valuation closer to $2.0 Trillion, the weight may end up being closer to 0.15%. valuation. This value is relatively small, given that at a $2 trillion valuation SpaceX would be the 7th-largest company in the index by market value; however, a 0.15% weight would leave it starting as the 75th-largest stock in the index. This occurs because index providers only consider the actual shares available in the public market. They don’t include shares held by founders/insiders/private funds. As shares are registered and traded in the public market, the number of tradable shares increases, and thus the publicly traded market capitalization (market value) increases as well. As more shares move from private hands to public investors, the stock’s weight in the index will move higher. As of May 31, 2026, a company with a $2 trillion market capitalization, with all of its shares publicly traded, would represent roughly a 3% weight in the Russell 1000 Index. Therefore, as all SpaceX shares gradually become registered and tradeable, its weight in various indexes will continue to grow.
As the weight of SpaceX grows, its allocation in various benchmarks will need to come from other constituents. Given that most indexes are constructed by giving more weight to those stocks that are larger in size, it’s likely that those stocks that are smaller than SpaceX will likely be the source of funds as indexes elect to reallocate from smaller businesses toward SpaceX and the other large IPOs that may come later in 2026.
Index Concentration
Over the past decade, the top 10 stocks in the S&P 500 have gone from representing under 20% of the index to nearly 40% today. Of the current top ten names, seven are comprised of what is commonly referred to as the Magnificent 7 (Apple, Amazon, Microsoft, Meta, Alphabet, NVIDIA, Broadcom). Should SpaceX, OpenAI and Anthropic come public at the valuations they are projected to, it’s possible that the top ten stocks in the S&P 500 will be the Magnificent 7 plus SpaceX/OpenAI/Anthropic.
It's important to be aware of this not only because of the magnitude of concentration but also because each of these companies is tied to the AI trend, to varying degrees. While the AI trend has been good for these stocks up until now, and may even continue to be, investors must recognize that what they view as a passive, broad-market portfolio may indeed be less diversified and may be more dependent on the AI theme than they realize.
Individual Stock Risk
As we look beyond how indexes will absorb a large IPO like SpaceX, it is important to consider the businesses and how competitive trends may impact how public investors position themselves. The competitive dynamics between SpaceX and other large technology companies don’t change just because they are public. However, with more public companies available to select from, investors will have additional ways to express views on growth expectations, competitive dynamics, valuations and the like. For example, SpaceX’s focus on orbital data centers would suggest their success could be competitive threat to other hyperscale data centers (Microsoft, Amazon, Alphabet, Meta, Oracle).
Artificial Intelligence is a fast-moving space. What we think and know today will only continue to evolve. As such, we expect greater decoupling between those well-positioned for AI and those less differentiated or facing greater competitive threats. This should lead to greater variability in returns over time across many of the large technology companies. As more AI-centric companies go public, having more information in the public domain could lead to greater variance in perception.
Conclusion
As we put all of this together, we have three overarching conclusions around the impact that large IPOs may have on investor portfolios:
In the near-term, we are likely to see broad market indexes in the United States become more concentrated. What was the Magnificent 7 is likely to now be the Tremendous Ten, should one add SpaceX, OpenAI, and Anthropic to the mix. These leaders don’t even include significant semiconductor companies such as Micron and Advanced Micro Devices, whose market values are nearing $1 trillion and are also highly influenced by AI trends.
It’s not only that the indexes are becoming more concentrated in the largest stocks, but these stocks are tied to the Artificial Intelligence trend. This is leading investors with exposure to these indexes to depend more on the financial success of AI.
As the AI theme plays out and the long-term beneficiaries become more evident, we expect that equity returns will become more a function of what you do or do not own and less about just owning a market index. This may take a year or two to prove out, but we expect an environment with increased dispersion between companies that are performing well and those that are not.
Through our educational series around IPOs, we’ve aimed to inform our clients and investors on the nuances of IPOs and how they may impact their portfolios. These are complex and nuanced concepts, and our aim is to help bring perspective and purpose to our clients’ investments. We are here to answer any questions or discuss these topics further. Please reach out to your Composition Wealth advisor if you would like to continue the conversation.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not consider any investor's particular investment objectives, strategies, tax status, or investment horizon. You should consult your attorney or tax advisor.
The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.
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