Three massive initial public offerings (IPOs) of artificial intelligence (AI) companies are expected before the end of the year, and they could be the largest public stock offerings in history.
Anthropic, which developed the chatbot Claude, filed with the Securities and Exchange Commission on Monday for an IPO. SpaceX, the rocket and AI company started by Elon Musk, is expected to go public on June 12. And OpenAI, which is behind the ChatGPT chatbot, will soon do the same.
They are all expected to be valued at between $1 trillion and $2 trillion at their debuts -- valuations that would place them among the world's 12 or 13 largest companies by market cap.
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The three companies are expected to cause some disruptions to the market when, and if, they are added to the S&P 500 index. That's because large mutual funds and passive funds that track the large-cap index will have to sell meaningful portions of their existing holdings to add these blockbuster companies and fulfill their mission of proportionally representing the market. That will be a massive rebalancing act for those funds.
But normally, the process of preparing for those changes would take a year or more, giving fund managers time to adapt. According to longstanding S&P rules, a company must be public for a year and have four consecutive quarters of positive earnings before it can be added to the iconic S&P 500 index. This latter requirement is known as "financial viability."
S&P 500 may change the rules to accommodate these companies
That may change very soon, however. In an unprecedented move, S&P Dow Jones is considering altering its rules to fast-track the entry of these giant companies.
On April 30, S&P Dow Jones announced it is consulting with stakeholders about allowing newly public companies to be added to the S&P 500 index after just six months of being publicly traded. In addition, it is considering waiving the financial viability requirement for megacap companies.
That last change would be a critical one for these AI IPOs, as SpaceX and OpenAI are still unprofitable, and Anthropic is expected to post its first quarterly profit this (second) quarter. The three companies combined for losses of more than $25 billion last year as they scrambled to raise (and spend) funds to train next-generation models, scale current ones, and win the competition between Claude, ChatGPT, and SpaceX's Grok chatbot.
S&P Dow Jones is not alone in its efforts to accommodate the three mega-IPOs. Nasdaq approved a fast-track change in March to grant newly public behemoths early admission to the Nasdaq-100 index. And London-based FTSE Russell, which runs a bunch of well-known market indexes, is in consultation to do so.
So, investors who want to get portfolio exposure to these giant AI companies after they go public this year may not have to wait long. In fact, anyone who owns shares of passive S&P 500 or Nasdaq-100 index funds may not have a choice.
