Investors all over the country and the world will soon have the chance to own a piece of Elon Musk’s SpaceX, after what could be the biggest initial public offering (IPO) in history. On Friday, the space and AI conglomerate plans to offer 555,555,555 shares at $135 apiece for a total of $75 billion. A successful IPO will put the notional total valuation of SpaceX at $1.75 trillion, which is more than double the $780 billion it may actually be worth according to a Morningstar analysis. Even that figure is quite a lot of money for a company that reported a net loss of $4.94 billion last year. It would put it not far behind JPMorgan Chase in size, which made $57 billion in profit during the same period.
Despite the shaky-at-best valuation, Musk is eyeing a windfall of hundreds of billions of dollars for himself and his friends, while banks and financial insiders will go home with a nice bonus of their own, if all goes according to plan. This is all possible because, as the Prospect reported last month, the shares could almost immediately hit the investment accounts of millions of people saving for retirement or otherwise invested in the stock market through index funds like Vanguard or BlackRock—the financial vehicle that most regular people rely on to grow their money. Index funds have historically been crucial for regular people who want to participate in the stock market, but now—thanks to rule changes from some of the biggest index providers—the functioning of those funds could be abused to make financial markets even more hostile for working Americans.
Indexes used to wait months, if not years, to add an IPO, limiting volatility and allowing the share price to settle at a level determined by the market.
Most of the justification for the $1.75 trillion valuation doesn’t come from Starlink, SpaceX’s satellite internet business, and currently the only profitable area of the company, or the undeniable successful rocket-launching portion of the company. Instead, investors hoping to get their money’s worth are betting that xAI, the cash-burning AI division behind the chatbot Grok, will soon be more profitable than any company in history. According to SpaceX’s investment prospectus, the AI business has a total addressable market of $26.6 trillion. Goldman Sachs, the lead underwriter of the IPO, projected AI revenue will reach $322 billion by 2030—100 times what it currently takes in. Soon, it assures us, the company will succeed in its mission to blanket various extraterrestrial areas and objects with data centers and bring forth the “emergence of new trillion-dollar markets on the Moon, Mars, and beyond.”
Grok has already displayed alarmingly erratic behavior that is arguably criminal in many nations. Continued expansion, especially at the scale outlined in the prospectus, comes with widespread liability risks. SpaceX has acknowledged the potential of catastrophic outcomes of AI—including the development of biological, chemical, or nuclear weapons—but the prospectus itself does little in the way of addressing how the company will manage such risk and protect investors from legal liability.
The skeptical investor might want to sit this one out, at least until the market has had time to properly evaluate and price the stock. Typically, index fund investors would get that time. Indexes used to wait months, if not years, to add an IPO—limiting volatility and allowing the share price to settle at a level determined by the market (and not by Musk). They also imposed strict minimum requirements on the float, the percentage of outstanding shares actually available for public trading.
The rules were put in place to protect index fund investors from risky bets and price fluctuations that are typical post-IPO on top of exactly the kind of market-gaming Musk appears to be doing now. But those rules have changed. This time, financial institutions are giving SpaceX shares special expedited treatment.
FTSE Russell, home of the Russell 1000 Index, recently changed its rules to allow large IPOs entry on the fifth day of trading. Nasdaq, where SpaceX plans to officially list, pushed through a similar rule change—allowing entry onto the Nasdaq 100 after just 15 days of trading.
Why? Because Elon Musk demanded it. Reuters reported in March that SpaceX required a fast track as a condition of the competitive listing.
What’s more, Russell and Nasdaq have also changed their requirements for the minimum float: SpaceX will only be floating 4.2 percent of its shares initially. This supply limitation will obviously increase the share price and hence market capitalization, although index funds adjust their purchases for float.
It turns out we already have evidence for the consequences of fast-track rules. Two other index providers—the Center for Research in Security Prices (CRSP) and Morgan Stanley Capital International (MSCI)—have already had five-day fast-tracking in place for years. The practice siphons money out of index investors’ pockets, according to a 2025 study by Harvard Business School researchers Marco Sammon and Chris Murray.
Sammon and Murray found IPOs fast-tracked by CRSP cost 15 percent more for funds tracking their indexes, including some of Vanguard’s largest. The price hike comes from hedge funds and other financial insiders—knowing large index funds would have no choice but to buy in the following days—picking up the stock in anticipation of the IPO’s listing on CRSP indexes. Once the IPO is listed, the demand from the index funds themselves gives the price a further bump. Insiders selling their shares to index funds on the day of inclusion make a hefty profit, a cost ultimately borne by the fund investors when the stock price reverts immediately following index inclusion and continues to underperform in the long run. This “shadow tax” for index investors totaled over $5.8 billion between 2017 and 2023.
This time, it’s not just the CRSP indexes. “Suppose Russell is buying another 4% [of the float] on the same day as CRSP (day 5), MSCI is buying 1% on day 10, and Nasdaq is buying another 5–6% on day 15. That starts to add up fast,” Sammon told the Prospect via email. “This seems like a case where index methodology (rather than fundamentals) could have a huge effect on price.”
These are just rough estimates, of course, but the rule changes all but guarantee a rapid influx of demand far above the 7 percent of float-adjusted shares that funds tracking CRSP indexes bought in the study. According to Murray, who used to work on a block desk, traders would never even discuss “just buying 15% of float in 10 days.” “I can’t think of a precedent with this many indexes adding so much of a stock so quickly,” Sammon added.
Further amplifying the pressure on prices for index fund investors is SpaceX’s plan to set aside 30 percent of the available shares for retail investors—much higher than the typical 5 to 10 percent. SpaceX won’t have to convince too many financial experts that their $1.75 trillion valuation is worth the gamble. Elon Musk already has a large group of fanatics who have bid the Tesla share price to preposterous levels; presumably, they will also be willing to pay a huge premium to help their hero “extend the light of consciousness to the stars,” to quote the SpaceX prospectus.
If all goes well for SpaceX next week, Musk could very well be the world’s first trillionaire, at least on paper, thanks to large ownership stakes in two companies that, taken together, make less than zero profit. His allies and private investors stand to make a pretty penny of their own, and banks brokering the deal stand to make half a billion dollars all together, while Wall Street insiders can cash in on the fast-tracked index additions.
The playbook will be set for other big companies: sell overpriced shares to fervent retail investors, watch financial insiders drive up the price further in anticipation of index listings, and force millions of ordinary retirement savers to end up holding the bag. Sure enough, Anthropic and OpenAI, two other behemoth AI companies, are already planning their IPOs for later this year or early 2027.
All that said, the S&P 500, by far the most important index, declined to change its entry rules for SpaceX—even after persistent lobbying. The decision “preserves core index principles,” according to a statement released Thursday, and just might throw a wrench into Musk’s plans, as well as those of Anthropic and OpenAI.
At any rate, while the AI giants will be among the first big IPOs under the new rules, and some of the most highly anticipated, they are part of a larger trend of tech firms and other companies waiting longer and longer—and growing bigger and bigger—before going public. For example, Uber remained private for ten years, Airbnb waited 12, and Palantir operated for 17 years before its IPO. Venture capital–backed tech firms now stay private for an average of 12 years, compared to just five in the 1980s. It is this very trend that index providers cite as the reasoning behind the fast-track and float rule changes—companies need to debut with a large enough market cap to be eligible for an expedited index entry in the first place. The increasing number of large-cap, fast-tracked IPOs will mean more money funneled out of index funds and into the pockets of financial insiders.
Musk’s abuse of the index system points to the alarming scale of stock ownership index funds have amassed.
These changes will hit workers saving for retirement the hardest. Nearly half of the assets in index funds come from retirement plans like 401(k)s and IRAs. Pretty much every Main Street investor saving for retirement has money in an index mutual fund or ETF. Index funds have also become indispensable for people saving for other parts of life, like education or emergencies.
“This is a tool that many middle-class Americans use to build wealth for their retirement because there is less risk,” Rep. Becca Balint, who chairs the Congressional Progressive Caucus’s End Corporate Greed Task Force, told the Prospect. “Having SpaceX, Anthropic, and other AI Big Tech companies calling the shots on rule changes for their IPOs makes it nearly impossible for Americans to avoid having these volatile companies in their index funds. These rules were put in place for a reason—to not expose Americans to additional risk.”
WORKERS DIDN’T ALWAYS HAVE TO RELY on index funds to save for retirement. Most retirees were once guaranteed a fixed, predetermined payout through defined-benefit pension plans. Then, in 1974, Congress passed the Employee Retirement Income Security Act (ERISA). The purported intent of the law was to protect employees from the risk of mismanaged pension funds, after several high-profile pension fund failures. What Congress actually managed to do was give employers the perfect excuse to ditch defined-benefit plans—now burdened with onerous regulations—in favor of their preferred “defined-contribution” plans. Benefits from defined contributions depend on investment returns, thus shifting the risk from the company to the workers.
Workers had very little choice but to flock to low-risk mutual funds for their retirement savings. Two years later, Vanguard’s John Bogle introduced the index mutual fund, which promised even lower risk and higher returns than the average active mutual fund. Index investing requires neither an expensive financial adviser nor stock-picking abilities—just stick the money in a fund holding a representative sample of the market and watch it grow. Since their introduction in 1976, index funds have gradually become the most important tool for regular people looking to invest, and for good reason. Index funds consistently outperform their actively managed counterparts, just as Bogle predicted. They’re also cheaper, with significantly lower management fees than active funds and other managed investment products. “Don’t look for the needle in the haystack! Just buy the haystack,” Bogle often told investors.
SpaceX’s upcoming IPO is threatening the sanctity of Bogle’s vision. Buying the haystack is a poor strategy if the haystack is stuffed with chaff. Some experts—including Michael Burry, who famously predicted the housing market crash in 2008—have been warning about the dangers of buying shares based on index inclusion instead of fundamental value even before the rule changes. “Like most bubbles, the longer it goes on, the worse the crash will be,” Burry told Bloomberg in 2019.
For some index investors, the SpaceX episode could also raise concerns about the power they are ceding to large financial institutions that are beholden to other interests. Investing in index funds means you have little choice over which companies you’re supporting with your dollars (unless you pick out a specialized fund more to your liking, which undermines half the point of the haystack strategy). “Many Americans fundamentally do not trust Big Tech or its titans and don’t want to be complicit in the erosion of American democracy by these companies,” said Balint.
More broadly, Musk’s abuse of the index system points to the alarming scale of stock ownership index funds have amassed, a majority of which is concentrated in three main investment firms. Economists have raised concerns over what this consolidation of power might mean for issues like corporate governance, competition in product markets, and money in politics. Bogle himself warned about the growing power of the index fund industry shortly before his death in 2019. “If historical trends continue, a handful of giant institutional investors will one day hold voting control of virtually every large U.S. corporation,” he said in a Wall Street Journal article. “Public policy cannot ignore this growing dominance.”
At the very least, retirement plans heavily invested in index funds should be regulated at the same level as defined-benefit plans. If Congress truly intended ERISA to protect retirement savers from risky plans, then the law must be updated to reflect the changing landscape of index investing, and the additional risks posed to investors.
In an increasingly unaffordable economy with inflation now outpacing wage growth, investing in financial assets is one of the only prospects working Americans have to build wealth and save for retirement. Financial markets are a hostile place for those on the outside, and outside of index funds and other low-cost regulated investment funds, it is basically impossible for regular people without existing wealth and expertise to find success. Now, Elon Musk, giant tech companies, and financial insiders—aided and abetted by index providers—are using those funds as just one more way to get richer off of the backs of everyone else.
