Larry Berman: ETF watch! Big IPOs in 2026 look to make indexes even more concentrated
BNN Bloomberg
Larry Berman says he can see a day in 2027 when the top 10 stocks in the S&P 500 are 50 per cent of the index similar to the Invesco QQQ Trust Series 1 (QQQ) today that seem destined to move significantly higher.
SpaceX, OpenAI, Anthropic are all potentially trillion dollar unicorns that could come to market in 2026 to 2027. We hear that Nasdaq could be bending their index inclusion rules (think ETFs linked to Nasdaq 100 QQQ etc…) to get the primary listing for some of these new behemoths.
According to Keubiko’s Musings; “Why the sudden urge to rewrite the rulebook? Because Elon Musk’s SpaceX is gearing up for an IPO with a reported target valuation of around $1.75 trillion. To win this lucrative listing over the NYSE, they appear to be shamelessly bending the knee to a specific demand by SpaceX (per Reuters) for near-immediate index inclusion. This rule change will also give Nasdaq a leg up over the NYSE on subsequent large IPOs.”
Today, the top 10 stocks in the Nasdaq 100 are 49 per cent of the index (Alphabet has two share classes). When they are working, it’s all good, when they are not, it’s very hard for the index to move higher. It’s possible, that the these three new IPOs could push the weight to almost 65 per cent when included. You are no longer well diversified with some of these stocks, but you are also the forced buyer of some pretty extreme valuations. Here’s the biggest issue as noted by Keubiko.
Assume SpaceX IPOs at a US$1.75 trillion valuation. To keep things simple, assume the company floats five per cent of the shares to the public ($87.5 billion worth of tradable stock). The other 95 per cent is subject to a standard lock-up period and cannot be traded.
Under Nasdaq’s proposed five times multiplier rule, the company’s index weight would be calculated at 25 per cent of its total market cap (five per cent float five times), even though only five per cent is available for trading. If they float only five per cent of the shares, the weighting would be 25 per cent (about $438 Billion). At 15 per cent, it would be $1.3 trillion.
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