Large mutual funds and passive index funds are setting aside additional cash and preparing to offload some existing holdings in large-cap stocks. This strategic move anticipates upcoming blockbuster initial public offerings (IPOs) from SpaceX and OpenAI. John Flood, managing director of Global Banking & Markets, FICC & Equities at Goldman Sachs, noted in a May 22 client brief that passive funds could be compelled to sell down current large-cap holdings due to the potential inclusion of newly public companies. Flood observed that U.S. equity mutual funds historically increased cash balances ahead of major past IPOs.
This action by major asset managers coincides with blue-chip indexes like the Nasdaq 100 and S&P 500 rolling out new rules designed to accelerate the addition of newly listed megacap companies. These updated guidelines are particularly relevant for SpaceX, which is targeting an IPO valuation of approximately $1.75 trillion, potentially making it the seventh-most valuable U.S. company. AI market leaders OpenAI and Anthropic are also seeking to enter public markets in coming months and would likely qualify for fast entry, given their recent valuations. OpenAI could seek a valuation of about $1 trillion or more, while Anthropic is in talks for a funding round potentially valuing it at nearly $1 trillion.
Admission to benchmarks like the Nasdaq 100 or S&P 500 offers newly public companies enhanced access to deep-pocketed institutional investors. This expands their shareholder base and improves liquidity. For executives and early investors, this liquidity could mitigate the market impact of large sell orders post-lockup expiry. Analysts tracking large indexes also note that healthy retail investor cash balances are likely to fuel interest, with Deutsche Bank stating strong investor capacity and willingness. Flood added that while fast-tracked large IPOs would initially carry small weights, their impact would grow as a company’s float factor increases. Deutsche Bank analysts specified that even the largest expected IPOs equate to just over 0.1% of the current S&P 500 market cap.
