SpaceX Is Going to Mars but Not the S&P 500

When SpaceX went public at a supernova $2 trillion valuation, the IPO launched Elon Musk’s net worth into another orbit, but it also rekindled a seemingly annual discussion: How do companies get admitted into the S&P 500?

By market cap alone, the intergalactic giant would rank among the top 10 largest companies in the world, and, on a good day, the fifth largest company in the S&P 500. And yet, after all of its engineering feats and outsized ambitions, SpaceX still wouldn't qualify for inclusion in the most widely tracked index on Wall Street.

That's because the index has standards—and no valuation, no matter how staggering, can substitute for meeting them. It's an important distinction to understand, especially for index investors wondering what a SpaceX IPO would potentially mean for their portfolios.

Putting the Standard in Standard & Poor’s

Here’s the thing that many investors may not realize. The S&P 500 isn’t a popularity contest or a member’s club for the 500 biggest companies in the market. In fact, the eligibility criteria for inclusion are surprisingly strict.

To even be considered, a company must:¹

• Be U.S.-based. Headquarters and primary listing matter.
• Satisfy SEC reporting obligations under the U.S. Securities Exchange Act. Translation: the books need to be open and audited.
• Trade on a major exchange like the NYSE, Nasdaq, or CBOE
• Have a market cap of at least $22.7 billion. At least SpaceX clears this one by a mile.
• Trade at least 250,000 shares in each of the six months before evaluation. Liquidity is essential, as the index is not interested in stocks that cannot be easily bought or sold.
• Positive GAAP earnings in the most recent quarter and across the sum of the prior four quarters.
• Wait roughly 12 months post-IPO before it's even eligible.

So what’s SpaceX missing? It only just went public, so right out of the gate, it won’t be eligible for another 349 or so days. Even after that time passes, the S&P 500 may keep the rocket company on the sidelines until it can turn multi-billion-dollar annual losses into a profit. So for now, the velvet rope holds.

How inclusion requirements protect investors

These rules may seem as arbitrary as a dress code at dinner, but remember: the S&P 500 is the default home for trillions of dollars in retirement savings, and like Spider-Man’s Uncle Ben would say, “with great power comes great responsibility.” For the index committee, great responsibility translates into keeping junk out of everyday people’s portfolios.

That’s done through:

• The profitability requirement tries to filter out companies that burn cash chasing a dream
• The liquidity rule helps ensure that the fund managers tracking the index can actually trade the stock without moving the price
• The 12-month wait acts like a probationary period, giving the market time to figure out what a newly public company is really worth before it's included in millions of 401(k)s

In a way, these high standards may help protect investors. By screening for profitability, liquidity, and size, the index has chosen to house only what it deems to be the market's highest-quality companies, collectively driving the roughly 10% average annual returns investors have enjoyed from 1957 to 2025.²

But admission isn’t a lifetime honor like being knighted, Sir SpaceX.

The S&P 500 is constantly evolving. Each year, the index committee adds and removes roughly 20 to 25 companies, replacing fading businesses with stronger contenders on the rise.¹ It's a slow, deliberate process—less a revolving door than a carefully managed ecosystem, where only the fittest companies survive.

Not Every Index Makes New IPOs Wait

The good news for new companies like SpaceX is that the S&P 500 isn't the only club on Wall Street. Some indexes have created fast-track rules specifically for companies that arrive on the public markets at a Brobdingnagian scale.

Nasdaq 100³

• Fast Entry: IPOs that immediately rank among the index's 40 largest holdings can be considered for inclusion as early as their seventh trading day.
• Low-float accommodation: Companies can enter even if only a small portion of their shares are publicly available, though their index weight is capped to reflect the limited float.

CRSP Indexes (tracked by many Vanguard funds)⁴

• Relaxed float requirements: Large IPOs no longer need a traditional 10% public float if their free-float market value is sufficiently large.
• Rapid inclusion: Eligible companies can be added to broad-market CRSP indexes as soon as five trading days after their IPO.

Even though SpaceX might have to wait a year for the S&P 500, other major indexes could welcome it almost immediately, albeit not at a weight commensurate with its size.

Can SpaceX move portfolios anyway?

Given some of the reactions to the IPO, investors seem torn about SpaceX. Some investors seem desperate to own SpaceX at any price. Others fear that the stock is overpriced and could, well, drag down humanity’s future. “I am not fond of my savings and financial future being tied to the success of such large and narrowly focused companies,” said one investor quoted in The Guardian.⁵

So, if you're tempted to own a piece of the “hottest next thing”, do your homework first. Understand what you're buying, why it's not in the index, and what role it deserves in your portfolio, if any. When it comes to your portfolio, remember that you’re the bouncer opening and closing the velvet rope.