SpaceX and other mega IPOs may wait years to join the S&P 500

Unlike S&P, Nasdaq Inc. did change its rules, allowing Nasdaq 100 entry in just 15 trading days, down from a three-month minimum.

Mega-IPO candidates including SpaceX are expected to face a long road to entry to the S&P 500 Index, after the company that makes the rules rejected a proposal that included relaxing the requirement that they be profitable.

S&P Dow Jones Indices’ index committee declined to remove a rule that companies generate positive net income for the past year, including the most recent quarter, the firm announced Thursday after a month-long consultation. 

Evercore ISI research analysts don’t expect Elon Musk’s rocket, satellite and artificial intelligence company to generate positive net income on an annual basis until 2027, according to a person familiar with the forecasts, who asked not to be identified as the information isn’t public. That could mean its entry is held up until sometime in 2028 if the rule remains in place.

“Eventually these mega-IPOs will be added to the S&P 500, unless their business models fail, so it is a question of timing,” said Jay Ritter, University of Florida emeritus professor and director of the IPO Initiative. “Given the low floats and the huge amounts of money indexed to the S&P 500, I think it’s good that they’ll wait until the stocks have a more liquid market.”

Read More: S&P’s SpaceX Snub Shows Elon Musk the Power of Index Gatekeepers

The decision comes as Space Exploration Technologies Corp., as it’s formally known, prepares to start trading June 12. It’s targeting a $1.8 trillion valuation, which would be bigger than all but six of the companies in the S&P 500, and larger than Musk’s own Tesla Inc. 

The company is also set to enter indexes including the Nasdaq 100 as soon as the end of this month. Unlike S&P, Nasdaq Inc. did change its rules, allowing Nasdaq 100 entry in just 15 trading days, down from a three-month minimum. FTSE Russell adopted a similar approach, shortening the waiting time to five trading days.

A representative for SpaceX didn’t immediately respond to a request for comment. A spokesperson for Evercore ISI declined to comment.

Balancing Act

Anthropic PBC and OpenAI are also weighing IPOs as soon as this year, Bloomberg News reported, and could face similar hurdles to SpaceX despite expectations that the companies would be valued at more than $1 trillion each if they went public.

The AI model makers’ entry to the benchmark will depend on how operations and spending balance. Anthropic’s operating profit for the June quarter is expected to hit $559 million, but the company does not necessarily expect to be profitable in future quarters as it ramps up spending on computing resources and other costs, Bloomberg News reported.

OpenAI isn’t expected to be profitable in the coming years.

“From a corporate strategy standpoint, it’s not irrational to choose to run at a loss,” Lawrence Creatura, a fund manager at PRSPCTV Capital LLC, said in an interview. Creatura pointed to large companies like Amazon.com Inc. and Uber Technologies Inc. which didn’t join the benchmark until years after going public.

“It will mean you won’t be in the S&P 500 for the moment,” Creatura said. “But look at those companies now.”

Read More: Can OpenAI and Anthropic Deliver on IPO Hype?: Explainer

The purpose of the S&P 500 is to emulate the US domestic market, according to Howard Silverblatt, former senior index analyst at S&P Dow Jones. Maintaining the net income requirement is “the hardest one for the S&P to defend,” he said, adding that he believes a GAAP requirement is beneficial to the index.

“There are companies that are spending more on R&D than are making profits, even though they might have profitable lines,” he said in an interview, adding that SpaceX is one such company.

Research teams at Goldman Sachs Group Inc. and Evercore ISI expect SpaceX’s capital expenditures to soar to more than $360 billion in 2030, up from more than $20 billion last year, Bloomberg News has reported. Goldman Sachs’ team penciled in positive free cash flow for 2031 of more than $72 billion after hitting a trough of negative $105 billion in 2029, a person familiar with the matter has said.

Their fast inclusion in the benchmark would have led to about $14 billion in forced passive buying for SpaceX, more than $8 billion for OpenAI and close to $9 billion for Anthropic, according to Bloomberg Intelligence estimates. 

Holding the line may have caused some consternation for market watchers while others were relieved that the rules will remain in effect. 

For Michael Antonelli, market strategist at Baird, it won’t change the perception of the benchmark in the slightest.

“Let’s be honest: It’s the world’s premier stock-market index. It’s the gold standard of stock-market indexes globally,” he said.

“They have rules about profitability and index inclusion and they’re just sticking by them,” Antonelli said. “Just because it’s Elon Musk and SpaceX, I don’t think that they’re willing to change something that’s hard coded into their product.”

This story was originally featured on Fortune.com