Fidelity Investments, the big brokerage and mutual fund firm, long has had a rule protecting its small retail clients from plunging into initial public stock offerings while the shares were still subject to IPO-related hype.

In most cases, Fidelity would allow IPO investments only for clients with at least $500,000 in their brokerage accounts.

No longer. For the SpaceX IPO expected to launch on June 12, Fidelity has cut the threshold to only $2,000.

It's a curious decision, considering that the SpaceX IPO will be not only the largest such IPO in history — with a possible $75 billion in shares coming on the market, valuing the entire company at about $1.8 trillion — but potentially the most over-hyped. SpaceX, you may know, is the biggest company controlled by Elon Musk, so if you buy its shares, you're buying into his vision.

A Fidelity representative told me that it made the change because SpaceX has reserved about 30% of its offered shares for retail investors, much more than the traditional 10%, "which means there are more shares being offered to retail clients."

Fidelity's liberalized policy is an example of how Wall Street has been moving the investment goalposts in order to stuff more of SpaceX's shares into the portfolios of ordinary investors.

Fidelity's clients, of course, can make their own decision about whether to buy in, but that's not the case for owners of some stock index funds, who may find SpaceX among their holdings whether they like it or not.

That's because managers of stock index funds are duty-bound to add a stock to their holdings once it's added to the index they track.

The risk inherent in the SpaceX IPO may fall significantly on unwitting retirement account holders, who tend to be heavily invested in index funds. Vanguard, which pioneered index mutual funds, says that about 30% of retirement account holders choose equity funds if they're offered by plan sponsors, and most are indexed.

There's no mystery why Wall Street is anxious to sell SpaceX to the small investor. It's because almost all of the major investment banks, led by Goldman Sachs, are underwriters of this massive stock issue, so they have an incentive to get the shares out the door promptly. Accordingly, there has been a big push on the Street to stuff them into the leading stock indices, leaving index fund managers no choice but to buy.

Before getting into some of the weirder features of the SpaceX IPO, here's a brief primer into how index funds work and how index fund managers have responded to the prospect of a huge and widely followed stock issue dropping onto the market. Nor is SpaceX the only mega-IPO lurking on the horizon. It's likely to be followed this year by the AI firms for Anthropic and OpenAI.

The overseers of stock indices, of which the largest are Standard & Poor's (which owns the S&P 500, the standard benchmark for the overall stock market) and Nasdaq (owner of the Nasdaq 100 index of the largest Nasdaq-listed companies), generally have been cautious about when to add a stock to their indices.

Standard & Poor's, for example, waits until a stock has been publicly traded for at least a year and has turned a profit in four quarters, including the quarter prior to its addition. At Nasdaq, the rule has been that companies have to wait for at least three months and have at least a 10% float, meaning that at least 10% of its shares are available for trading.

With the SpaceX IPO in the offing, however, Nasdaq reduced its "seasoning" period to only 15 days and removed the 10% threshold. I asked Nasdaq if it made the change to entice SpaceX to list on its exchange rather than on the New York Stock Exchange, but didn't get an answer. Anyway, Nasdaq did get the listing.

Another index operator, FTSE Russell, which manages the broad-based Russell 2000 index, reduced its entry threshold for big companies to as few as five trading days after an IPO, rather than waiting for the next quarterly or annual report.

Investors may have dodged the most significant bullet on June 5, when Standard & Poor's opted not to change its index-listing rules for any of its market indices. But if you're holding index funds that track the big-cap Nasdaq 100 or the Russell 2000, you'll be tethered to SpaceX , depending on its weight in the index — if it keeps flying, good for you. If it crashes, you'll take a loss.

That brings us back to SpaceX itself. As its name indicates, the company is best known as a rocketship firm, with billions of dollars in U.S. government contracts aimed at transporting humans to the moon.

But what is it, really? In its prospectus, the company describes its mission as building "the systems and technologies necessary to make life multiplanetary, to understand the true nature of the universe, and to extend the light of consciousness to the stars."

This is not the language of Benjamin Graham and David Dodd, the gurus of value investing. It's more like the language of Robert A. Heinlein, who wrote science fiction. (As it happens, Heinlein coined the term "grok," which Musk took as the name for the AI bot of his social media platform X.)

Even if you believe in the goals, none of them is rationally achievable within the traditional investor's horizon of a few years or even a few decades, much less within your lifetime. The same goes for the company's claim of a "total addressable market," or TAM, of $28.5 trillion for its products and services; for perspective, consider that the gross domestic product of the United States in 2025 was about $32 trillion.

Almost all of SpaceX's claimed TAM comes from its prospective AI business — the only one of its three business segments that has virtually no concrete achievements to claim. It's not clear that even Heinlein would have written such a stretch into his books.

In real life, Aswath Damodaran, the stock valuation expert at NYU, says the figure "borders on fantasy" and places it in the same category as other "bloated and patently unreachable numbers floated for companies" by Silicon Valley promoters.

Currently, the jewel in SpaceX's revenue crown is Starlink, Musk's network of orbiting internet-providing satellites. Starlink provided the largest share of SpaceX's revenue in 2025 — $11.32 billion of its $18.8 billion — and was its only profitable segment, with $4.42 billion in net income. Space operations lost $657 million on $4.08 billion in revenue, and AI lost $6.36 billion on $3.2 billion in revenue.

The IPO, therefore, looks like a massive bet on AI, propped up by profits from Starlink. There's reason to be concerned about Starlink's future, however. SpaceX's IPO prospectus discloses that although the number of Starlink subscribers has more than doubled over the last year, to 10.3 million as of March 31 from 5 million a year ago, its average revenue per subscriber has been shrinking, to $66 as of March 31 from $99 at the end of 2023.

Moreover, Starlink satellites have a useful life of only five years, meaning that the fleet has to be refreshed more often than the average American household replaces the family car, at untold expense in research and development and launches. About 10,000 satellites are currently in orbit.

It's also possible that Starlink may run into increased political backlash. Its satellites have been blamed for interfering with astronomical observations and posing an ever-increasing risk of space collisions.

In 2021, Musk dismissed the collision concerns: "Space is just extremely enormous," he said, "and satellites are very tiny."

Then there are the governance features of SpaceX. Put simply, only one person is in a position to make any decisions, Elon Musk. He will own a mere 12.3% of the Class A shares due to be issued in the IPO, which each receive one shareholder vote, but 93.6% of the Class B shares, which have 10 votes each. That gives him 85.1% of all shareholder votes. As a result, the prospectus says, "Mr. Musk will be able to control the outcome of matters requiring shareholder approval," including the selection of the board of directors.

Will he exercise his control mostly for the benefit of shreholders, or for himself? His record isn't encouraging. As I've reported, he has a habit of using his various companies to prop up each other, most recently by sticking SpaceX and other companies with the excess inventory of Cybertrucks, the ridiculed pickups marketed by Tesla, which he also controls. When his SolarCity solar energy company ran into financial trouble in 2016, he merged it into Tesla with the assent of a compliant Tesla board.

None of this necessarily means that SpaceX will be a drag on the market. It could soar on IPO days and remain aloft, despite what the numbers suggest will be a majestic overvaluation from the inception. Or not. Either way, small investors could end up holding the bag.

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