Jeremy Grantham has been calling the U.S. stock market overvalued for over a decade. He’s been wrong — until now, maybe. The legendary co-founder of GMO just dropped a new warning that has nothing to do with earnings multiples or interest rates. His target: the wave of mega IPOs headed for Wall Street this year, led by SpaceX and OpenAI. His argument is simple and uncomfortable — when trillion-dollar companies go public at nosebleed valuations and get absorbed into the S&P 500, they could quietly break the index from the inside.
The numbers are staggering. SpaceX’s private market valuation sits at roughly $1.25 trillion, which would make it the ninth-largest company in the S&P 500 on day one. OpenAI, fresh off a funding round that valued it north of $300 billion, isn’t far behind. Reports suggest SpaceX could go public as early as mid-2026. When these names land in the index, every passive fund — your 401(k), your Vanguard target-date fund, your SPY ETF — becomes a forced buyer at whatever price the market sets. That’s trillions of dollars chasing newly listed shares with no price discipline whatsoever.
Grantham’s concern isn’t that these are bad companies. SpaceX is genuinely transforming space economics. OpenAI is the face of the AI revolution. The problem is what happens when speculative fervor meets mechanical index buying. History is clear on this. The dot-com era saw dozens of overhyped IPOs enter indices at peak valuations, only to crater. The 2020-2021 SPAC wave did the same. In both cases, index investors were left holding the bag at the worst possible prices.
The concentration risk is already alarming. The top 10 stocks in the S&P 500 now account for roughly 40% of the index’s total weight. Adding another one or two megacaps doesn’t diversify — it concentrates further. If SpaceX or OpenAI stumble post-IPO, the ripple effects through passive funds could trigger forced selling across the entire index.
Here’s the uncomfortable question for every buy-and-hold index investor: is your “diversified” portfolio about to get force-fed two of the most expensive stocks ever listed? Grantham thinks so. And while he’s been early before, being early on a bubble call eventually means being right.