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by onion2k
19 days ago
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Given these large-cap companies currently represent ~5% of the U.S. stock market capitalization, it's difficult to justify why these companies are excluded from a large-cap index. It's not outside the realms of possibility that the price of the shares post-launch could collapse if the market decides they're over-priced. Shares in companies have been known to settle on valuations far below the IPO price in the past. At that point they won't represent ~5% of the total. Changing the index rules immediately before finding out what's going to happen feels like putting the cart before the horse. |
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Your "wait and see" argument doesn't apply, because (SpaceX, Anthropic, OpenAI) are excluded from the index for profitability reasons, not valuation reasons. These companies are deliberately reinvesting free-cash-flow into growth rather than booking GAAP profits. That's not going to change 6 months after IPO, and likely not for 3-5 years.
At the current pace, three of the ten largest US companies will not be included in the S&P 500, for probably 5 years after IPO.
The question still remains: should a benchmark that claims to represent large-cap US equities exclude companies that are demonstrably large-cap, just because they allocate their capital towards growing the company instead of generating profits?