Agreed. S&P 500 needs to be seriously gatekeeped. We need safer boring companies in there thatbhave been peoven over a long period of time. Nothing against these companies but they are not proven and ready for S&P 500.
Let's say Alphabet shifts further to ~become a 100% AI company in the same way that Anthropic and OpenAI are. Should they be removed from the index? If not, why not?
Forget AI. Any company in the S&P could set fire to their entire business in a pivot to Labubus.
A certain amount of required scrutiny and experience derisks that possibility. Also remember pre-IPO the valuation isn't set by the broader market, so you don't know if any of these valuations are even real. Do we want to set a precedent where banks can put any price tag they want on a pig everyone is forced to buy?
Once these companies go through the same process Google or any other S&P member did, they're welcome to join the party.
The logic isn’t the same. We’ve had plenty of history to judge Alphabet’s financials. It’s less about AI and more about allowing the market to appropriately price the stock after seeing their filings for a period of time.
This is true, and it's why index trackers exist, in order to diversify risk across the market so an investor is not excessively exposed to that happening for particular stocks. The market then re-prices that stock. As an index fund investor you are outsourcing your discretion to other market participants.
However the market hasn't priced these new stocks at all, the existence of index trackers is being exploited to force prices on enough buyers to make the prices stick. This is the wrong way around. It's market manipulation. It's using the behaviour of index funds to influence prices, decoupling those prices to at least some extent from the discretion of market participants.
Let the market price the stock, then the index trackers can buy in, this is exactly why these rules exist, and why it's a travesty that the NASDAQ is waiving them.
I think it would be reasonable to consider moving a company making large changes like that into some kind of probationary state, and automatically adjust the weights it has in the index as a result.
The reasons we have Google in the index and not Anthropic are many:
1. Google has a history of profits. Their move into AI isn't coming at the expense of Search Ad revenue, and can be seen as defending it for the future. Their last annual report shows continued growth in this sector. So the P:E ratio isn't NaN.
2. Their stock prices has survived the test of market trading and multiple reporting windows, short sellers, WSB regressive behavior, etc. In part because they have a huge publicly tradeable float.
3. There isn't a huge bundle of shares in lockup until six months after the IPO that would put selling pressure on the symbol.
It's also a safer bet as a company, though that technically shouldn't be the criteria for indexing:
1. Google has a diverse product line: youtube subs, search ads, adwords, cloud services, etc. And a demonstrated ability to launch more (probably too many more).
2. They have a huge existing customer base to upsell to; cost of customer acquisition would be low for quite a while.
3. Anthropic and OpenAI are dependend on nvidia to supply them every beefier chips, while Google has their own TPUs to run on and lease out to others.
An IPO can be a very volatile moment for any stock. This isn’t about AI so much as it is about an unproven company h th at is actually losing money right now.