Damodaran Warns of Trillion-Dollar Clash Over SpaceX and OpenAI Inclusion

As private tech titans like SpaceX, OpenAI, and Anthropic prepare for massive public listings, a fundamental tension is emerging regarding the composition of the S&P 500. NYU Stern Professor Aswath Damodaran warns that the inclusion of these trillion-dollar giants could fundamentally reshape the risk and earnings profile of the world's most influential index.

The Battle for S&P 500 Dominance

The landscape of the S&P 500 is facing a structural crisis. With SpaceX having completed a historic IPO on June 12, 2026, and AI leaders like OpenAI and Anthropic following suit, the index faces a dilemma: it claims to represent large-cap US companies but currently excludes some of the largest market-cap entities in existence.

However, Damodaran highlights a significant hurdle: the "one-year rule." S&P Dow Jones Indices has confirmed that a company must complete at least one year of active trading before becoming eligible for the S&P 500. This regulatory stance effectively pushes the potential inclusion of SpaceX, OpenAI, or Anthropic into 2027 at the earliest.

Risk vs. Growth: Changing Index Fundamentals

The inclusion of these companies is not merely a matter of scale; it is a matter of quality. Damodaran points out that a year after their IPOs, these companies are likely to remain money-losing businesses with evolving business models and complex corporate governance structures.

While the S&P 500 uses a divisor to neutralize the mechanical impact of new additions, the fundamental composition will shift significantly. Adding trillion-dollar, unprofitable companies will lead to:

  • Increased systemic risk within the index.
  • A near-term hit to aggregate earnings per share.
  • Potential long-term growth acceleration if their business models stabilize.

Damodaran argues that the power dynamic has shifted: "S&P needs these companies in its index more than they need to be in the index." This suggests that the index provider may eventually have to bend its strict profitability and governance requirements to maintain its relevance as a benchmark for the total market.

The Myth of the Index Inclusion Windfall

For retail and institutional investors, Damodaran issues a stern warning against "trading the index effect." There is a long-standing belief that being added to the S&P 500 guarantees a sustained rally, but empirical data suggests otherwise.

Reviewing a study of over 1,400 index additions and deletions between 1995 and 2021, Damodaran notes that the "price bump" associated with inclusion has largely disappeared over the last two decades. In fact, companies added to the index are now more likely to underperform than outperform in the 12 months following their entry. He cites Tesla’s December 2020 inclusion as a prime example, noting that the stock subsequently "massively underperformed" the small REIT it replaced in the index.

Key Takeaways

  • Delayed Inclusion: Due to S&P's one-year trading rule, trillion-dollar giants like SpaceX and OpenAI likely won't join the S&P 500 until 2027 at the earliest.
  • Structural Shift: Integrating massive, unprofitable tech companies will likely increase the index's overall risk profile and lower its immediate earnings metrics.
  • Diminishing Returns: The historical "index premium"—where a stock rallies simply by being added to the S&P 500—has largely eroded, making index-based trading strategies unreliable.