The Trillion-Dollar Fight: SpaceX, OpenAI, and the S&P 500 Dilemma

As private tech giants like SpaceX and OpenAI prepare for monumental public listings, a fundamental tension is emerging within the world’s most influential stock index. NYU Stern Professor Aswath Damodaran warns that the struggle to integrate these trillion-dollar entities into the S&P 500 could permanently alter the index's risk profile and the nature of passive investing.

The Battle for Index Inclusion

The recent historic IPO of SpaceX on June 12, 2026, has ignited a debate over how the S&P 500 handles massive, high-growth, yet unproven companies. With OpenAI and Anthropic also lining up for mega-cap listings, S&P Dow Jones Indices faces a paradox: it claims to be a large-cap index, yet it currently excludes some of the largest market-cap players in the world.

To manage this transition, S&P has reaffirmed its rule requiring at least one year of public trading before a company becomes eligible for the index. This means that even if SpaceX, OpenAI, or Anthropic list this year, they likely won't see index inclusion until 2027 at the earliest. Damodaran suggests that while the index needs these companies to maintain its relevance, the companies themselves have little incentive to bend their business models to meet strict index requirements.

Risks to Index Fundamentals

Integrating trillion-dollar companies that are still in their "growth phase" brings significant structural risks. Damodaran points out that even a year after listing, these companies are likely to be money-losing businesses with complex corporate governance structures.

While the S&P 500 uses a divisor adjustment to neutralize the mechanical impact of new additions on the index level, the fundamental composition will shift. Adding these giants would result in:

  • Increased Risk: Higher volatility within the benchmark.
  • Earnings Impact: A near-term hit to the aggregate earnings of the index.
  • Growth Potential: A potential long-term boost to the index's growth profile.

Debunking the "Index Inclusion Windfall" Myth

A critical takeaway for Indian and global investors is the eroding "index effect." Many traders operate under the assumption that being added to the S&P 500 guarantees a price rally. However, Damodaran cites empirical data from 1995 to 2021 showing that the short-term price bumps from inclusion have largely disappeared.

In fact, newly added companies are now more likely to underperform the index in the 12 months following their entry. He cites Tesla’s December 2020 inclusion as a prime example, noting that the stock massively underperformed compared to the smaller REIT it replaced in the index. For investors, this means trading based on index inclusion is a "thin edge" strategy with diminishing returns.

Key Takeaways

  • Delayed Entry: Due to S&P's one-year trading rule, trillion-dollar giants like SpaceX and OpenAI may not enter the S&P 500 until 2027 at the earliest.
  • Fundamental Shift: Including money-losing, high-growth tech giants will increase the index's overall risk and impact its aggregate earnings profile.
  • Vanishing Premium: The historical "price bump" associated with index inclusion is fading; new entrants are increasingly prone to underperforming the benchmark in their first year.