A quiet war is brewing over the future of the world’s most influential stock index, and NYU Stern Professor Aswath Damodaran warns that the outcome could fundamentally alter what it means to be a passive investor. With SpaceX fresh off the largest IPO in history on June 12, 2026, and private heavyweights like OpenAI and Anthropic lining up their own mega-cap public listings, a fierce battle has ignited over how quickly these trillion-dollar giants should be fast-tracked into the S&P 500.
"The truth is that a year after they list and start trading, these three companies will still be money losing businesses, with business models that are still works in progress and will remain corporate governance horror stories," Damodaran wrote in his blog post, adding that S&P needs the time to manage the transition of three trillion-dollar companies into the index, even as it confronts the challenge of claiming to be a large cap index that does not include three of the largest market cap stocks in the market.
In the week before the SpaceX IPO, S&P Dow Jones Indices moved to reduce near‑term uncertainty by confirming that it would retain its rule requiring at least one year of trading before a company becomes eligible for the S&P 500. That effectively pushes any inclusion decision on SpaceX, OpenAI or Anthropic into 2027 at the earliest if they list this year.
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Arguing that SpaceX, OpenAI and Anthropic will lose little in market momentum from not being included in the index, he said their price paths will be determined by how the AI story continues to play out in terms of both substance (growth, unit economics, reinvestment) and perception (hype and momentum).
"The bottom line is that S&P needs these companies in its index more than they need to be in the index, with the consequence that the companies will not go out of their way to meet index requirements that they feel are costly to them, and that if there is any bending, it will be S&P that does it," the 'valuation guru' wrote in the blog.
The S&P 500, he reminds investors, is constructed as a free-float, market-cap weighted index of 500 of the largest US-listed companies, with screens on age of listing, liquidity and profitability. Bringing in multiple trillion‑dollar, money‑losing, governance‑controversial companies will not move the index level on day one – the divisor is adjusted to neutralise the mechanical impact – but it will change the index’s fundamentals: “more risk, a near term hit to earnings and perhaps a long term increase in growth.”
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Index inclusion windfall myth
One of Damodaran’s central warnings is directed at investors who believe that S&P 500 inclusion guarantees a sustained rally in a stock or that exclusion is invariably a lasting negative. He reviews empirical work on the index effect, focusing on a Standard & Poor’s study of 715 additions and 711 deletions between 1995 and 2021, which finds that while there is still a short‑term price bump for inclusions and a dip for deletions, the magnitude of both effects has steadily eroded and is now largely transitory.
“In the last decade or two,” he summarises, “the bump in stock prices from being included in the index has largely disappeared,” even as the proportion of assets in index funds has surged. He adds that companies added to the S&P 500 are now more likely to underperform than outperform in the 12 months after entry. As a high‑profile example, he cites Tesla’s December 2020 inclusion in the index, noting that the stock subsequently not only underperformed the S&P 500 but “massively underperformed” Apartment Investment and Management, the small REIT it replaced.
For portfolio owners, the message is clear: trading around index actions is a thin edge strategy, and the genuine impact of adding SpaceX or OpenAI to the benchmark will be on the aggregate earnings, growth and risk profile of the index, not on a guaranteed “index premium” in those stocks.
He is sceptical of claims that a decline in active management automatically reduces market efficiency. Most active managers, he says, are not uncovering deep mispricings but “are built around publicly available information and a belief in the power of mean reversion.” The subset of genuinely information‑producing investors is small and resilient enough, in his view, to coexist with a larger passive ecosystem.
