Should SpaceX, OpenAI and Anthropic Join the S&P 500?

The Trillion-Dollar Question Passive Investors Can't Ignore

Three of the most consequential private companies in modern history — SpaceX, OpenAI, and Anthropic — are converging on the public markets. With valuations expected to land in the trillion-dollar range, they won't just qualify for the S&P 500. They'll muscle their way into the top 10 by market capitalisation, sitting alongside Apple, Microsoft, and Nvidia.

That prospect has triggered a surprisingly heated debate: should these AI and aerospace giants be included in the S&P 500 at all? The loudest voices say no. But when you strip away the noise and look at who's arguing what — and why — the case for exclusion gets considerably weaker.

This isn't just an academic argument. The S&P 500 sits at the centre of roughly $10 trillion in passive investment vehicles globally. How it evolves directly affects the retirement savings of tens of millions of ordinary investors. Getting the logic right matters.

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Who's Arguing Against Inclusion — and What They're Really Saying

Three distinct camps have emerged in opposition to including SpaceX, OpenAI, and Anthropic in the S&P 500. Each has an agenda worth understanding.

Active fund managers are perhaps the most vocal. These are the institutional investors and mutual fund managers who have spent two decades watching passive investing eat their lunch. Their market share has eroded steadily as index funds have outperformed the vast majority of active strategies. When they argue that including high-growth, pre-profit AI companies exposes passive investors to unacceptable risk, it's worth noting the subtext: this is also an argument about why active management — their product — is supposedly necessary.

Investment academics and commentators frame the issue around investor protection. Their concern is that retail investors and retirees, who hold S&P 500 index funds as core portfolio holdings, will unknowingly take on exposure to loss-making, potentially overvalued companies. It's a paternalistic argument, and not an entirely baseless one, but it assumes that the S&P 500 has some obligation to only include profitable businesses — a standard it has never consistently applied.

Politicians have entered the fray with a blunter grievance: the founders of these companies — Elon Musk, Sam Altman, Dario Amodei — stand to become even wealthier if their companies gain index inclusion and trigger automatic buying from passive funds. This is a distributional argument dressed up as investor protection. It's the weakest of the three positions analytically, even if it resonates politically.

The common thread? None of these arguments engage seriously with how the S&P 500 actually works, or what it was designed to do.

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How the S&P 500 Is Actually Constructed

The S&P 500 is widely described as an index of the 500 largest US companies by market capitalisation. That's mostly true, though the precise mechanism involves float-adjusted market cap weighting — meaning only shares that are freely tradeable in the market count toward a company's weight.

This matters. Companies like Meta and Walmart punch below their gross market cap inside the index because significant share blocks are held by founders or insiders and excluded from the float calculation. The same adjustment would apply to SpaceX, OpenAI, or Anthropic, all of which have concentrated founder ownership.

As of mid-2026, the S&P 500's float-adjusted market cap sits at approximately $63.5 trillion. The index level — around 7,554 — is linked to this aggregate figure through a conversion factor called index units. When a new company is added and another removed, the index level itself doesn't jump. The index units are recalculated to absorb the change, maintaining continuity while the underlying composition shifts.

Here's the mechanical reality: if a trillion-dollar company replaces a $1 billion company in the index, the index level holds steady on entry day. But the nature of the index changes immediately. It becomes more concentrated, more growth-oriented, and more sensitive to the fortunes of a handful of mega-cap names. That has happened repeatedly throughout the S&P 500's history — and it's a feature, not a bug, of a market-cap-weighted index designed to reflect where aggregate equity value actually sits.

Key takeaway: The S&P 500 is not a curated portfolio of safe, profitable businesses. It is a market-cap-weighted representation of the largest US companies. That definition doesn't come with a profitability screen attached.

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The Index Has Always Evolved — And That's the Point

Critics of including loss-making AI companies sometimes invoke a nostalgic version of the S&P 500 — stable, dividend-paying industrials and financials generating predictable earnings. But that index hasn't existed for decades.

The S&P 500 of 1980 looked nothing like the S&P 500 of 2000, which looked nothing like the index today. Technology companies that were once excluded or marginal now account for roughly 30% of the index's total weight. Amazon was loss-making for years after its inclusion. Tesla burned cash at scale for over a decade as a public company before its stock became one of the index's most influential constituents.

The S&P 500's power as a measurement tool comes precisely from its willingness to reflect the economy as it is, not as it was. An index that excluded companies because their founders were wealthy, or because they hadn't yet turned a profit, would systematically underweight the sectors driving future economic value. That would make it a worse measurement tool, not a better one.

Consider the numbers: the 500 companies in the index represent more than 80% of the total float-adjusted market cap of all US equities. The index works as a proxy for the US equity market because it includes the companies that collectively account for most of the market's value. Excluding trillion-dollar AI companies would immediately compromise that representational accuracy.

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The Passive Investing Performance Case Is Already Settled

The deeper irony in the active management lobby's opposition to index inclusion is that it implicitly relies on passive investing being dangerous. The data says otherwise — comprehensively.

According to S&P's SPIVA (S&P Indices Versus Active) scorecard, active fund performance against benchmarks is consistently poor:

• In 2025, 95.5% of large-cap growth funds underperformed an index that simply bought large-cap growth stocks
• Over 10-year periods, not a single category of active fund — large-cap, mid-cap, small-cap, value, growth, or core — saw more than 50% of its funds beat the relevant index benchmark
• Over 20-year periods, more than 90% of active funds in virtually every category underperformed their benchmark index
• This pattern holds internationally. In India, SPIVA data shows approximately 60% of active funds underperforming in the short term, rising to 93% over longer horizons

In the 25 years of this century, only three calendar years have seen more than half of large-cap active managers beat the S&P 500. And in those years, the outperformance margin was barely above 50%.

This is the context in which the S&P 500's composition is being debated. The argument that passive investors need protection from index composition decisions implicitly suggests that active managers would allocate their capital more wisely. Two decades of data suggest otherwise.

Jack Bogle's founding insight when he launched the Vanguard 500 Index Fund in 1976 — the world's first index fund — was straightforward: if active managers are collectively underperforming the index after fees, give investors a low-cost way to own the index directly. That insight has only become more empirically robust with time.

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What Index Inclusion Would Actually Mean for Passive Investors

Assume OpenAI goes public at a $2 trillion valuation. After float adjustment — accounting for founder and early investor lock-ups — let's say the effective float-adjusted market cap lands at $1.2 trillion. At that level, it would represent roughly 1.9% of the S&P 500's current float-adjusted total.

That's meaningful, but not unprecedented. It's comparable to the current weight of companies like Berkshire Hathaway or JPMorgan. A passive investor holding an S&P 500 index fund would gain automatic exposure to OpenAI at that weighting — no decision required, no additional transaction costs.

The risk embedded in that exposure is real: if OpenAI's valuation proves unsustainable, a decline would pull on the index. But the same logic applied to every high-multiple technology company added to the index in the last 30 years. The S&P 500 fell sharply when the dot-com bubble burst, not because the index had been constructed irresponsibly, but because it accurately reflected market prices — which were themselves unsustainable.

Index investors should understand what they own: a market-cap-weighted slice of the largest US companies, rebalanced to reflect where value accumulates. If AI companies represent genuine long-term value, excluding them would mean passive investors systematically miss that value. If their valuations are inflated, inclusion means passive investors share in a correction that active managers — who also hold these stocks — will share too.

The practical takeaway for investors:

• Understand that your S&P 500 index fund is not a static, low-risk instrument — it reflects the evolving composition of the US economy
• Float-adjusted weighting means exposure to any new entrant will be lower than its headline valuation implies
• Diversification across geographies and asset classes remains the more powerful tool for managing concentration risk than trying to influence index composition

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The Verdict: Let the Index Do Its Job

The S&P 500 has one core job: reflect the market cap of the largest US companies accurately and continuously. SpaceX, OpenAI, and Anthropic — if and when they list — will be among the largest US companies by any measure. Excluding them on the grounds that their founders are wealthy, their valuations are high, or their profits are thin would require the index to become something it has never been: a curated list of companies that meet an external committee's definition of deserving.

That's not what indices are for. And the active managers, academics, and politicians arguing for exclusion all have interests that diverge from the ordinary passive investor they claim to be protecting.

The more honest framing is this: if these companies enter the S&P 500 at trillion-dollar valuations and those valuations later prove excessive, passive investors will absorb losses proportional to their index weighting. That is precisely what happened with Cisco in 2000, with financial stocks in 2008, and with many high-multiple growth stocks in 2022. Each time, the index recovered because it kept accurately reflecting where market value resided. There is no structural reason to expect a different outcome with AI.

Passive investors don't need protection from index composition. They need clarity about what they own — and the discipline to stay invested through volatility rather than chasing whichever argument sounds most alarming at the time.

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Frequently Asked Questions

Does the S&P 500 require companies to be profitable for inclusion?

No. The S&P 500 has historically required companies to have reported positive earnings in their most recent quarter and positive cumulative earnings over the four most recent quarters. However, this criterion has been applied inconsistently over time and has been adjusted. Several major index constituents were included prior to sustained profitability. The primary determinant of inclusion remains market capitalisation, US domicile, listing on an eligible exchange, and minimum liquidity thresholds.

How would adding a trillion-dollar company affect my index fund's value on day one?

It wouldn't change it in any meaningful way on the day of addition. When S&P adds a new constituent, it simultaneously adjusts the index divisor (the conversion factor known as index units) so that the index level itself remains continuous. The composition shifts, but the index doesn't jump. Your fund's net asset value won't spike because of an addition alone.

What is float-adjusted market cap weighting, and why does it matter for AI company inclusion?

Float-adjusted market cap weighting counts only the shares freely available to trade in the open market, excluding those held by founders, executives, or locked-up institutional investors. For companies like SpaceX or OpenAI, where founders retain large ownership stakes, the effective index weight would be considerably lower than the headline valuation suggests. A $2 trillion company with 40% of its shares locked up would carry roughly the weight of a $1.2 trillion fully-floated company.

If passive investing consistently outperforms active management, why does the debate about index composition matter?

Because what's in the index determines the return passive investors receive. Over long periods, the S&P 500's composition has shifted dramatically — from industrials to technology — and passive investors have benefited because those shifts reflected genuine economic value creation. If the index were to exclude major value-creating companies for non-market reasons, passive investors would systematically underperform a more representative benchmark. The composition debate matters; it just shouldn't be decided by active managers with a commercial interest in making passive investing look dangerous.

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This article is for informational purposes only and does not constitute financial advice. Always consult a qualified financial professional before making investment decisions.