It's not just about returns, it's also about risk. The role of a passive index fund is to be a passive index fund. If the s&p starts chasing returns, that will reduce its utility to the market. You get higher returns by being compensated for risks that passive investors/retirement funds don't want to take. And active investors use the S&P and similar indexes for the specific risks and asset class exposures they provide. You might think the economy is going to do poorly which would be good news for some company that's anti-correlated with the economy but you need to hedge that bet for if the economy does well, so in addition to buying shares of whatever that company is you buy into some market reflectiong mix of stocks bonds etc. The role of that hedge is to have a counterbalancing asset that moves opposite your primary bet to reduce volatility, and the role of the s&p 500 is to broadly reflect the american large cap publicly traded stock component of the market. If the S&P 500 begins behaving unpredictability to chase returns as an index then buying funds that track that index is no longer doing what you need it to do. S&P index loses utility, active investors just use some other index, but passive investors with 401ks locked in to tracking the s&p are suddenly forced to buy whatever bet the index creator is making en masse driving the stock price up. That's not a good outcome for anyone except the company muscling their way in and anyone that was somehow rewarded by that addition

What do you mean "better profitability criteria"? I don't want an index to exclude companies on the basis of profitability. I want it to hold the market.

(I also don't want them to create special exceptions. The S&P 500 has pre-existing inclusion criteria, and I'm glad they're sticking to their rules.)

> Ultimately it's all about market returns. If other indexes add it and outperform then eventually money will shift to those funds that do better.

That's like saying that if Nvidia performs way better than an index fund, then the index fund will shift to consist only of Nvidia.

In any given year, there are plenty of index funds that outperform the S&P 500. They don't freak out over it.

S&P 500 is volatile over 5 years - I'd argue even over 10 years (see the charts at https://blog.nawaz.org/posts/2015/Dec/pay-down-mortgage-or-i...). The whole point of investing in it is for much longer windows.

So yeah, perhaps after 10 years they'll change once they'll see other index funds doing better, and have data to back up that in the long term, early inclusion didn't hurt.

You’re assuming their success is a done deal. But there is a large amount of risk in these companies.

Any individual can buy as much as they want.

> money will shift to those funds that do better

I'm not disagreeing that people invest this way, but I'd like to point out that past performance does not imply future performance, and that investors should consider factors other than just past returns.

I think it will be longer than 12 months, if ever.

> To join the S&P 500, a company must demonstrate positive GAAP net income in both its most recent quarter and the sum of the trailing four consecutive quarters

I don't think they ever got profitable for 4 consecutive quarters, if you count xAi.

Anyway, if other indexes add it, and it fails spectacularly, money will shift to those funds that do better.

More than likely none of these AI companies will exist 12 months from now. Their carcasses will be devoured by entities with enough money to buy up the scraps after the bubble pops and the market implodes.

Neither SpaceX, OpenAI or Anthropic have a future. What's a shame is that had Elon not merged SpaceX with xAI it might've actually had a future - but he had to go and ruin it.

What an idiot.

After 12 months the market will have sorted it out. They can’t fake it with investment banker tricks for that long.

Yeah but the point is, after 12 months we’ll know the real price. Right now it’s just a ponzi.