Key Takeaways
- Inclusion in the S&P 500 is not automatic for large-cap firms; it is governed by a strict set of criteria including sustained profitability, liquidity, public float, and the discretionary judgment of an index committee.
- Several major US companies, including Dell Technologies, Palantir, and Coinbase, remain outside the index despite their significant market capitalisations, often due to failing the profitability test, having complex share structures, or operating in volatile sectors.
- The S&P 500 committee’s process functions as an active quality and stability filter, meaning the index is not a pure market-cap-weighted reflection of the US economy but a curated portfolio.
- The historical “inclusion pop,” where a stock’s price jumps upon announcement of its entry into the index, has diminished over time as markets have become more efficient at anticipating rebalancing events.
- The index’s strict profitability requirement may become a structural challenge to its relevance, potentially ceding influence to other benchmarks like the Nasdaq 100 that better capture the dynamics of high-growth, modern-economy companies.
The S&P 500 is frequently mischaracterised as a passive list of the largest American companies. In reality, it is a curated portfolio, its composition determined not just by size but by a set of stringent, and at times subjective, criteria. This distinction explains a persistent market anomaly: the existence of dozens of multi-billion dollar firms, many of them household names, that remain outside this influential benchmark. Analysing these excluded companies offers a valuable lens on the evolving definition of a “blue-chip” firm and the subtle, active decisions that shape the world’s most-tracked index.
The Gatekeepers’ Rulebook
Admission into the S&P 500 is controlled by the S&P Dow Jones Indices’ U.S. Index Committee, whose decisions are guided by a published methodology. While market capitalisation is the initial hurdle—currently set at a minimum of US$18.0 billion—several other non-negotiable financial and structural gates exist.1 The most significant of these is the financial viability requirement. A company must have positive as-reported earnings under U.S. GAAP for its most recent quarter, and the sum of its earnings over the preceding four quarters must also be positive.2
This single rule immediately disqualifies a substantial portion of the high-growth technology and biotechnology sectors, where firms often prioritise scaling and market share over near-term profitability. Further requirements include adequate liquidity, a public float of at least 50% of its stock, and a sector classification that helps maintain the overall balance of the index. These criteria collectively function as a quality and stability filter, meaning the S&P 500 is inherently biased against volatile, unproven, or unconventionally structured enterprises, regardless of their size.
A Roster of Notable Outsiders
The list of companies that meet the size requirement but fail on other counts is both long and illuminating. It includes technology titans, private equity powerhouses, and disruptive innovators whose business models challenge traditional valuation metrics. The reasons for their exclusion are rarely ambiguous and trace directly back to the committee’s rulebook.
| Company | Ticker | Market Cap (Approx. US$) | TTM GAAP Net Income | Potential Reason(s) for Exclusion |
|---|---|---|---|---|
| Dell Technologies | DELL | $100 Billion | Positive | Complex history with tracking stock and re-listing; only recently cleared profitability and float hurdles consistently. |
| Coinbase Global | COIN | $60 Billion | Volatile / Negative | Profitability is highly dependent on crypto market cycles, failing the consistency test. High volatility. |
| Palantir Technologies | PLTR | $55 Billion | Positive | Dual-class share structure with disproportionate voting rights. Only recently achieved sustained GAAP profitability. |
| CrowdStrike Holdings | CRWD | $90 Billion | Negative / Borderline | History of negative GAAP earnings despite strong revenue growth and positive cash flow. |
| KKR & Co. Inc. | KKR | $95 Billion | Positive | Historically structured as a partnership, which complicated index inclusion. Now a corporation, but committee may be cautious. |
| Apollo Global Management | APO | $65 Billion | Positive | Similar to KKR, its conversion from a partnership to a C-corp is relatively recent in the eyes of the index. |
Data as of late 2023/early 2024 for illustrative purposes. Market capitalisations and profitability are dynamic.
Dell’s situation is particularly instructive. After returning to the public markets in 2018, it took years to meet all the necessary criteria in a stable manner. For firms like Coinbase and CrowdStrike, the barrier is more fundamental. Their business models—one tied to the volatile crypto market, the other focused on growth funded by stock-based compensation—do not align with the S&P’s conservative definition of financial viability. Similarly, the major private equity firms only recently converted to simpler C-corp structures, and the index committee often observes such changes for a period before acting.3
The Fading Allure of the ‘Inclusion Pop’
Historically, a significant price premium was associated with a company’s inclusion in the S&P 500. The announcement would trigger a wave of buying from index-tracking funds, which collectively manage trillions of dollars and are mandated to own the underlying constituents.4 This forced buying pressure created a reliable, if short-lived, arbitrage opportunity known as the “inclusion pop.”
However, the potency of this effect has waned. Markets have become more efficient, with hedge funds and proprietary trading desks using sophisticated models to predict which companies are likely candidates for inclusion. They often build positions well in advance of any official announcement, front-running the passive funds and compressing the potential gains. While a small premium may still exist, the idea of a guaranteed windfall from an S&P inclusion announcement is largely a relic of a less efficient market structure.
An Index at a Crossroads
The S&P 500 committee’s rigorous process is a double-edged sword. On one hand, its strictness ensures the index maintains its “blue-chip” character, serving as a reliable benchmark of stable, profitable American enterprise. On the other, these same rules risk making the index an increasingly backward-looking measure of the U.S. economy.
Many of today’s most dynamic and influential companies, particularly in software and biotechnology, are designed to operate at a loss for years to achieve scale. By systematically excluding them until long after their primary growth phases have passed, the S&P 500 fails to capture a significant driver of modern economic value. This has contributed to the rising prominence of other benchmarks, such as the Nasdaq 100, which are more heavily weighted towards the very technology firms the S&P 500 often overlooks.
The speculative hypothesis, therefore, is not about which single company will be included next. It is that the S&P 500’s rigid adherence to trailing GAAP profitability is becoming a structural liability. We may be approaching a point where the committee must choose between two paths: either it modernises its viability criteria to reflect an economy driven by intangible assets and scale-based business models, or it implicitly accepts its new role as a de-facto “quality and value” factor index, ceding its status as the singular, definitive proxy for the American market to more growth-oriented benchmarks.
References
1. S&P Dow Jones Indices. (2024). S&P U.S. Indices Methodology. Retrieved from S&P Global.
2. Investopedia. (2024). S&P 500: What You Need to Know.
3. Reuters. (2023). Why KKR, Apollo and other private equity firms want to be in your index fund.
4. NerdWallet. (2024). What Is the S&P 500, and How Can You Invest in It?
5. Bloomberg. (2024). SPX:IND Quote – S&P 500 Index.
6. StockMKTNewz. (2024, August 25). [List of largest US companies not in the S&P 500]. Retrieved from https://x.com/StockMKTNewz/status/1936521503908012055
