Anthropic Won’t Be Entering the S&P 500… for Now

Anthropic has been madly hyping up AI, but apparently, the rules won’t be changed to allow for speedy entry into the S&P 500.

The other day, I mentioned how Anthropic has been hyping up AI ahead of it’s Initial Public Offering (IPO). Essentially, they were running around to gullible media outlets saying that AI is on the verge of escaping human control and regulatory intervention is needed right away to stop that from happening. As I pointed out, there has not been any kind of scientific breakthrough warranting such hand-wringing, but rather, the company is simply trying to hype up AI ahead of its IPO. Still, that didn’t stop a number of mainstream media from falling for the hype hook line and sinker. After all, they have a long history of falling for the AI hype machine repeatedly, so what’s one more scam they’ll fall for to make themselves look stupid?

Anyway, behind the scenes, there was apparently a push to change the rules to allow for speedy entry into the S&P 500. This along with companies like OpenAI and SpaceX. SpaceX is its own ball of wax, but AI companies have been long burning through cash in their neverending effort to hype up their products well beyond what their products can actually provide. Whether it is taking advantage of fear with AI doomerism or taking advantage of greed through hyping up positivity through AI bloomerism, they are hoping to eventually somehow make up all of their losses up to this point in time.

Entering the S&P 500 would be one way of absorbing the losses. This is because a lot of people put their money on the safest bets in the entire stock market. Sure, growth is slow, but it’s pretty close to a sure bet that it’ll grow over a long period of time. It’s where a lot of people put their money into retirement funds and other investments. Whether that is their 401K funds, RRSP funds, TFSA funds, or other investments (ala index investments), a number of people do put it towards the generally less risky investments.

At any rate, this is a lot of money that could be flowing into high risk AI companies that have long showed all the signs of an investment bubble. What better way to offload hundreds of billions worth of bad bets then onto retirees and average everyday people who happen to have small investments? They’ll be left holding the bag when things invariably blow up whenever the heck that happens.

Well, there is one bit of good news in this: Anthropic and OpenAI aren’t going to be entering the S&P 500 for now at least. From ArsTechnica:

SpaceX has requested unusually swift entry into several leading stock market indexes as a condition of its historic stock market debut. But the S&P 500 stock market index representing many of the largest profitable US companies has surprised market analysts by refusing to bend the rules for Elon Musk’s space and AI company.

The June 4 decision by S&P Dow Jones Indices—the company that creates and manages stock market indexes such as the S&P 500—means that SpaceX will not gain accelerated access to potentially billions more dollars through passive investment funds that automatically purchase shares of S&P 500 companies. Modifying the rules in response to SpaceX’s request could have also allowed leading AI companies such as OpenAI and Anthropic to gain entry not long after their own expected initial public offerings (IPOs). That possibility has now been shuttered.

The news will likely come as a relief to people concerned about passive investor money and people’s retirement savings plans having greater exposure to the market risks associated with SpaceX’s big bet on AI and speculative orbital data center plans. AI companies are generally facing more challenges in funding and building expensive AI data centers, even as they shift more of the subsidized costs of running AI services onto shocked customers through usage-based pricing.

To weigh expedited entry for SpaceX, the S&P Dow Jones Indices held a monthlong consultation to consider changing or waiving several main requirements for so-called MegaCap companies with “unprecedented market capitalizations.”

But in its final decision, the S&P Dow Jones Indices stated that “no changes will be made to the eligibility criteria including financial viability screens, seasoning period, or minimum IWF.” Even after the standard yearlong wait, SpaceX, Anthropic, and OpenAI may struggle to deliver the consistent profitability necessary to qualify for the S&P 500.

Swift entry into the S&P 500 would have triggered $14 billion of passive fund buying for SpaceX, according to Bloomberg Intelligence. The investment research arm of Bloomberg also estimated that OpenAI could have gained more than $8 billion, and Anthropic could have netted $4.6 billion from similar passive buying sprees triggered by their S&P 500 entries.

This is because $7.5 trillion in passively managed funds—popular among both individual investors and institutional investors—follow the S&P 500 by purchasing shares of companies according to their proportional representation in the S&P 500 index. For example, the Vanguard and Fidelity brokerage giants both offer passive investment funds that track the S&P 500 composition.

So, it seems that peoples retirement funds are (reasonably) safe for now. A lot of volatility in the DOW Jones Industrial Average has been linked to AI related investments. Chances are, the average person would not want the same volatility to seep into their retirement funding without their knowledge. It doesn’t mean that the companies won’t be able to enter into the S&P 500 at a later time, but they apparently have a lot to prove before that happens.

Drew Wilson on Mastodon, Bluesky and Facebook.