Part of the Club: Robinhood & AppLovin Soar on S&P 500 Inclusion

On Sept. 8, two market darlings took their rightful place in the world’s most-watched benchmark. Robinhood Markets (NASDAQ: HOOD) and AppLovin (NASDAQ: APP) will join the S&P 500 Index. Both companies have been waiting a long time for this; many people thought the S&P 500 left out HOOD and APP from inclusion earlier this year.

This sentiment was logical. Robinhood and AppLovin entered 2025 with market capitalizations of $33 billion and $109 billion, respectively. Approximately 25% of stocks in the S&P 500 Index began 2025 with market capitalizations below those figures. Thus, it seemed inevitable that the two firms would eventually become S&P 500 constituents.

As demonstrated by the price action of these two stocks on Sept. 8, good things come to those who wait. Shares of Robinhood closed up nearly 16% in reaction to the news, while AppLovin shares rose by almost 12%. Below, we will explain why this news elicited such a positive reaction from markets and what it means going forward.

S&P Validates HOOD and APP After Consistent GAAP Profitability

The first key takeaway from HOOD and APP's S&P 500 inclusion is the validation it provides around their underlying businesses. Before the Sept. 8 price action, HOOD and APP had soared by approximately 496% and 520% over the previous 52 weeks, respectively. But skyrocketing share prices aren’t always backed up by strong fundamentals. 

Such incredible gains over a short period can give the impression that speculation is the primary driver of a stock’s rally. Based on the recent earnings reports from both firms, speculation certainly isn't the main reason for HOOD and APP’s impressive returns.

A key criterion for consideration in the index highlights this: S&P says that a stock’s GAAP net income in the last 12 months should be positive. This ensures a company consistently makes a profit under standard accounting rules, not just after adjustments.

Robinhood’s GAAP net income has been positive in the last seven quarters.

AppLovin has maintained this trend in each of the past nine quarters. These consecutive quarters offer strong proof that HOOD and APP can continue achieving GAAP profitability in the near future, which supports their ability to stay in the S&P 500 in the long term.

The consistent GAAP profitability of HOOD and APP contrasts with another stock that many believe deserves a place in the S&P 500, Bitcoin-buyer Strategy (NASDAQ: MSTR). As of the Sept. 8 close, the stock trades at a market capitalization of around $93 billion. That is easily within the index’s $22.7 billion market cap requirement.

Additionally, Strategy’s GAAP net income over the past four quarters is highly positive at around $4.7 billion. However, over the last eight individual quarters, the figure has only been positive on two occasions. This variability makes S&P significantly less inclined to add Strategy to the index compared to companies like Robinhood and AppLovin.

Anticipated Fund Purchases Boost Shares

Many stocks have a considerable percentage of their shares owned by financial firms like BlackRock (NYSE: BLK) and Vanguard. These firms operate some of the world’s largest passively managed ETFs and mutual funds. For example, BlackRock’s iShares Core S&P 500 ETF (NYSEARCA: IVV), tracks the S&P 500, and has approximately $667 billion in net assets.

When a new stock gains inclusion into the S&P 500, BlackRock must buy its shares so that IVV properly tracks the index in the future. Thus, HOOD and APP will see substantial buying from firms like BlackRock and Vanguard, which collectively control trillions in assets. The anticipation of this is a key reason why shares soared on Sept. 8.

Many active managers who try to beat the S&P 500 start by using its stocks as a base. They may then slightly adjust their holdings, overweighting some stocks and underweighting others in an effort to outperform the market. 

Due to this, many of these investors are likely to begin holding HOOD and APP near their index weightings. This can add incremental demand for their shares on top of passive fund buying.

S&P 500 Inclusion: A Key Win for HOOD and APP, But Not a Golden Ticket

Overall, markets may have already priced in much of the near-term benefits for HOOD and APP due to S&P 500 inclusion.

Still, inclusion cements the two companies among the cream of the crop regarding U.S. stocks, lending additional credibility to their businesses.

However, the long-term trajectory of these stocks ultimately continues to rely on their ability to post impressive earnings and expand their businesses.

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The article "Part of the Club: Robinhood & AppLovin Soar on S&P 500 Inclusion" first appeared on MarketBeat.