AppLovin was included in the S&P 500 due to the growth of its shares, which raised market doubts about the quality of the famous index.
The historical stock index S&P 500considered for decades the most faithful thermometer on the US marketthis incorporating more and more high-risk companiesdriven by technological euphoria and stock market speculation. The most recent case is AppLovinwhose sharp rise aroused both enthusiasm and suspicion.
From the end of 2022, The ad tech company’s shares soared more than 5,500%and turned it into the second best performing stock in the Russell 3000 indexbehind Carvana.
Its market capitalization now exceeds US$200,000 millioncompared to the US$29 billion it had when it went public in 2021. This rise led it to recently join the S&P 500, but also put its corporate practices under the microscope.
AppLovin’s inclusion in the S&P 500 raises doubts about the index
AppLovin faces accusations of advertising fraudillicit tracking of minors and links with Chinese entities. The Securities and Exchange Commission (SEC) is investigating its handling of data and your compliance with your partners’ policieswhile several state prosecutors analyze possible regulatory violations. Despite this, the company denies irregularities and maintains that it regularly cooperates with control bodies.
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The inclusion of AppLovin in the index raises a fundamental question: Is the S&P 500 prioritizing size and popularity over quality? According to David Blitzerwho chaired the S&P selection committee until 2019, the goal was never to morally approve of companies, but rather to reflect the real state of the market. “The index should represent the market, not judge it”he stated.
More questionable cases
It is not an isolated case. Super Micro Computeradded to the S&P 500 in 2024, was investigated by the Department of Justice and lost its auditor, Ernst & Youngdue to doubts about its integrity.
Even so, it remained part of the index. Analysts such as Steve Sosnick of Interactive Brokers warn that the current euphoria over artificial intelligence has created an environment where “questionable stocks can rise faster and go further than they would under normal conditions.”
The trend reminiscent of the dotcom bubble of the 90swhen companies with fragile fundamentals were included in the S&P 500 only to collapse shortly after. Although the inclusion remains a symbolic milestone for investors, experts warn that “it doesn’t change the fundamentals.”
Source: Ambito
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