Robinhood Stock Is Falling After S&P 500 Snub. Why That’s Shortsighted.

Robinhood Markets stock has had a strong run so far in 2025. (Dreamstime)

Size apparently doesn’t matter? Robinhood Markets had a market valuation of nearly $86.5 billion as of Wednesday’s stock market close. That made the online trading firm worth more than 374 companies in the S&P 500, including Cigna, CVS, Dell Technologies, Airbnb and Dow Jones Industrial Average component 3M. But Robinhood is still waiting for its golden ticket to get into the benchmark index of blue chip companies.

Robinhood was passed over for S&P 500 inclusion late Wednesday when S&P Dow Jones Indices chose cloud-monitoring software company Datadog —which has about half of Robinhood’s market valuation—to join the index as a replacement for Juniper Networks, which was acquired by Hewlett Packard Enterprise. (HPE is already in the S&P 500, opening the door for a new entrant to take Juniper’s place.)

Shares of Datadog soared nearly 15% Thursday morning on the news, while Robinhood’s stock fell about 5%.

Some of the selloff may also be due to backlash from OpenAI about Robinhood’s recent plan to offer OpenAI tokens to customers. OpenAI said in a post on X late Wednesday that “we did not partner with Robinhood, were not involved in this, and do not endorse it,” adding that the tokens “are not OpenAI equity.”

Robinhood CEO Vlad Tenev responded in his own post on X that “while it’s true [the tokens] aren’t technically ‘equity’…the tokens effectively give retail investors exposure to these private assets.”

Nonetheless, Robinhood stock continues to have a strong run. Shares rose 6% Wednesday, and are up more than 10% this week after the company unveiled new crypto and tokenization features. Shares have more than doubled this year to a record high due to renewed enthusiasm for stocks, Bitcoin, and other risk assets on the part of retail traders. Speculation that the stock could soon be added to the S&P 500 has also played a part in the latest segment of the run-up.

But investors shouldn’t worry too much about the fact that Robinhood wasn’t selected for the index. The company likely will be added to the S&P 500. And probably sooner rather than later. It’s just too big to ignore.

Other prominent companies have had to wait a little longer than expected before finally being added to the S&P 500.

Tesla was passed over for Etsy in September 2020, for example. Tesla was eventually added to the index in December of that year, and it is now one of the world’s most valuable companies. Etsy, on the other hand, has struggled and was demoted last September to the S&P Small Cap 600.

More recently, there was talk that Robinhood rival Coinbase Global was a likely addition to the S&P 500 back in March of this year when several members were set to be removed. But DoorDash, Williams-Sonoma and WWE owner TKO Group were among the companies chosen instead.

Still, investors didn’t have to wait long for the first crypto company to be added to the S&P 500. Coinbase was picked for the S&P 500 in May and its stock soared almost 25% on the news.

Companies frequently come and go in the S&P 500 due to mergers as well as stock market fluctuations. So don’t be surprised to see Robinhood eventually added to the index—and get the requisite bump in its stock price that comes from passively managed S&P 500 mutual funds and exchange-traded funds rushing to buy it as well.

Write to Paul R. La Monica at paul.lamonica@barrons.com