Tesla
Others see it as a contrarian signal that the stock's inclusion into the index reflects the point at which everyone is long and all good news is priced in. And, historically, there are many instances of major indexes adding a "hot" stock that marked the top.
One Round
The S&P committee also announced that it would be adding Tesla in "one go" rather than splitting up the purchases into chunks given its huge size. It made this decision by taking into consideration "as well as, among other factors, the expected liquidity of Tesla and the market's ability to accommodate significant trading volumes on this date."
Tesla has a nearly $600 billion market cap and is the seventh most valuable company traded on U.S. exchanges. The company was added to the index at such a high valuation because it took so long to be profitable. Companies in the S&P 500 have to meet criteria such as being profitable for four consecutive quarters in a row, a hurdle that Tesla crossed in Q3 of this year. It's expected that index funds will be buying about $73 billion in shares in the next couple of weeks.
Stock Price Outlook
While there are some examples of companies topping near inclusion into indexes, there are many examples of high-flyers who kept going higher after being added such as Apple
Tesla's valuation is hard to justify based on its current financials. However, if someone believes that electric vehicles will be $3 trillion industry like gas-powered cars, and Tesla will have meaningful market share, then the price makes more sense. However, Tesla has an opportunity to win market share in numerous industries like electric trucks, batteries, and self-driving technology. And, in each of these categories, Tesla is the early leader.
