AppLovin and Robinhood Join the S&P 500: What Smart Investors Need to Know

The Kids Have Made It to the Big Table

Remember when your parents finally let you sit at the grown-ups' table during Thanksgiving dinner? That's essentially what just happened to AppLovin (NASDAQ: APP) and Robinhood Markets (NASDAQ: HOOD). On September 5, 2025, S&P Dow Jones Indices announced these two tech darlings would join the prestigious S&P 500 index, effective September 22, 2025.

The market's reaction was swift and decisive. AppLovin shares jumped 11.59% to close at $547.04 on Monday, September 8, while Robinhood exploded higher by 15.83%, closing at a record high of $117.28. For investors who've been riding these rockets, it was Christmas morning in September.

But here's the million-dollar question: Is this just a temporary sugar high from the "index effect," or are these companies genuinely worthy of their new blue-chip status? Let's dig into what this means for your portfolio.

The Path to Profitability: Why They Had to Wait

First, let's address the elephant in the room. Both companies have been eligible for S&P 500 inclusion based on market cap for quite some time. AppLovin, with its current market cap hovering around $193 billion, and Robinhood, sitting pretty at approximately $105 billion, have been large enough to qualify. So why the wait?

The answer lies in one four-letter word that strikes fear into the hearts of high-growth tech companies: GAAP.

The S&P 500 isn't just a list of America's 500 largest companies -- it's a curated index with strict profitability requirements. Companies must demonstrate positive GAAP earnings in their most recent quarter AND the sum of their trailing four quarters must be positive. For many tech companies that prioritize growth over profits, this hurdle is harder to clear than a pole vault bar set at 20 feet.

AppLovin's Transformation: From Gaming to AI Powerhouse

AppLovin's journey to profitability reads like a Silicon Valley fairy tale. In Q2 2025, the company reported a 77% year-over-year increase in revenue to $1.26 billion, but here's the kicker: adjusted EBITDA nearly doubled to $1.02 billion, reflecting an 81% margin. Those are the kind of margins that would make even Warren Buffett's Coca-Cola blush.

The secret sauce? AppLovin's AI-powered advertising engine, Axon 2.0, which has proven devastatingly effective at helping mobile app developers monetize their products. What started as a mobile gaming advertising platform has evolved into something much bigger. The company is now expanding aggressively into e-commerce advertising, with CEO Adam Foroughi describing Q4 2024 as a "major milestone" marking their first significant penetration into this massive market.

Robinhood's Redemption Arc: From Meme Stock Villain to Wall Street Darling

If AppLovin's story is a fairy tale, Robinhood's is a redemption arc worthy of Hollywood. Remember the GameStop saga? The payment for order flow controversies? The Congressional hearings? That feels like ancient history now.

In Q2 2025, Robinhood reported revenues of $989 million, beating estimates of $908 million, with net income more than doubling to $386 million, up 105% from the same quarter last year. But the real story isn't just the numbers -- it's the diversification.

Gone are the days when Robinhood was just the "meme stock app." The company has successfully expanded into:

• Robinhood Gold: 3.5 million subscribers, up 76% year-over-year
• Retirement Accounts: Over $20 billion in assets
• Crypto Trading: Expanding globally with acquisitions like Bitstamp
• Options Trading: Becoming a serious player in derivatives

CFO Jason Warnick summed it up perfectly: "We're making a lot of progress in what I would call more passive, long-term areas". Translation: We're not just for day traders anymore.

The Index Effect: A Temporary Sugar High or Lasting Value?

Now, let's talk about what every investor wants to know: Will these stocks keep climbing, or is this just a temporary bump?

The "index effect" is real and powerful. Institutional passive funds mandated to buy these high-growth stocks created immediate demand, with an estimated $22 trillion in global assets either directly invested in S&P 500 index funds or benchmarked against the index. When that much money has to buy your stock, prices tend to go up.

But here's where it gets interesting. Historical data suggests the party doesn't last forever. Academic studies note that the magnitude of these effects has diminished over decades, with abnormal returns shrinking from 7.4% in the 1990s to near-zero in the 2010s. In other words, the market has gotten smarter about pricing in the index effect ahead of time.

However, there's a silver lining for both companies. Research shows that companies added from outside the S&P 1500 -- like our two heroes -- tend to see more pronounced effects. Think Tesla's 2020 inclusion, which triggered a 20% price spike that largely held.

What This Means for the Tech Landscape

The inclusion of AppLovin and Robinhood isn't just about two companies making it big -- it's a statement about where the American economy is heading. These additions, replacing traditional companies like Caesars Entertainment and MarketAxess Holdings, signal the continued dominance of digital-first business models.

Consider this: In 1993, the S&P 500's largest constituents were industrial and energy giants like General Electric and ExxonMobil. Today? It's all about technology platforms. AppLovin and Robinhood joining the index cements this transformation.

The Competitive Advantage of Index Membership

Beyond the immediate price pop, S&P 500 membership confers several lasting benefits:

1. Enhanced Credibility: It's like getting a Harvard MBA for your stock ticker. Suddenly, conservative institutional investors who wouldn't touch you with a ten-foot pole are required to own you.

2. Improved Liquidity: More trading volume means tighter spreads and potentially lower volatility over time.

3. Lower Cost of Capital: When everyone has to own your stock, it becomes cheaper to raise money for growth initiatives.

4. Marketing Gold: For Robinhood especially, being an S&P 500 company is a powerful trust signal to attract more mainstream customers away from traditional brokers.

The Bear Case: Why Skeptics Have a Point

Now, let's pump the brakes for a moment and consider what could go wrong. After all, at The Motley Fool, we believe in looking at both sides of every investment.

AppLovin's Valuation Concerns

AppLovin trades at a P/E ratio of 102---well above the sector median of 32. That's priced for perfection territory. Morningstar analysts maintain a fair value estimate of $360 per share, viewing the stock as significantly overvalued even after the inclusion news.

The risk? AppLovin's success depends heavily on its ability to expand beyond mobile gaming into e-commerce and other verticals. If that expansion stalls or faces unexpected competition from tech giants like Google or Meta, the stock could face a harsh reality check.

Robinhood's Regulatory Wildcards

Robinhood operates in one of the most heavily regulated industries in America, and regulation has a funny way of changing just when you think you've figured it out. The company's business model, particularly payment for order flow, remains controversial. Any significant regulatory changes could materially impact profitability.

Moreover, Robinhood's valuation remains opaque, with specific P/E or P/S ratios not disclosed, raising questions about transparency and making it harder for investors to assess whether the stock is fairly valued.

The Social Trading Revolution: Robinhood's Next Act

Here's something that hasn't gotten enough attention: Robinhood is launching a social network. Yes, you read that right. The company that democratized trading is now trying to create the "Instagram of investing."

This isn't just a feature add-on -- it's a potential game-changer. Social trading, where users can follow and copy successful traders, has been huge in Europe and Asia. If Robinhood can crack this code in the U.S., it could create a powerful network effect that locks in users and drives higher engagement.

CEO Vlad Tenev isn't being shy about ambitions, calling it part of building a "financial super app." If successful, this could be the moat that separates Robinhood from traditional brokers permanently.

The AI Revolution: AppLovin's Secret Weapon

While everyone's talking about ChatGPT and generative AI, AppLovin has been quietly building one of the most effective AI systems in advertising. Their Axon 2.0 platform doesn't write poetry or create images -- it just makes money, lots of it.

The company is targeting 20% to 30% year-over-year growth in its gaming sector, with a self-service platform launching October 1, 2025, that could dramatically accelerate customer acquisition. Think about it: right now, AppLovin manually onboards advertisers. Once that process is automated, thousands of new businesses could join almost overnight.

The Bottom Line: Should You Buy, Hold, or Sell?

Here's my take, and remember, this is just one Fool's opinion:

For AppLovin: If you already own it, I'd hold but wouldn't add more at current levels. The stock has run up over 700% in the past two years, and 24/7 Wall St.'s forecast projects the stock to be $494.57 by year's end, or over 4% higher than today's price. That's not exactly screaming "buy me now!" Consider waiting for a pullback to the $400-450 range before adding to positions.

For Robinhood: This is the more interesting opportunity. Despite the recent run-up, the company's transformation into a full-service financial platform is still in early innings. The S&P 500 inclusion validates the business model, and upcoming catalysts like the social trading platform and international expansion could drive significant growth. If you're a long-term investor who believes in the democratization of finance, this could be a buy even at current levels.

For New Investors: If you're looking to start a position in either company, patience is your friend. The initial index inclusion pop typically fades within 45 days as the forced buying subsides. Wait for the dust to settle, then evaluate based on fundamentals, not momentum.

Looking Ahead: The Next Chapter for Tech's New Blue Chips

The inclusion of AppLovin and Robinhood in the S&P 500 marks a watershed moment in the evolution of American capitalism. These aren't your grandfather's blue-chip stocks -- they're nimble, AI-powered platforms that have redefined what it means to be a market leader in 2025.

But let's be clear about what S&P 500 inclusion does and doesn't mean. It's recognition of past success, not a guarantee of future returns. History is littered with former index members that couldn't maintain their edge. The real test for both companies begins now.

For AppLovin, the challenge is proving that its 81% EBITDA margins aren't a peak but a sustainable competitive advantage. Can the company successfully pivot from mobile gaming to become the dominant force in e-commerce advertising? With Google and Meta watching closely, the competition will only intensify.

For Robinhood, the opportunity is even more transformative. The company stands at the intersection of two massive trends: the generational wealth transfer from boomers to millennials (estimated at $84 trillion over the next two decades) and the gamification of personal finance. If they execute correctly, Robinhood could become the JPMorgan of the digital age.

The smart money isn't chasing these stocks after their inclusion pop. Instead, disciplined investors are watching for entry points when the forced index buying subsides and fundamentals reassert themselves. Remember, in the long run, stock prices follow earnings, not index membership.

Both companies have earned their seats at the grown-ups' table. Now they need to prove they belong there. For investors willing to look beyond the next quarter, these two tech innovators offer compelling narratives in markets with massive tailwinds. Just make sure you're buying the business, not the hype.

The market has spoken: The future of American business is digital, data-driven, and democratized. AppLovin and Robinhood aren't just joining the S&P 500 -- they're helping to redefine it.

Stay foolish, stay profitable.

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