Are cap-weighted small and mid cap ETFs de facto self-limiting on growth long term?

For example, if a company is in the S&P400 midcap etf, explodes and ends up"graduating" from the S&P400MC index , wouldn't that have a significant limiting effect on the longterm upside compared with cap-weighted etfs that only track the top end of a given market(SP500/NASDAQ100)?

In that situation, the largest cap company(and arguably most successful w/in the index) in the index gets removed and the n-1 of qualifying companies smaller than the smallest company in the index gets added to the index, shifting the price downward. Is that correct? If that's true, then it seems like these ETFs are just capturing mediocrity instead of growth op.