German Manager Magazin: Nasdaq 100: Tech giants too dominant – rebalancing on Monday002614

100 US and international non-financial companies make up the tech-heavy US select Nasdaq-100 index. But only a handful of them determine whether things are going up or down. At the beginning of July, this came to a head after the electric car manufacturer’s shares Tesla after record deliveries in the second quarter hit a ten-month high. The stock exchange operator Nasdaq therefore announced an unscheduled reweighting. It will be completed on Monday (July 24) before the start of US trading.

At times, only six of the 100 companies accounted for more than 50 percent of the total index weight: Apple, Microsoft, alphabet, Amazon, Nvidia and Tesla. Meta further exacerbates the situation, because the FacebookThe parent company is not too far removed from Tesla in terms of its market value. The seven companies together have a market capitalization of around 11.5 trillion US dollars and now make up 55 percent of the index, according to market experts at Postbank.

AI euphoria drives share prices

The share prices of these companies, some of which went from record to record, triggered by the euphoria surrounding artificial intelligence (AI), had not least driven the sharp increase in their market capitalization. As the world’s most expensive listed company, Apple alone is now worth more than 3 trillion US dollars. Microsoft follows close behind with $2.6 trillion.

With Nasdaq’s move on Monday, the weight of the “magnificent seven”, as CMC Markets’ Jochen Stanzl calls the mighty tech giants, will be reduced. This will give smaller companies a little more leverage. “This will make the index broader and better distributed,” the market analyst expects, and believes greater diversification is also necessary to avoid “cluster risks”.

Nevertheless, the changes are not a bang, even if, according to Stanzl, investors “can finally see the index again as a good benchmark for the development in the technology sector”. The weighting of the five largest titles will be cut from currently almost 47 percent to 38.5 percent on Monday, as the Postbank experts write. Nvidia and Microsoft are likely to be hardest hit, each losing around three percentage points.

According to Stanzl, the possible beneficiaries of this step in this country are the Deutsche Telekom, since its subsidiary T-Mobile US could be weighted more heavily in the Nasdaq 100. As a result, index funds and ETFs that want or need to replicate the index with the new weighting have to buy those stocks while selling other stocks that are falling in weight.

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