September 21, 2023

Nasdaq 100 plans special realignment to curb dominance of ‘Magnificent Seven’

The Nasdaq 100 index will adjust the weighting of its 100 components, with the “magnificent seven” stocks Microsoft (MSFT), Apple, Nvidia (NVDA), Tesla (TSLA), Google parent Alphabet (GOOGL), Meta platforms (META) and (AMZN) currently accounts for more than half of the index’s weight.


The magnificent seven stocks fell mostly on Monday and rallied generally higher on Tuesday.

The special rebalancing of the Nasdaq 100 will take place before the market open on Monday, July 24 to “address over-concentration in the index by redistributing weights.” The Nasdaq has performed special rebalancing only twice in its history: in December 1998 and May 2011.

The weighting changes will be announced on Friday 14 July. No shares will be added or removed as part of the special reshuffling.

Separately, the Nasdaq said Wednesday night it will add Trade desk (TTD) to the Nasdaq 100 for the July 17 opening, replacing it Activision Blizzard (ATVI). Microsoft appears to be close to finalizing its acquisition of Activision.

The Nasdaq 100 includes the 100 largest non-financial Nasdaq components.

How is the Nasdaq 100 weighted?

The Nasdaq 100 index is an adjusted market capitalization index. Market valuation is the biggest factor, but with methodology to limit over-concentration.

Nasdaq 100 weights of beautiful seven

Company Ticker Weight Market Capitalization, in Trillions (as of July 7)
Microsoft MSFT 12.9% $2.51
Apple AAPL 12.5% $2.99
Nvidia NVDA 7.0% $1.05
Amazon AMZN 6.9% $1.33
Tesla TSLA 4.5% $0.87
Meta platforms META 4.3% $0.75
Alphabet GOOGL 3.7% $1.52
Alphabet GOOG 3.7%

The seven largest companies in the Nasdaq 100 account for 55% of the index. This combined weighting is reduced. It is also likely that there are notable relative weight shifts within these seven giants.

The current weightings show that market capitalization is the dominant factor, but not the only one.

Microsoft stock has the largest weight, at 12.9%, on July 7. Apple stock has a weight of 12.5%, despite a market cap of $2.999 trillion versus Microsoft’s $2.51 trillion.

Google shares are weighted at 7.4% with the GOOGL and GOOG share classes combined.

Nvidia shares are up to a 7% Nasdaq 100 weighting, thanks to its $1.05 trillion market cap. That’s a slightly larger weight than Amazon stock (6.9%), even though the latter has a significantly higher valuation of $1.33 trillion.

Tesla stock and Meta Platforms round out the top seven members, with weights of 4.5% and 4.3% respectively.

For reference, for the entire Nasdaq composite, Apple stock had a weighting of 11.4% on July 7, while Microsoft was 9.5%. GOOGL shares are 5.8%, while Amazon and Nvidia are 5.1% and 4% respectively. TSLA shares have a share of 3.3% and META shares are 2.8%.

How Much Will Nasdaq 100 Megacaps Be Cut?

Based on the Nasdaq 100 methodology, the combined weight of the five companies with the largest market caps is set at 38.5%. The five largest companies, Apple, Microsoft, Google, Amazon and Nvidia, had a combined weight of 46.7%. That suggests some notable reduced weightings for these names.

Meanwhile, no asset outside of the top five market capitalization companies can have a Nasdaq 100 higher than the lowest of 4.4% or the weight of the stock with the fifth largest market valuation. That points to at least a slight decrease in the weight of TSLA stock.

The official re-weightings should be released on Friday, perhaps after the close. That includes stocks that will receive heavier weights.

Which stocks will see higher Nasdaq weightings?

Starbucks (SBUX), Mondelez International (MDLZ), Book holdings (BKNG), Gilead Sciences (GUILD), Intuitive surgical (ISRG), Analog devices (ADI) and Automatic data processing (ADP) will be bigger winners from the special realignment, Wells Fargo analysts said Tuesday.

Magnificent Seven rises in 2023

The Invesco QQQ ETF (QQQ), which tracks the big-cap Nasdaq index, is up 37.5% in 2023 through July 7. The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW), which gives equal weight to all 100 stocks, is up just 18.8%.

This largely reflects the huge moves of mega caps this year. By July 7, NVDA’s share had nearly tripled (191%). META share rose 141%, while TSLA share rose 123%. AMZN shares jumped 54.5%. AAPL shares rose 47% and MSFT shares nearly 41%. Google stock rose by a still robust 35%.

There is some concern that this handful of names will disrupt the health of the overall stock market, likely driving the special rebalancing.

Nasdaq 100 Special Rebalance impact on stock prices

The special realignment of the Nasdaq 100 will lead to shifts in equity allocation between ETFs like QQQ and mutual funds that track the index. So there could be one-time gains or losses, perhaps because the planned changes are announced on July 14.

However, the effects can be modest. First, the big-cap Nasdaq index is going to adjust weightings, versus a full addition or deletion. Also, a lot more money follows the S&P 500, which is why S&P 500 component changes get a lot more attention than Nasdaq 100 moves.

The S&P 500 index, unlike the Nasdaq 100, is a pure market capitalization weighted index.

Most of the “magnificent 7” stocks retreated on Monday and generally rose on Tuesday. All climbed Wednesday, especially Nvidia and Meta. Both are up sharply this week, while Apple shares, Amazon, Tesla, Google and Microsoft are down slightly.

The Nasdaq 100 is up 1.8%, while the equivalent QQEW is up 3.0%.

Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.


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