To The Moon

As the current "Fantastic Seven" stocks account for more than half of the weighting of the $NASDAQ 100(NDX)$ , the index tend to rebalance the weightings of its 100 constituents. The "Fantastic Seven" stocks include  $Microsoft(MSFT)$ , $Apple(AAPL)$ , $NVIDIA Corp(NVDA)$ , $Alphabet(GOOGL)$ , $Meta Platforms, Inc.(META)$ , $Tesla Motors(TSLA)$ , $Alphabet(GOOG)$ , and $Amazon.com(AMZN)$ .

All of the Fantastic Seven stock (except Meta) prices fell on Monday with news released.

Aimed to address the over-concentration of the index's weights through a reapportionment of weights, this special rebalancing of the Nasdaq 100 will take place before the market on Monday, July 24. The weighting change will be announced on Friday, July 14th. There are no additions or deletions of stocks.

How is the Nasdaq 100 assigned weights?

The Nasdaq 100 is a modified market capitalization-weighted index, in which market capitalization is the largest consideration. Besides, it also incorporates methods to limit over-concentration of weights.

Weighting of "Fantastic Seven" stocks in the NASDAQ 100 Index

The seven largest companies in the Nasdaq 100 account for 55% of the index. The heavily combined weight needs to be reduced with the weight of these seven giants changing significantly.

As of July 7, $Microsoft(MSFT)$ stock had the highest weighting (12.9%) followed by $Apple(AAPL)$ at 12.5%, although market capitalization ($2.51 trillion) is not as high as Apple ($2.999 trillion). In addition, the two stock categories, $Alphabet(GOOGL)$ and $Alphabet(GOOG)$ , enjoy the 7.4% combined weight.

In the $NASDAQ 100(NDX)$ , $NVIDIA Corp(NVDA)$ 's weight rose to 7% due to its market capitalization growth ($1.05 trillion), slightly higher than Amazon's 6.9%(although the latter's market capitalization ($1.33 trillion) is much higher). Finally, Tesla and Meta Platforms are weighted at 4.5% and 4.3%, respectively.

Besides, among the entire $NASDAQ(.IXIC)$ Composite, $Apple(AAPL)$ stock is weighted at 11.4%; $Microsoft(MSFT)$ is weighted at 9.5%. Next, There are googl stock at 5.8%, $Amazon.com(AMZN)$ and $NVIDIA Corp(NVDA)$ at 5.1% and 4%, respectively. Lastly, $Tesla Motors(TSLA)$ is weighted at 3.3% and $Meta Platforms, Inc.(META)$ at 2.8%.

How will the weight of the Nasdaq 100 mega-cap stocks be adjusted?

According to the compilation methodology of the Nasdaq 100, the combined weight of the five largest companies of market capitalization is set at a maximum of 38.5%. However, the combined weight of the current five largest constituents- Apple, Microsoft, Google, Amazon & Nvidia, is already as high as 46.7%, which means that the weights of these stocks will be adjusted downward significantly.

Meanwhile, no other Nasdaq 100 component, which is outside the top five largest market cap companies, can be weighted more than the lesser of 4.4% or the fifth-largest market capitalization stock. According to the regulations, Tesla stock need to be weighted down slightly. Finally, the official weight reallocation plan, which will be released on Friday (likely after the close), will also include stocks with upward weighting adjustments.

Fantastic Seven stock prices soared in 2023.

$Invesco QQQ Trust(QQQ)$ 2023, tracking the large-cap Nasdaq index, was up 37.5% through July 7th. By comparison, the all-100-stock equal-weighted $First Trust NASDAQ 100 Equal Weighted Index Fund(QQEW)$ was up just 18.8%.

This majorly reflects the soar in mega-cap stock prices this year. For instance, NVIDIA is up 191%; META has surged 141% and Tesla is up 123%. In addition, Amazon is up 54.5% with Apple, Microsoft and Google up 47%, 41% and 35% respectively. There are concerns that these stocks are distorting the health of the whole stock market, which is probably what triggered this particular rebalancing of the Nasdaq 100.

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