The influence of big tech stocks on the Nasdaq 100

The influence of big tech stocks on the Nasdaq 100

One of the most popular in the world, the Nasdaq 100 is among the benchmark indices of the US and the tech world. It represents the 100 largest non-financial companies found on the Nasdaq Stock Market. The companies are chosen based on their market cap and given a specific weight accordingly. The index moves based on the performance of the stocks that represent it, which are in turn, affected by usual factors such as profitability, economic conditions, news releases, among others.


While the Nasdaq 100 represents diversity in terms of types of companies found in the index, it is dominated by tech and a few who are capable, most times, of moving the index in and out of positive territory. Putting it simply, Microsoft, Apple, Amazon, Tesla, Nvidia, Alphabet (Google), and Meta Platforms Inc. (Facebook) represent a rough total of 50%.


The influence that those heavy-weight companies have is clear and relevant daily. If just the top 3 stocks moved up and posted strong gains on the day, the Nasdaq index is likely to be in positive territory as others would catch up. Other scenarios may see most stocks down on the day yet 1 or 2 of the top ones post gains which are enough to halt any serious downside for the index.


Knowing the weight of the different Nasdaq 100 components can tell us when volatility is possible. For example, earnings season, especially when the top stocks are due to release their numbers, can be a critical time to watch the index. Other scenarios could include new technological breakthroughs, mergers, partnerships, and supply and demand disruptions. One notable example would be the resilience of tech stocks during the Covid pandemic as everything shifted online and human interaction became minimal, forcing billions to rely on the technology available such as meeting online through specific applications or shopping through Amazon.


According to traders and investors, the Nasdaq 100, while it includes stocks that are not part of the tech world, is heavily skewed towards tech and should be considered in parallel to other indices or ETFs that can create the necessary diversification that investors are usually seeking.


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The content published above has been prepared by CFI for informational purposes only and should not be considered as investment advice.  Any view expressed does not constitute a personal recommendation or solicitation to buy or sell.  The information provided does not have regard to the specific investment objectives, financial situation, and needs of any specific person who may receive it, and is not held out as independent investment research and may have been acted upon by persons connected with CFI.  Market data is derived from independent sources believed to be reliable, however, CFI makes no guarantee of its accuracy or completeness, and accepts no responsibility for any consequence of its use by recipients.

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