Nasdaq 100 rebalancing shuffle: Tesla, Meta, and Broadcom weights decrease, while Apple and NVIDIA weights increase

A year later, the Nasdaq 100 Index has once again undergone a rebalancing due to the surge in the leading weighted component stocks, giving the tech giants a reshuffle.

Data compiled by Bloomberg shows that in the rebalancing of the Nasdaq 100, the weights of three major tech stocks—Tesla, Meta, and Broadcom—have all decreased. Tesla's weight dropped from 4.9% last Friday to 3.9%, Broadcom's from 6.3% to 4.4%, and Meta's from 4.9% to 3.3%.

At the same time, the weights of four other tech giants—Apple, NVIDIA, Microsoft, and Google's parent company Alphabet—have all increased in the Nasdaq 100. Among them, Apple's weight rose from 9.2% to 9.8%, and NVIDIA's from 7.9% to 8.4%.

Of the seven stocks mentioned above with weight changes, six belong to the well-known Meg Seven—comprising Microsoft, Apple, NVIDIA, Alphabet, Amazon, Meta, and Tesla.

According to Dow Jones market data, as of the 11th of this month, the total market capitalization of the "Seven Sisters" has surpassed $18 trillion for the first time in history, with a combined weight exceeding 30% in the S&P 500 component stocks. The artificial intelligence (AI) boom and expectations of interest rate cuts by the Federal Reserve are the main drivers behind the significant rise of these tech stocks this year.

The weight of the Nasdaq 100 Index is largely determined by the relative market capitalization of its member stocks. However, it is also influenced by several provisions; if a few component stocks become too large, these constraints will come into effect. For example, when the combined weight of all component stocks with a weight of over 4.5% reaches or exceeds 48%, an adjustment provision will be triggered.

In July last year, the Nasdaq 100 triggered the aforementioned provision to avoid excessive concentration of the index in a few component stocks, leading to a rebalancing adjustment. This was the third special adjustment in the index's history, following those in December 1998 and May 2011.

Recently, after Broadcom's stock price soared, pushing its weight above the 4.5% threshold, the Nasdaq 100 underwent another rebalancing adjustment. Since the beginning of this year, the Nasdaq 100 has cumulatively risen nearly 30%, with Tesla, Meta, and Broadcom reaching unprecedented levels. As of last Friday's close, Tesla has risen nearly 70% this year, Meta over 60%, and Broadcom nearly 98%.

Bloomberg reports that this adjustment in the Nasdaq 100 may stem from a rule that allows regulators to reset the combined weight of the five largest component companies of the index to slightly below 40%, while adjusting the weights of other component stocks accordingly.

Bloomberg Industry Research (BI) analysis shows that there are over 200 exchange-traded products (ETPs) tracking the Nasdaq 100 Index or its variants, with total assets of approximately $540 billion, such as the ETF Invesco QQQ Trust Series 1 with trading code QQQ and the ETF Invesco NASDAQ 100 ETF with trading code QQQMWith the rebalancing adjustment of the Nasdaq 100, these ETPs will also reduce the weight of the components whose weights have decreased in the Nasdaq 100.

BI analyst Athanasios Psarofagis commented that this indicates the increasing influence of index providers on market dynamics. Inclusion of individual stocks in indices has always been important, and in recent years, partly due to the inflow of funds into ETFs and passive investment tools, inclusion in indices has become even more crucial