Tech Stock Rally Boosts US Nasdaq 100, Rebalancing Scheduled This Week

Broadcom Stock Surge Leads to Index Weight Adjustment
Big Tech Weights Including Nvidia Reach 40% Range

Bloomberg reported on the 17th (local time) that the rebalancing of the Nasdaq 100 index is scheduled for this week as the market capitalization weight of big tech (large information technology companies) has expanded. Rebalancing refers to the periodic adjustment of the constituent stocks and their weights within a stock index.

The Nasdaq 100 index is a stock index created by separately grouping the top 100 blue-chip companies, excluding financial stocks, among the companies included in the tech-focused Nasdaq Composite Index on the New York Stock Exchange. The rules stipulate that if the combined weight of stocks with a weight of 4.5% or more in the index exceeds 48%, rebalancing must be conducted.

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According to the report, the Nasdaq 100 index now requires rebalancing due to the stock rally of Broadcom, which recently surpassed a market capitalization of $1 trillion. Broadcom, a U.S. semiconductor design company, has accelerated its development of proprietary AI chips in collaboration with big tech companies such as Google, Meta Platforms, and Apple in the AI chip market, which is currently dominated by Nvidia. As a result, its stock price has surged 45% over the past month.

As of the previous day, eight stocks including Nvidia, Meta Platforms, Tesla, and Alphabet, Google's parent company, each had a weight exceeding 4.5% in the index, with their combined weighted share reaching 52%. Bloomberg reported that the combined weight of these eight stocks could be reduced to 40%.

Typically, when a stock index undergoes rebalancing, index funds tracking the index also adjust their stock weights. In this case, the top market capitalization tech companies may face disadvantages in supply and demand. The Nasdaq 100 index rebalancing is expected to impact the price of the representative exchange-traded fund (ETF) tracking it, the 'Invesco QQQ Trust' (ticker: QQQ). QQQ has recorded a net inflow of $26.6 billion (approximately 38 trillion KRW) this year, ranking it among the top five ETFs in terms of net inflows.

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The regular rebalancing of the Nasdaq 100 index consists of quarterly rebalancing in March, June, September, and December, and an annual rebalancing in December. Quarterly rebalancing mainly involves adjusting stock weights, while annual rebalancing primarily includes weight adjustments and changes to the constituent stocks. Additionally, special rebalancing can be conducted as needed. Previously, the Nasdaq 100 index underwent rebalancing in 1998 to adjust Microsoft’s weight and in 2011 in response to Apple’s stock price surge. The last special rebalancing was in July of last year.

Meanwhile, on the 14th, news emerged that MicroStrategy, known as a major Bitcoin holder, will be included in the Nasdaq 100 index. Software company Palantir Technologies and Taser gun and body camera manufacturer Axon Enterprise were also added to the new inclusion list. Super Micro Computer, Moderna, and Illumina, which were previously included in the Nasdaq 100 index, will be removed. The changes will take effect before the market opens on the 23rd.