Essentially, the cause of this “special” rebalance is the fact that have seen a significant rise in Big Tech shares amid the AI boom. Nvidia, Microsoft, Alphabet, Amazon, Apple, and Tesla have seen their stock price rise by roughly 60% on average this year and that is nearly three times more than the average stock of the Nasdaq index itself.
Put together, they now consist of just a little over 50% of the total index and that is too much for the Nasdaq’s liking. As such, the latest shift will see a reduction in their weightings to other smaller tech stocks so as to not see too much concentration on the above stocks. The change will see:
- Nvidia (7.28% -> 4.30%)
- Microsoft (12.74% -> 9.80%)
- Alphabet (7.61% -> 5.70%)
- Amazon (6.91% -> 5.30%)
- Apple (12.06% -> 11.50%)
- Tesla (4.44% -> 3.40%)
This will see their total weighting fall to roughly 40% of the total index. So, how does this impact the Nasdaq and the other stocks in general?
In general, fund houses will just have to also rebalance their portfolios accordingly if they are just tracking the Nasdaq. So, the “arbitrage” way of looking at it is that buying stocks that are set to see their weightings grow would be the ideal scenario. But of course, this announcement already came on 7 July so as you can see, Big Tech isn’t really that much affected by the news.
I mean, equities sentiment will continue to be driven by more macro factors and the AI boom is still one of that. So, even if you would think this “special” rebalance might hurt Big Tech for a bit, it isn’t one that is going to impact the longer-term outlook.