Nasdaq is expected to announce the adjustment list for the Nasdaq 100 Index on Friday, which is not just about gaining prestige for the companies that are successfully included.

Adjustments to the Nasdaq 100 Index could bring significant changes for certain companies and their shareholders, as large funds tracking the index will buy shares of newly added companies while selling shares of those removed.

The Nasdaq 100 Index consists of the largest 100 non-financial companies in the Nasdaq Composite Index, which includes 3,284 companies. The index is reconstituted annually and rebalanced quarterly by market capitalization.

During the annual reconstitution process in December, the Nasdaq 100 is weighted based on the combined market capitalization of all eligible classes of common stock of each company as of November 30. In recent years, this list has typically been announced on the second Friday of December, with adjustments taking effect at the end of the month.

The largest exchange-traded fund (ETF) tracking the Nasdaq 100 is the Invesco QQQ Trust, with total assets of $322 billion. Although Alphabet (GOOGL.O) is part of the Nasdaq 100, QQQ holds both its Google A (GOOGL.O) and Google C (GOOG.O) shares, which together account for 5.1% of the ETF's portfolio.

As of last Wednesday, the total return of QQQ for 2024 reached 30%, slightly higher than the 29.2% return of the SPDR S&P 500 ETF Trust (this return includes dividend reinvestment).

The following are 11 companies among the largest 100 non-financial companies in the Nasdaq Composite Index that have not yet been included in the Nasdaq 100, sorted by market capitalization as of November 30: Palantir (PLTR.N), Sanofi (SNY.O), Equinix (EQIX.O), MicroStrategy (MSTR.O), NetEase (NTES.O), JD.com (JD.O), Axon Enterprise (AXON.O), Trip.com (TCOM.O), Argenx SE (ARGX.O), Alnylam Pharmaceuticals (ALNY.O), United Airlines (UAL.O).

Palantir ranks first with a market capitalization of $146 billion, with its stock price more than quadrupling this year. The company gained eligibility for the Nasdaq 100 after moving from the New York Stock Exchange to Nasdaq at the end of November. When announcing the move to Nasdaq, Palantir stated it expected to be included in the Nasdaq 100, and its stock price subsequently rose.

Palantir ranks second on the list of expected sales growth for S&P 500 software companies in 2025, second only to Axon Enterprise (also potentially included in the Nasdaq 100).

The popular cryptocurrency concept stock MicroStrategy also meets the market capitalization threshold. It is currently the fourth largest non-financial company by market capitalization not included in the Nasdaq 100. Its stock price has risen 551% this year, driven by soaring Bitcoin prices and the company's ongoing increase in cryptocurrency holdings. Although nominally a software vendor, MicroStrategy's role in the market is more related to cryptocurrency.

Which companies might be removed from the index?

Among the current constituents of the Nasdaq 100 Index, these 11 companies failed to rank among the largest 100 non-financial companies in the Nasdaq Composite Index as of November 30, making them potential candidates for removal. The following list is sorted by market capitalization from smallest to largest: Moderna (MRNA.O), Super Micro Computer (SMCI.O), Illumina (ILMN.O), Biogen (BIIB.O), CDW Corp (CDW.O), MongoDB (MDB.O), GlobalFoundries (GFS.O), Warner Bros. Discovery (WBD.O), ON Semiconductor (ON.O), Dexcom (DXCM.O), Ansys (ANSS.O).

Super Micro Computer: Despite a significant rise in the company's stock price in 2024, Thursday's closing price of $38.29 has fallen 68% compared to the closing high of $118.81 set on March 13. The company stated that its accounting issues were not caused by management misconduct, but analysts remain skeptical.

Moderna: As a star company during the pandemic, Moderna has experienced a significant decline in its stock price due to reduced demand for COVID-19 vaccines. As of 2024, its stock price has fallen by more than half, making it the smallest company by market capitalization on the aforementioned list.

These potentially removable constituents reflect market concerns about reduced demand in pandemic-related industries and management issues, as well as a reassessment of high-growth technology companies.

Article forwarded from: Jin Ten Data