Nasdaq-100 Shake-Up: These are the Stocks to Watch as Big Names Join and Fall Off the List

Every year in the early weeks of December the Nasdaq announced changes to one of the most popular indexes in the world, the Nasdaq 100 ($NDX).

The index is comprised of the 100 largest non-financial companies listed on the Nasdaq Market.  The Nasdaq Financial 100 index is comprised of the largest financial companies on the exchange.

The Nasdaq 100 Index is one of the most replicated indexes by mutual funds and various exchange traded funds (ETFs).  Between the two forms of index investing there are hundreds of funds tracking the performance of the Nasdaq 100.  This is one of the reasons that it is very beneficial for a company to be included in the Nasdaq 100 Index.

Here are the Benefits of Being in the Nasdaq 100

1. Index Fund Buying Pressure: The Nasdaq-100 is tracked by numerous index funds and ETFs like the Invesco QQQ (QQQ). When a stock is added, these funds must buy the stock to replicate the index, creating significant demand pushing the price higher.

2. Increased Visibility and Credibility: Inclusion in the Nasdaq-100 signals that the company is among the largest and most influential in the Nasdaq exchange. This increases investor confidence and attracts more attention from retail and institutional investors.

3. Improved Liquidity: Stocks in major indices tend to see higher trading volumes. This improved liquidity makes the stock more attractive to large institutional investors, which can also drive the price higher.

5. Momentum Effect: Stocks that join a major index often benefit from a positive momentum effect. Investors may perceive the inclusion as a signal of strong fundamentals or future growth potential.

Here’s What Can Be Expected for the Companies Joining the Nasdaq 100

Following the announcement this Friday, investors should begin purchasing the new additions as they look to ride the coattails of institutional fund managers that will have to purchase the new companies as part of the rebalance.

In addition, investors will typically buy these companies as they speculate that the additional exposure for the companies will increase investors awareness of the companies and their performance.

A recent example shows the power of index inclusion…

Palantir Joins the S&P 500

AI Service company Palantir (PLTR) joined the S&P 500 on September 23, 2024.

The announcement – on September 9 - sparked an aggressive rally that drove prices 25% higher ahead of the S&P 500 rebalance.

Notably, Palantir recently announced their move from the NYSE to the Nasdaq Exchange.  Speculation – which is likely to be correct – is that the company executed the move in order to be considered for the upcoming Nasdaq 100 Rebalance.

Will Palantir’s Move Work?

Here are the Likely Candidates to be Added to the Nasdaq 100

Palantir (PLTR) is all but a lock to be added to the Nasdaq 100 along with Real Estate REIT Equinix (EQIX) and Cryptocurrency miner Microstrategies (MSTR).

All three of these companies boast a market cap that is three times larger than the largest company currently on the “bubble” as the Nasdaq 100 rebalance approaches.

Here’s the table of likely additions to the Nasdaq 100.

More than five companies find themselves as likely candidates to be dropped from the Nasdaq 100

The healthcare industry has few companies currently on the bubble due to their drop in market cap over the last year.  Moderno (MRNA) is top on the list to be cut from the Nasdaq 100 while Dexcom (DXCM) is on the bubble.

A standout on the “Bubble” list is Super Micro Computer (SMCI).  The AI server company has lost as much as 85% of its value over the year as the stock risked being delisted from the Nasdaq exchange.  SMCI has seen a rally after announcing a plan to avoid delisting but investors should expect to see the company removed from the Nasdaq 100.