Definition of the NASDAQ-100 Index

The NASDAQ-100 Index is a stock market index that tracks the performance of the 100 largest non-financial companies listed on the NASDAQ Stock Market. It includes leading technology, consumer services, and healthcare firms, making it a benchmark for growth-oriented investments.

For example, companies like Apple, Microsoft, and Tesla are part of the NASDAQ-100, reflecting innovation and market leadership in their respective industries.

Purpose of the NASDAQ-100 Index in Investing

The NASDAQ-100 serves as a key indicator for:

• Measuring the performance of large-cap technology and growth stocks.
• Providing a benchmark for exchange-traded funds (ETFs) and mutual funds.
• Offering insight into market trends and investor sentiment.
• Representing innovation-driven industries in the stock market.
• Assisting in diversified portfolio strategies for investors.

How the NASDAQ-100 Index Works

Selection Criteria

• Companies must be listed on the NASDAQ Stock Market and meet liquidity and market capitalization requirements.
• Financial sector firms, such as banks and investment companies, are excluded.
• Example: A technology company with a $50 billion market cap and strong trading volume may qualify for inclusion.

Weighting Method

• The NASDAQ-100 is a market capitalization-weighted index, meaning larger companies have greater influence on the index’s movements.
• Adjustments are made periodically to ensure diversification.
• Example: If Apple has a market cap of $2.5 trillion, its weighting in the index is higher than a company with a $200 billion market cap.

Rebalancing and Adjustments

• The index is reviewed and rebalanced quarterly to maintain accuracy.
• Companies can be added or removed based on their market performance.
• Example: A high-growth tech company may enter the NASDAQ-100 if it surpasses the market cap threshold, replacing a lower-performing stock.

Major Sectors Represented in the NASDAQ-100

Technology

• Includes software, semiconductor, and internet-based companies.
• Example: Microsoft, NVIDIA, and Adobe.

Consumer Services

• Covers e-commerce, entertainment, and retail businesses.
• Example: Amazon, Netflix, and Starbucks.

Healthcare

• Consists of biotechnology and pharmaceutical companies.
• Example: Moderna, Amgen, and Regeneron Pharmaceuticals.

Industrials

• Includes companies involved in manufacturing and infrastructure.
• Example: Tesla, CSX Corporation, and Fastenal.

NASDAQ-100 vs. S&P 500

Feature	NASDAQ-100	S&P 500
Composition	100 largest non-financial NASDAQ-listed companies	500 largest U.S. publicly traded companies
Industry Focus	Technology and growth sectors	Broad-market representation across multiple industries
Example	Apple, Amazon, and Tesla	JPMorgan Chase, Coca-Cola, and ExxonMobil

Example: The NASDAQ-100 is more technology-focused, while the S&P 500 includes financials, industrials, and other sectors.

Advantages and Disadvantages of the NASDAQ-100 Index

Advantages

• Provides exposure to high-growth companies.
• Serves as a benchmark for tech-focused ETFs and funds.
• Reflects market trends in innovation-driven industries.

Disadvantages

• High concentration in technology increases volatility.
• Lacks diversification across financial and energy sectors.
• Market downturns can significantly impact high-growth stocks.

Related Terms

• Market capitalization – The total value of a company’s outstanding shares.
• Stock index – A group of stocks representing a market segment.
• Exchange-traded fund (ETF) – A fund that tracks an index and trades like a stock.

Interesting Fact

The NASDAQ-100 is known for leading stock market growth during tech booms, with many of its companies experiencing rapid innovation and expansion over short periods.

Statistic

According to NASDAQ Inc., over seventy percent of the NASDAQ-100’s total market capitalization comes from technology and internet-based companies, making it one of the most tech-driven stock indices in the world.

Frequently Asked Questions (FAQ)

1. How is the NASDAQ-100 different from the NASDAQ Composite Index?

The NASDAQ-100 includes the 100 largest non-financial companies, while the NASDAQ Composite Index includes all NASDAQ-listed stocks.

2. Can investors buy the NASDAQ-100 directly?

No, but investors can invest in ETFs, such as the Invesco QQQ ETF, which tracks the NASDAQ-100.

3. How often does the NASDAQ-100 change?

The index is reviewed quarterly, with companies being added or removed based on market capitalization and performance.

4. Why does the NASDAQ-100 have a strong technology focus?

Many of the largest and most innovative technology companies are listed on NASDAQ, making the index heavily weighted toward the sector.

5. Is the NASDAQ-100 more volatile than other indices?

Yes, due to its high exposure to growth and tech stocks, the NASDAQ-100 tends to experience more price fluctuations.