Palantir, MicroStrategy to Join Nasdaq-100 in Annual Shake-Up
The annual rebalancing adds AI and crypto-linked firms while removing pandemic-era stars like Moderna, forcing billions in trades by index funds.
The Nasdaq-100 index, a barometer for the world's largest non-financial technology companies, is undergoing its annual reconstitution, swapping out pandemic-era darlings for firms at the forefront of artificial intelligence and digital assets. Palantir Technologies (PLTR), MicroStrategy (MSTR), and Axon Enterprise (AXON) are set to be added to the influential index, while Moderna (MRNA), Super Micro Computer (SMCI), and Illumina (ILMN) will be removed.
The changes, announced by Nasdaq on December 13, will take effect prior to the market open on Monday, December 23, 2024. The move will trigger significant, non-discretionary trading activity from institutional investors, as exchange-traded funds and other products that track the index—collectively managing hundreds of billions of dollars—are compelled to adjust their portfolios to mirror the new composition.
A Tale of Diverging Fortunes
The reconstitution acts as a clear reflection of the market's shifting technology narratives. The inclusion of Palantir, a data analytics and AI powerhouse, underscores the market's voracious appetite for artificial intelligence plays. The company has secured major government and commercial contracts for its AI platform, driving its stock to achieve significant GAAP profitability.
MicroStrategy's addition marks a milestone for the legitimization of cryptocurrency as an asset class. The enterprise software company has made its corporate treasury's holdings of Bitcoin a core part of its strategy, making its stock a popular, albeit volatile, proxy for the digital currency. With a market capitalization now exceeding $50 billion, its inclusion was widely anticipated. They are joined by Axon Enterprise, a public safety technology firm whose TASER devices and cloud-connected body cameras have seen strong demand.
Their ascension comes at the expense of companies that have faced significant headwinds. Moderna, a household name for its pioneering mRNA COVID-19 vaccine, is being removed as demand for the shot wanes, leading to a sharp decline in revenue from its pandemic-era peak. The company's removal signals the market's shift away from COVID-centric trades.
Super Micro Computer, despite being a key supplier of servers for the AI boom, is also being dropped. The company has been plagued by extreme stock volatility and has faced scrutiny over its accounting practices and shrinking profit margins amidst fierce competition, leading to analyst caution. Illumina, a genomics sequencing company, has likewise struggled with its stock performance, prompting its exclusion from the index.
The Index Effect
Inclusion in the Nasdaq-100 provides more than just prestige; it creates a powerful technical tailwind for a stock. The forced buying from passive index funds like the Invesco QQQ Trust, which has over $250 billion in assets, can create sustained demand for the new entrants in the days leading up to the effective date.
Conversely, the deletions can lead to selling pressure as the same funds are forced to liquidate their positions. This rebalancing is determined by a company's market capitalization relative to its peers, serving as an annual culling that ensures the index remains representative of the largest and most influential non-financial firms listed on the Nasdaq exchange.
As the December 23 effective date approaches, investors will be closely watching the trading volumes and price action of these six companies, which serve as a microcosm of the broader shifts remaking the technology landscape.