NASDAQ 100

The NASDAQ-100 is where the market's heaviest hitters in technology, biotechnology, and consumer innovation are concentrated into a single index. Launched in January 1985 by the Nasdaq Stock Market, it tracks the 100 largest non-financial companies listed on the Nasdaq exchange, ranked by market capitalization. The deliberate exclusion of financial firms — banks, insurance companies, investment firms — gives the NASDAQ-100 a distinct personality compared to broader benchmarks like the S&P 500. It is, by construction, a window into the sectors that have driven the most dramatic economic transformation of the past four decades: software, semiconductors, internet platforms, biotechnology, electric vehicles, and digital media.

The index is calculated using a modified market capitalization weighting methodology. "Modified" is the key word: unlike a pure cap-weighted index, the NASDAQ-100 imposes periodic caps on the weight of individual constituents to prevent any single company from dominating the index to an extreme degree. Even with these guardrails, the top holdings tend to be enormous. Apple, Microsoft, NVIDIA, Amazon, Meta Platforms, Alphabet, and Broadcom frequently account for a combined weight that exceeds 40% of the total index value. That concentration reflects the winner-take-most dynamics of technology markets, where network effects, switching costs, and massive R&D budgets create durable competitive advantages that are difficult for smaller firms to overcome.

It is important to distinguish the NASDAQ-100 from the Nasdaq Composite, a related but much broader index that includes every domestic and international common stock listed on the Nasdaq exchange — well over 3,000 securities. The Composite is useful as a general measure of Nasdaq-listed company performance, but its breadth dilutes the signal. The NASDAQ-100, by focusing on the 100 largest non-financial names, delivers a more concentrated and arguably more actionable view of the growth-oriented segments of the market.

The Invesco QQQ Trust (QQQ), which tracks the NASDAQ-100, is one of the most heavily traded exchange-traded funds in the world. Average daily trading volume routinely exceeds tens of millions of shares, and the fund's total assets under management have grown into the hundreds of billions. QQQ has become shorthand for "tech exposure" in the portfolios of retail and institutional investors alike, and its options market is among the most liquid in the ETF universe. For investors who want broad exposure to the innovation economy in a single trade, QQQ is the instrument that most often comes to mind.

The history of the NASDAQ-100 is inseparable from the history of the technology sector itself. During the late 1990s, the index became the poster child of the dot-com boom, surging from roughly 1,000 in late 1998 to over 4,800 in March 2000 — a gain of nearly 400% in fewer than 18 months. The subsequent bust was equally dramatic: by October 2002, the index had fallen below 800, erasing years of gains and wiping out trillions of dollars in paper wealth. It took the NASDAQ-100 until 2015 to permanently reclaim its dot-com peak. That painful episode serves as an enduring reminder that high-growth indices can deliver spectacular returns on the way up and devastating losses on the way down.

The post-2010 era, however, has been transformative. Fueled by the shift to cloud computing, the explosion of mobile internet usage, the rise of digital advertising, and more recently the surge in artificial intelligence investment, the NASDAQ-100 has compounded at rates that have left most other major indices behind. Companies in the index are not merely selling products; many of them operate platforms that generate recurring revenue, benefit from massive user bases, and possess the engineering talent and capital to invest aggressively in next-generation technologies. The AI investment cycle, in particular, has disproportionately benefited NASDAQ-100 constituents like NVIDIA (which designs the GPUs powering AI training) and the hyperscale cloud providers (which are building the infrastructure AI models run on).

For the fundamentals-focused investor, the NASDAQ-100 presents both opportunity and challenge. The opportunity lies in the index's concentration of companies with high profit margins, strong free cash flow generation, and large addressable markets. Many NASDAQ-100 constituents possess the kind of durable competitive advantages — network effects, intellectual property, ecosystem lock-in — that Warren Buffett calls "moats." The challenge lies in valuation. Because growth is so highly prized in these sectors, NASDAQ-100 stocks often trade at premium multiples relative to the broader market. Distinguishing between a company that is expensive because the market is irrationally exuberant and one that is expensive because its future earnings genuinely justify the price requires careful fundamental work — the kind of work that no scrolling ticker or hype-driven news feed can replace.

The index is reconstituted annually each December, with the new composition taking effect on the third Friday of the month. A special rebalancing can also occur in March, June, or September if the aggregate weight of companies individually exceeding 4.5% of the index surpasses 48%. These rules exist to maintain diversification within the index and to prevent it from becoming, in effect, a three-stock portfolio. Quarterly rebalancing of share counts ensures that each constituent's weight stays aligned with its current free-float market capitalization.

Whether you are building a growth-tilted portfolio, researching individual tech and biotech names, or simply trying to understand where the market's momentum is coming from, the NASDAQ-100 is an essential reference. It does not tell you which stocks to buy. But it tells you, with precision, which companies the market considers the most valuable players in the innovation economy — and that is a starting point worth taking seriously.