Nasdaq 'Re-Balancing' Drops Apple, Props Microsoft

Apple's meteoric rise over the past decade has been matched only by Microsoft's somnolence. And although that might seem a bit simplistic, the fates of the two companies can often be seen in the stark contrast of consumer excitement over their respective product launches and, of course, in their stock prices. But this week, an outside party worked to somewhat re-balance the scales, and the result will be a sharp increase in Microsoft's financial influence, and a sharp decrease in Apple's.

That third party, Nasdaq, controls the world's most influential and most-traded financial index, the Nasdaq-100. And this week, Nasdaq announced that it will "re-weight" or re-balance the Nasdaq-100 by reducing the influence that Apple has over the index. The primary beneficiary of this move, interestingly, is Microsoft.

For background, the Nasdaq-100 consists of the 100 largest non-financial securities that trade on the Nasdaq stock market, based on market capitalization. You might recall that Apple last year passed Microsoft in market capitalization, though Microsoft of course argues that this measurement is somewhat artificial because it measures the values of outstanding shares only—not a company's overall worth. This disparity came about because Apple's stock price has risen fourfold over the past two years, according to Nasdaq. So according to market cap, Apple is "bigger" than Microsoft, though by other measures—income, revenues, overall assets, and so on—Microsoft is still bigger than Apple.

Today, Apple's weighting in the Nasdaq-100 amounts to 20.5 percent of the entire index, an amount that Nasdaq says is over double the proper amount, given the number of available shares in the company, or the "size" of the company. (Market cap roughly equates to company size, in financial terms.) So Apple's almost inexplicable stock-price successes are unfairly giving Apple an undue weighting in the index.

So, in accordance with its own rule that the Nasdaq-100 must be re-balanced whenever a single stock makes up over 20 percent of the index, Nasdaq will re-balance things by reducing Apple's influence by 40 percent. The change goes into effect May 2 and will leave Apple's stock with a weight of 12.3 percent, more in line with the number of available shares in the company.

Some of the other tech companies in the index will benefit from this re-weighting, but none are receiving a bigger boost than Microsoft: The software giant's weighting in the index will jump from 3.4 percent to 8.3 percent, Nasdaq says, more than a twofold gain. Cisco, Google, Intel, and Oracle will also see gains; 82 of the 100 companies in the index will see a drop in weighting, Nasdaq reports.

The results of the re-weighting, however, are unclear. Although Apple will still be the biggest company in the index, some see a sell-off of its shares—a move that could impact the company's stellar stock price. Apple is currently the third most valuable company in the world (according to market cap), behind PetroChina and Exxon Mobil. And it’s the most valuable company in the technology industry by the same measure.

Reacting to the news, Apple's stock took a small hit this week, while Microsoft's saw an increase. But the respective stock prices of the two companies together tell the real story. While Microsoft's stock has been stuck in the $25 range for what seems like forever, Apple stock is trading at an unbelievable $343. And while Apple was worth $2.1 billion in 1998, the company is now worth an inexplicable $332 billion, thanks to the illogical nature of the stock market. 

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