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Several years have passed since then, Nasdaq Composite index (^IXIC 1.14%) Finally, I touched on a new record. But things changed in late February, when the Nasdaq finally broke its 2021 record.
There’s no telling where the Nasdaq index goes from here (unless you have a crystal ball handy). However, investors can look to which stocks may have contributed to the index’s rise for potential clues.
The key drivers behind this record-breaking growth for the Nasdaq are:
Nvidia
It wouldn’t surprise me if artificial intelligence (AI) chip companies learned that. Nvidia (NVDA 4.00%) It played a big role in the rise of the NASDAQ. Nvidia has a weight of 5.03% in the Nasdaq index, making it the fourth-highest weighted stock in the index. The stock is up 240% over the past year, compared to a 40% rise for the Nasdaq. This combination of strong outperformance and weighting helps explain the index’s success over the past 12 months.
^IXIC data by YCharts
Nvidia has had impressive earnings performance that underpins the stock’s strong rise, and growth initiatives are expected to continue, which could help push the index higher. The stock trades at a reasonable forward P/E of 32x, considering that analysts believe earnings will grow by an average of 34% per year over the long term.
Amazon
A leader in e-commerce and cloud Amazon (AMZN 0.83%) It also far exceeded the index. The stock is up 87% over the past year, more than double the Nasdaq’s performance. Amazon has an even higher weight than his third largest Nvidia, at about 6.45%. This means Amazon’s success directly impacts the performance of the broader index.
^IXIC data by YCharts
Amazon is poised to continue its long-term growth in online retail and cloud computing, especially as AI proliferates in the coming years. However, there is a possibility that the rise in stock prices will slow down slightly. The stock has a forward P/E ratio of 42 times, which seems reasonable for a company where analysts expect earnings to grow at an average annual rate of 24%.
alphabet
internet giant alphabet (GOOG -1.22%) (Google -0.95%) Because of its dual stock structure, it quietly occupies a large portion of the Nasdaq Composite Index. Individually, his weighting by ticker component is his fifth and his sixth. However, the combined weight of Class A and Class C shares, differentiated by voting rights, gives Alphabet 6.72%, the third-highest weight on the Nasdaq, displacing Amazon. Stocks have outperformed broader indexes over the past year, contributing to the Nasdaq’s rise.
^IXIC data by YCharts
Although the stock price has risen more than 50% in 12 months, the stock is still fairly cheap at 20 times forward earnings. That’s an acceptable price for a company that analysts believe will boost earnings by an average of 16%. Alphabet’s core business is digital advertising, and this remains a long-term growth trend that Alphabet can capitalize on.
Which stocks have the potential to rain on your parade?
It’s not all good news. The Nasdaq may finally feel the weight of its two most heavily weighted stocks. apple (AAPL -0.60%) and microsoft (MSFT 0.45%). These two together account for his 23.8% of the total index. Over the past year, Apple has underperformed the index by nearly half. Microsoft, like the other “powerful companies” mentioned above, has outperformed in the past year, with the price increasing by 65%.
However, both stocks are quite expensive given their expected growth. Apple’s earnings are expected to grow at a low-single-digit pace, but the company trades at a very high 27 times forward earnings. Microsoft stock isn’t very expensive, but with a price-to-earnings ratio (PEG) of over 2, it’s not cheap. Apple is over 3. When it comes to PEG ratios, look for and buy ratios below 1.5. Anything close to 1 or less is considered. very attractive.
AAPL PE Ratio (Forward) Data by YCharts
Because these stocks are heavily weighted, the possibility that their valuations will stagnate or decline remains a threat to the Nasdaq. It will be interesting to see how the potential push and pull between rising and falling stocks plays out and how it affects the trajectory of the index.
Investors can maximize their future by deploying a diversified investment strategy, buying stocks with long-term intentions, and buying slowly and regularly to avoid getting caught up in unfortunate market shifts. It can be used for
Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Justin Pope has no position in any stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool recommends the following options: His January 2026 $395 long call on Microsoft and his January 2026 $405 short call on Microsoft. The Motley Fool has a disclosure policy.
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