The Nasdaq Composite Index reached a milestone of 20,000 on Wednesday, driven by a year of remarkable gains in technology stocks, including major players like Apple, Nvidia, Alphabet, and Tesla. The surge, fueled by optimism surrounding artificial intelligence (AI) and expectations of falling interest rates, saw the index close at 20,034.89, marking a 1.8% increase for the day.
The Nasdaq has risen by more than 33% this year, rewarding investors in tech stocks. This rally follows a strong economic recovery after a 2022 dip, despite a challenging inflation period and high interest rates. In particular, Nvidia, known for its leading chips in AI, has seen its stock soar by over 1,100% since October 2022.
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| Nasdaq hits 20,000, fueled by AI optimism and tech stock rally. |
While the rally has pushed valuations higher, there are concerns over the dominance of megacap tech stocks, which now make up nearly 60% of the Nasdaq. Analysts are questioning whether the momentum can continue into 2025, with stretched valuations and high expectations for growth.
The current Nasdaq valuation is around 36 times earnings, higher than the long-term average of 27, but still far from the levels seen during the dot-com bubble. Despite this, experts note that the index's gradual rise this time around appears more sustainable.
The top three Nasdaq companies—Apple, Microsoft, and Nvidia—account for more than 30% of the index, reflecting the increasing concentration of the index in the hands of a few major tech giants. While this dominance has driven the index's performance, it could pose risks if sentiment toward Big Tech shifts.
The Nasdaq's 33% growth in 2024 outpaces the S&P 500 and Dow Jones Industrial Average, making it the top-performing major U.S. stock index this year. Over the last decade, the Nasdaq has gained over 320%, outperforming the S&P 500 and Dow's respective gains of 200% and 150%.
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