NEW YORK (Reuters) – Arm Holdings, a newly publicly traded company, is expected to be added to popular indexes such as the tech-heavy Nasdaq 100, but analysts believe inclusion in the S&P 500 is unlikely.
Following its debut on the Nasdaq, shares of the British chip designer closed up 24.7%, giving it a market value of $65 billion. However, the shares experienced a minor decline of 0.7% in Friday morning trade.
The inclusion of stocks in widely-followed indexes and exchange-traded funds (ETFs) often leads to a fresh boost for the listed companies. Additionally, fund managers and investors who benchmark to indexes are incentivized to hold shares of included companies.
On Thursday, analysts predicted that Arm would likely be added to the Nasdaq 100 index, which measures the performance of the 100 largest non-financial Nasdaq-listed companies and serves as an important gauge for growth stocks. This year, the index has surged by approximately 40%, largely driven by the impressive performance of megacap stocks like Nvidia, whose shares have tripled due to excitement surrounding advancements in artificial intelligence.
“The Nasdaq 100 is the most likely widely followed index for the company to get added into,” said Todd Rosenbluth, Head of Research at VettaFi. “They can be faster to add megacap growth companies into the index than the S&P 500 or the Russell 1000.”
According to Todd Sohn, technical strategist at Strategas, Arm should qualify for inclusion in the Nasdaq 100 based on its market capitalization. The smallest company currently listed in the index is Lucid Group, with a market capitalization of around $13 billion.
However, the process of including Arm shares in the Nasdaq 100 might take some time. The methodology document provided by Nasdaq states that a security must have traded for a minimum of three full calendar months, excluding the listing month, to be eligible for the index. Furthermore, Nasdaq will not rebalance the index until December, as specified by Sohn.
In contrast, inclusion in the S&P 500, which is the standard benchmark for the US stock market, is less certain. Analysts, including Jeffrey DeMaso, editor at Vanguard Investment Adviser, expressed doubt about the inclusion of a UK-based multinational like Arm in an index designed to reflect the US economy.
DeMaso suggested that the fact that Arm is based in the UK “almost says ‘no’ right out of the blocks to the question of whether or not it’s included in any Standard & Poor’s index.” An S&P Dow Jones Indices spokeswoman referred to the methodology document but declined to comment or speculate on index changes.
In addition, the limited availability of Arm shares to the public may present a barrier to inclusion in indexes or ETFs. SoftBank currently holds a 90.6% stake in Arm, which means less than 10% of Arm shares are available to the public. Many ETFs have rules on minimum free float requirements that exceed this threshold, according to analysts.
Nevertheless, aside from major indexes, a few tech-focused ETFs, including the VanEck Semiconductor ETF, the iShares Exponential Technologies ETF, and the Invesco AI and Next Gen Software ETF, are strong candidates to acquire shares of Arm. These ETFs already hold shares of Nvidia, as highlighted by Lois Gregson, senior ETF analyst at FactSet.
(Reporting by Suzanne McGee and Lewis Krauskopf; Editing by Ira Iosebashvili and Nick Zieminski)
Credit: The Star : Tech Feed
