Arm Holdings, a leading chip maker based in the U.K., is set to replace Sirius XM Holdings in the Nasdaq 100 index and other related Nasdaq indexes before the start of trading on June 24, as announced in a Nasdaq press release on Thursday evening. This change comes as part of the Nasdaq’s regular index rebalancing and component adjustment process.
Arm Holdings, with a market valuation exceeding $160 billion, significantly surpasses Sirius XM’s market value of approximately $10 billion. The disparity in market capitalization is a key factor in this decision, aligning with Nasdaq’s criteria for index inclusion. While Nasdaq did not explicitly state the reason for this change, reports from Barron’s on Wednesday suggested that Sirius XM’s market value had fallen below the 0.1% threshold of the Nasdaq 100’s total market capitalization, making it ineligible to remain in the index. The Nasdaq 100 index mandates that its components maintain a market value of at least 0.1% of the total market capitalization.
The Nasdaq 100 index undergoes quarterly rebalancing and annual reconstitution every December. However, component changes like the one involving Arm and Sirius XM can occur alongside these quarterly rebalancings when necessary adjustments are made based on share count changes and other relevant factors.
The anticipated removal of Sirius XM from the Nasdaq 100 could trigger significant selling activity, with Barron’s estimating that between 75 to 100 million shares, representing 2% to 3% of its total shares outstanding, might be sold. This potential index-related selling pressure has already impacted Sirius XM’s stock performance. On Thursday, Sirius XM shares fell by 3.6% to $2.54, marking a new 52-week low. Speculation about its potential exclusion from the Nasdaq 100 has likely contributed to the stock’s decline, which has dropped over 50% this year, marking the worst performance in the index.
Conversely, Arm Holdings stands to gain from its inclusion in the Nasdaq 100. The index, which has a total market value of approximately $22 trillion, could bring increased visibility and potential index-related buying to Arm’s shares. This inclusion is expected to bolster Arm’s market presence and possibly drive its stock performance positively.
In summary, the switch from Sirius XM to Arm Holdings in the Nasdaq 100 highlights the dynamic nature of index management and the impact of market capitalization criteria on component selection. The move reflects broader market trends and the ongoing evaluation of company performances within major stock indexes.