Executive Summary
The Nasdaq 100 (NDX) is a stock market index representing the performance of 100 of the largest non-financial companies listed on the Nasdaq Stock Market. As an index, NDX does not sell products or services directly to consumers. Instead, investment firms offer investment vehicles like Exchange Traded Funds (ETFs) that track the NDX. Its economic quality is intrinsically linked to the aggregate performance of its constituent companies, primarily in the technology sector. NDX's edge lies in its representation of innovative, growth-oriented firms. The primary risk stems from the concentration of its holdings and vulnerability to sector-specific downturns. NDX provides investors with diversified exposure to leading technology and growth companies through index-linked investment products.
1. What They Sell and Who Buys
NDX itself does not sell anything. Investment firms sell investment products (e.g., ETFs, index funds) that track NDX to individual and institutional investors seeking exposure to large-cap growth stocks.
2. How They Make Money
NDX does not generate revenue directly. Investment firms that create and manage NDX-tracking investment products earn revenue through management fees, transaction fees, and other operational charges levied on investors.
3. Revenue Quality
The "revenue" associated with NDX-linked products is recurring based on assets under management. Revenue quality is dependent on the underlying performance of the index and the ability of investment firms to retain investor capital.
4. Cost Structure
NDX has minimal direct costs. Investment firms managing NDX-tracking products incur costs related to fund administration, marketing, regulatory compliance, and trading expenses to replicate the index.
5. Capital Intensity
NDX is not capital intensive as it is an index. Investment firms managing tracking products have relatively low capital intensity.
6. Growth Drivers
Growth is derived from the overall performance of the constituent companies within the index, particularly those with high growth rates and significant weighting. Investor demand for tech-focused investment products also drives growth.
7. Competitive Edge
NDX's competitive edge lies in its recognition as a leading indicator of technology and growth stock performance and its brand recognition. Its concentration in dominant tech companies gives it an advantage.
8. Industry Structure and Position
The index industry is competitive, with multiple providers offering similar benchmarks. NDX is a prominent index focused on technology and growth.
9. Unit Economics and Key KPIs
Not applicable for NDX. Investment firms tracking NDX focus on metrics like expense ratio, tracking error, and assets under management (AUM).
10. Capital Allocation and Balance Sheet
Not applicable for NDX.
11. Risks and Failure Modes
Risks include: (1) high concentration in a few companies; (2) vulnerability to technology sector downturns; (3) changes in index composition; and (4) potential for tracking error in investment products.
12. Valuation and Expected Return Profile
Valuation is linked to the aggregate valuation of the underlying companies. Expected returns are derived from the growth and dividend yields of its constituents, adjusted for management fees of tracking products.
13. Catalysts and Time Horizon
Catalysts include positive earnings surprises from key constituents, new technology adoption, and shifts in investor sentiment towards growth stocks. The investment time horizon is typically long-term.