The tech-heavy Nasdaq 100 index has performed well over the last several years. However, the index’s earnings multiple has expanded over that time, signaling high growth expectations. Based on the consensus estimate, analysts expect sales and profitability growth to slow in 2022 from 2021’s stellar pace. However, the high price/earnings multiple could prove challenging to churning out continued outperformance, and 2022 has gotten off to a rough start.
Gangbuster growth: Over the past five years, the Nasdaq 100 index has produced a 28.6% annualized return,* handily beating the MSCI ACWI ex-U.S. index’s 10.2% and the Russell 3000 index’s 17.9%. Although the Nasdaq 100 had a higher standard deviation, its Sharpe ratio was higher than that of the other two indexes.
Familiar names: Tech companies made up 59% of the Nasdaq 100, with telecommunications comprising another 5% at the end of 2021. The consumer discretionary sector is a major contributor with a 21% weight, but that includes large weightings for Amazon.com and Tesla Inc.
Nasdaq 100 constituents
Paying up: At the end of 2021, the Nasdaq 100’s price-to-earnings ratio was about 40, growing from 23 at the end of 2016. That’s higher than the Russell 3000, at 29, and 16 for the MSCI ACWI ex-U.S.
Can growth continue? While analysts forecast slowing sales growth for the next couple of years, they still expect 10%+ growth in 2022 and nearly 10% in 2023. Turning to the bottom line, the industry expects earnings growth of approximately 9% and 13% in 2022 and 2023, respectively.
Nasdaq 100 sales and earnings
*Through Dec. 31. Sources: Bloomberg LP, Nasdaq Inc.