Nvidia set to overtake Apple in $72 billion technology ETF shakeup after its monster 164% rally this year
Fernando Gutierrez-Juarez/Getty (L); NurPhoto/Getty
- Nvidia is set to surpass Apple in a major technology ETF, triggering a $23 billion trade later this month.
- Nvidia's 164% surge this year briefly pushed its valuation past Apple's earlier this month.
- Microsoft, Apple, and Nvidia are all worth more than $3 trillion amid an ongoing AI-fueled tech boom.
Nvidia is poised to overtake Apple in one of the biggest technology ETFs later this month, sparking a massive $23 billion trade.
After soaring 164% year-to-date to shoot past a $3 trillion valuation, Nvidia was briefly worth more than Apple this month, right before the deadline for a big rebalance of State Street's Technology Select Sector SPDR ETF, which trades under the symbol "XLK" and has just over $72 billion in assets under management.
A diversification rule in the tech ETF has limited the concentration of the fund in a big way.
The top holdings of the ETF are Apple and Microsoft at about 22%, followed by Nvidia at about 6%. That's compared to the S&P Tech Index, which has Apple, Microsoft, and Nvidia each at a weighting of just over 20%.
Because of concentration limits baked into the ETF, the sum of companies with a weight above 4.8% cannot exceed 50% of the fund's holdings.
That limit has consistently been reached over the past two years, which results in the smallest company with a weight above 4.8% being knocked back down to a 4.5% weight.
With Nvidia set to take the second spot from Apple, it will spark a massive combined trade worth more than $20 billion.
Based on the ETF's current size and calculations by Business Insider, about $11 billion is set to purchase Nvidia stock, while the sell-down of Apple will amount to about $12 billion.
The massive trade is slightly below the average daily trading volume value of both stocks, so while the trade swap could spark some swings in prices, it is likely to be well absorbed by the market.
While the trade appears locked in, to occur later this month when the ETF rebalances, there is a slight chance that State Street aborts the trade.
According to a document seen by Bloomberg News, the S&P, which manages the index that's tied to the XLK ETF, could make an exception to the index's rule when it unveils the new rebalance weights later this month.
The document said that the index committee "reserves the right to make exceptions when applying the methodology if the need arises," according to Bloomberg.