Shares on the US Nasdaq index make the headlines right here within the UK too. We are able to’t have missed Nvidia (NASDAQ: NVDA), with a market capitalisation of practically $3.4trn (sure, trillion). It’s value greater than all the businesses of the FTSE 100 mixed.

And Tesla at all times appears to be getting a point out. The Tesla share price is up 31% for the reason that US election. Tesla remains to be nicely beneath Nvidia’s rise up to now 5 years:

Flying tech shares

On Friday (22 November) the Nasdaq closed at 19,003 factors. On the identical date in 2019, it ended at 8,520 factors. That’s a achieve of 123%.

My imagined £5,000 invested in a low-cost Nasdaq index tracker fund again then could be value round £11,300 right now. There’d be some small expenses for the fund administration. However the Nasdaq pays a median dividend of round 1.8%, so I’ll deal with them as canceling out.

My key, and shocking, tackle that is how small that achieve is. I imply, that is the index that gives in a single day multibaggers, isn’t it?

Index comparability

Over the identical 5 years, the broader S&P 500 has risen by 92%, solely simply behind the Nasdaq. The dividend yield is comparable, at round 1.2%.

Based mostly on this, the S&P looks as if a greater index to trace than the Nasdaq, even when only for decrease threat. However that’s solely trying again 5 years.

Winding the clock again a decade, the S&P 500 has gained 189%, however the Nasdaq is up a whopping 303%. So earlier than I made a decision which to trace, I’d rigorously study a number of timescales and take into consideration my very own funding horizon.

My £5,000 invested in a Nasdaq tracker 10 years in the past might be value £21,500 now. And, the identical quantity invested when the tech index began in February 1971 may have grown to £948,600. Not that my pocket cash reached 5 grand again then, thoughts.

Focus

However that five-year return appears disappointing, but it surely jogs my memory of 1 primary lesson. The Nasdaq’s positive aspects are concentrated amongst only a few key shares.

Proper now, it’s principally the so-called ‘Magnificent Seven’. That’s Nvidia and Tesla, together with Apple, Microsoft, Amazon.com, Alphabet, and Meta Platforms. All of them have manmade intelligence (AI) in widespread.

CNBC runs its personal Magnificent 7 index, and that’s up 320% simply because it began in December 2022.

Nasdaq chief

To get again to Nvidia, what we see there’s a five-year achieve of two,549%. And to get some concept of the place that development got here from, the corporate posted whole income again in 2020 of $10.9bn.

Then by the 12 months to January 2024, whole income had reached a whopping $60.9bn. Q3 income this 12 months, reported on 20 November, reached $35.1bn. That’s in a single quarter alone. Nonetheless, because it seems like development would possibly sluggish somewhat, buyers weren’t happy, and the price dipped somewhat.

As buyers, we have to be conscious that Nasdaq development is usually concentrated in a small variety of shares. The index might be very unstable too, and it’s not likely for many who don’t need threat.

Nonetheless, if I’d put a shilling in it in 1971…