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Leaders in Innovation: How Nasdaq-100 Companies Drive Change and Financial Performance

Leaders in Innovation: How Nasdaq-100 Companies Drive Change and Financial Performance

The Nasdaq-100 is a who's who of the world's most influential and innovative companies:

Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX), Alphabet (GOOG), Tesla (TSLA), Microsoft (MSFT) — the list goes on. They also happen to be some of the world's most successful companies, thanks to an identity built on innovation.

But why is the NDX home to such a collection of thriving, cutting-edge companies? The technology focus of the index is certainly a factor, but not the only one. Even consumer sector names like Comcast (CMCSA), Costco (COST), Starbucks (SBUX) and others have redefined retail and consumerism, while other components have paced innovation in biotechnology.

So what makes the NDX tick? Let's look at how Nasdaq-100 companies drive innovation and performance.

Consistently ranked tops for innovation

The perception of NDX components being innovators is core to their brands, products, cultures and financial performance. Innovators are market leaders, they are the startups and unicorns that disrupt industry, reshape society and create value. Technology companies have been at the heart of this change (e.g., social media, internet of things, electric cars, artificial intelligence), while other industries have also made leaps forward in response to demographics and expectations.

It's no surprise to see Nasdaq-100 companies be consistently ranked as top innovators. They've changed the game, and are being recognized and rewarded by consumers for it.

The Boston Consulting Group's 2019 ranking of the most innovative companies included these NDX components as of January 2020*:

  • #1 Google
  • #2 Amazon
  • #3 Apple
  • #4 Microsoft
  • #6 Netflix
  • #8 Facebook
  • #9 Tesla
  • #13 T-Mobile (TMUS)
  • #17 Cisco (CSCO)
  • #22 Marriott (MAR)
  • #43 eBay (EBAY)

The top 100 global tech leaders, as compiled by Thomson-Reuters, was similarly filled with Nasdaq-100 companies. Chosen for their operational soundness and financial success, the leaders were ranked on measures like innovation, reputation and environmental impact. The top 10 included:

  • #1 Microsoft
  • #2 Intel (INTC)
  • #3 Cisco
  • #5 Alphabet
  • #6 Apple
  • #9 Texas Instruments (TXN)

Other NDX components as of January 2020 that made the list were: Adobe (ADBE), Advanced Micro Devices (AMD), Analog Devices (ADI), Applied Materials (AMAT), Autodesk (ADSK), Cognizant Technology Solutions Corporation (CTSH), eBay, Intuit (INTU), Lam Research (LRCX), Micron Technology (MU), NVIDIA (NVDA), NXP Semiconductors (NXPI), QUALCOMM (QCOM). 

Forbes also put together a 2018 world's most innovative list. It did so using a methodology in part based on innovation premium: the difference between a company’s market capitalization and the net present value of cash flows from existing businesses. That difference equals the bonus equity that investors price, with the expectation that the company will continue to generate profitable new growth. Ranked by innovation premium, the top 25 included NDX companies as of January 2020:

  • #4 Tesla (78.27%)
  • #5 Amazon (77.4%)
  • #6 Netflix (71.23%)
  • #10 Facebook (64.42%)
  • #11 Monster Beverage (MSNT) (64.26%)
  • #13 Adobe (62.38%)
  • #15 Autodesk (62.04%)
  • #16 Regeneron Pharmaceuticals (REGN) (61.11%)
  • #17 Vertex Pharmaceuticals (VRTX) (60.93%)
  • #20 Illumina (ILMN) (58.33%)
  • #21 Marriott International (58.15%)

How do NDX components drive innovation?

We know that Nasdaq-100 companies are innovators, but how exactly do they build that identity? What distinguishes these companies from others? What do they do differently or better?

As it turns out, there are two main drivers of innovation that are typically present in NDX companies: 

  1. Commitment to research and development spending.
  2. Strong, forward-thinking leadership.

When ranking the global 1,000 most innovative companies, PwC researchers found it wasn't the amount of money companies allocated, but the strategy, processes, decision-making and collaboration that goes on behind the scenes. Since 2006, researchers have observed a steady increase in R&D spending and revenue among the most innovative companies, a list teeming with NDX names. According to the same study, the NDX components in the 2018 top 25 spent a combined $89.7 billion on R&D that year.

The other hallmark of an innovative company is innovative leadership, and the NDX boasts many of the most recognized names in business.

According to Forbes, the most innovative leaders in 2019 were:

  • #1 Jeff Bezos (Amazon)
  • #2 Elon Musk (Tesla)
  • #3 Mark Zuckerberg (Facebook)
  • #5 Reed Hastings (Netflix)
  • #6 Satya Nadella (Microsoft)
  • #7 Shantanu Narayen (Adobe)
  • #8 Tim Cook (Apple)
  • #9 Arne Sorenson (Marriott International)
  • #10 Larry Page and Sergey Brin (Alphabet)
  • #11 Rodney Sacks (Monster Beverage)
  • #16 Jeffrey Leiden (Vertex Pharmaceuticals)
  • #14 Gary Guthart (Intuitive Surgical: ISRG)
  • #15 Brad Smith (Intuit)
  • #16 Scott Stephenson (Verisk Analytics: VRSK)
  • #20 George Yancopoulos and Leonard Schleifer (Regeneron Pharmaceuticals)
  • #24 Jean-Jacques Bienaime (BioMarin Pharmaceutical: BMRN)

Several other CEOs and leaders from NDX companies were featured in the top 50, including those for NVIDIA, Electronic Arts (EA), Broadcom (AVGO), Paychex (PAYX), Activision Blizzard (ATVI), Sirius XM Radio (SIRI) and Texas Instruments.

How is innovation rewarded?

Being innovative is good and all, but companies need results to show for their ingenuity. Fortunately, NDX companies are often linked with improved financial performance thanks primarily to their status as leading-edge innovators. 

In the PwC research, high-leverage innovators outperformed their global 1,000 peers in:

  • Average operating margin
  • Average gross margin
  • Gross profit margin
  • Relative total growth
  • Operating income growth
  • Sales growth
  • Market cap growth

Additionally, the Thomson-Reuters researchers found the most innovative companies they identified outperformed global indices in factors like year-over-year R&D investment, employee percent change and revenue percent change. Palpable, positive impact on stock price was also observed, with innovators outperforming major indices by considerable margins. 

Learn more about investing in innovation

As leaders and innovators, NDX companies pace the market and their respective industries in what's next, what's new and what matters most. This all translates to financial performance that lifts the individual components and the index. As technology becomes evermore intertwined with everyday life, innovation will continue to come at a rapid pace and NDX companies are at the forefront of that change.

Click here to learn more about how you can harness the financial performance of these innovators. 

Nasdaq® is a registered trademark of Nasdaq, Inc. The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. Neither Nasdaq, Inc. nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Statements regarding Nasdaq-listed companies or Nasdaq proprietary indexes are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED. 

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