Why Companies Keen to Choose NASDAQ?

The Nasdaq is the second-largest stock and securities exchange in the world, behind only the New York Stock Exchange (NYSE). All of its trades take place electronically through dealers, rather than in a physical location directly between traders. In general, Nasdaq attracts more tech- and growth-oriented businesses than other exchanges.

What Is the Nasdaq?

Founded by the National Association of Securities Dealers, the NASDAQ opened on Feb. 8, 1971. The world's first electronic stock market began by trading more than 2,500 over-the-counter securities. At the time, the NASDAQ was a computer bulletin board-type system. At first, no actual trading took place between buyers and sellers. Instead, the NASDAQ evened the traders' odds by narrowing the spread between the bid price and ask price of stocks.

The Nasdaq attracts some of the largest blue-chip companies in the world. Many of its equities represent high-tech software, computer, and internet companies, although other industries trade on the Nasdaq as well. Major stocks that trade on the Nasdaq include Apple, Amazon, Microsoft, Facebook, Gilead Sciences, Starbucks, Tesla, and Intel. Because it attracts highly growth-oriented companies, its stocks tend to be more volatile than those on some other exchanges.

A history of the NASDAQ shows a track record of groundbreaking accomplishments. In addition to being the first exchange to offer electronic trading, it was the first exchange to launch a website, the first to store records in the cloud, and the first to sell its technology to other exchanges.

Recent History of Nasdaq

Thanks to its tech-heavy nature, the NASDAQ Composite took a major hit after the dot-com bubble burst of the late 1990s, dropping from over 5,000 to below 1,200. Other notable dates on the NASDAQ timeline include:

1975-NASDAQ invents the modern IPO (Initial Public Offering) by listing venture-capital-backed companies and allows the underwriting syndicates to trade as market makers.

1985-NASDAQ creates the NASDAQ-100 Index.

1991-NASDAQ starts an international service, so the investors and companies from other areas can also participate in NASDAQ's stock exchange. The NASDAQ introduces a new network system that allows companies and investors to trade stocks during European trading hours.

1994-NASDAQ surpassed the New York Stock Exchange in annual share volume many times in 1994. It was mainly because of its popularity with investors of emerging high-tech companies. For example, Microsoft is listed in NASDAQ.

1999-NASDAQ became the world's biggest stock exchange market based on dollar volume. The NASDAQ-100 Index Tracking Stock was launched and received 2.6 million shares in only two hours. Due to the huge success, NASDAQ moved the MarketSite to Time Square in New York City. 

Between 1995 and its peak in March 2000, the Nasdaq Composite stock market index rose 400%, only to fall 78% from its peak by October 2002, giving up all its gains during the bubble. During the crash, many online shopping companies, such as Pets.com, Webvan, and Boo.com, as well as several communication companies, such as Worldcom, NorthPoint Communications, and Global Crossing, failed and shut down. Some companies, such as Cisco, whose stock declined by 86% Amazon.com, and Qualcomm, lost a large portion of their market capitalization but survived.

The successful dot-coms of the late '90s and early '00s had a few things in common: they all vowed to "change the world," had crazy-high valuations, and were wildly unprofitable. 

Technology leads Nasdaq

As long as technology is still developing, Nasdaq will not be eliminated by the market.

NASDAQ won Google's landmark initial offering in 2004. Google earned just over $100 per share as it traded publicly on the NASDAQ stock market for the first day.

In recent years, technology stocks have helped to lead the way higher, as reflected by the significant advance by the tech-heavy Nasdaq.

Nasdaq has basically completed all system construction and has gradually stepped out of the haze caused by the bursting of the dot-com bubble.

In the past ten years, Nasdaq has been repeating its "myth of wealth creation." Apple's market value has exceeded one trillion, Microsoft's stock price has risen 20 times, Amazon's stock price has risen 40 times, and global technology companies have chosen Nasdaq Listed.

Photo: Macrotrends

Because the NASDAQ is largely made up of tech stocks, its overall performance has been very strong in the last quarter-century. As of July 2020, the NASDAQ-100 index, which includes the top 100 stocks in the exchange, reported a five-year return of 118% and a 10-year return of 426%. Meanwhile, its Composite Index reported a 100% five-year return and a 10-year return of 343%.