Nasdaq 100: Is Now the Time to Buy the Dip?

The Nasdaq 100, a bellwether for global technology and innovation, has long been a focal point for investors seeking exposure to high-growth equities. As 2025 enters its final stretch, the index finds itself at a crossroads, marked by structural shifts in its composition, evolving technical dynamics, and diverging valuation signals. For investors contemplating whether to "buy the dip," a nuanced analysis of market cycle positioning and valuation sustainability is essential.

Market Cycle Positioning: Structural Shifts and Technical Weakness

The Nasdaq 100's market cycle trajectory in late 2025 is shaped by two key forces: a strategic realignment of its constituent base and a technical correction in price action. According to a report by Reuters, the relocation of Walmart-a traditional consumer staples giant-to the Nasdaq Global Select Market represents a seismic shift in the index's identity. This move, part of a broader trend of companies prioritizing tech-forward ecosystems, underscores the Nasdaq's growing influence in sectors beyond pure-play technology. The index's first-half 2025 momentum was further bolstered by high-profile listings like CoreWeave and Chime, which aligned with its investor base's appetite for innovation.

However, recent technical indicators suggest a stall in the index's upward momentum. Data from The Business Times reveals that the Nasdaq 100 has broken down key support levels, including its mid-May uptrend channel and the 50-day simple moving average (SMA), with a 6% decline since early November. This pullback, driven by reassessments of the AI trade and shifting expectations around Federal Reserve rate cuts, raises questions about near-term sustainability. If the index continues to retrace, the 22,100-point level-a confluence of the 200-day SMA and a 38.2% Fibonacci retracement-could act as a critical support zone.

Compounding short-term uncertainty is the removal of Solstice Advanced Materials (SOLS) from the index following its Q3 2025 earnings report. While the company reaffirmed its full-year revenue guidance, its net loss of $35 million compared to $152 million in the prior year has drawn scrutiny over board independence and liquidity risks. Such events highlight the fragility of the index's narrative during periods of profit-taking or earnings underperformance.

Valuation Sustainability: Earnings Growth vs. Elevated Multiples

The Nasdaq 100's valuation dynamics present a mixed picture. On one hand, earnings growth remains robust. Preliminary Q3 2025 data from the Nasdaq Composite shows net income expanding by 16% year-over-year, with the technology sector leading at 20% growth. Heavyweights like Microsoft (25% profit growth), Amazon (38%), and Alphabet (22%) have driven this expansion, reflecting the index's concentration in high-margin, innovation-driven firms. Historically, the Nasdaq 100's earnings per share (EPS) have grown at a 19.11% annualized rate since 2023 according to Gurufocus, reinforcing its appeal to long-term investors.

Yet, these fundamentals must be weighed against an elevated price-to-earnings (P/E) ratio. As of November 2025, the Nasdaq 100's P/E stands at 33.92, surpassing its 5-year average of 27.26–32.94. This premium valuation, while justified by strong earnings momentum, leaves the index vulnerable to profit slowdowns or macroeconomic headwinds. For context, the S&P 500's P/E ratio remains significantly lower, reflecting a more conservative valuation profile.

Strategic Implications for Investors

The interplay between structural strength and technical fragility creates a complex decision matrix for investors. On the bullish side, the Nasdaq 100's evolving composition-anchored by tech-centric giants and bolstered by cross-sector innovation-positions it to benefit from long-term trends like AI adoption and digital transformation. The index's recent partnership with SGX Group to streamline dual listings in Singapore also signals Nasdaq's intent to expand its global footprint, potentially attracting new capital flows.

However, the current technical correction and elevated P/E ratio suggest caution. A pullback to the 22,100 support level could present a buying opportunity for long-term investors, provided earnings growth remains resilient. Conversely, a breakdown below this level might trigger a broader reassessment of risk, particularly if the Federal Reserve delays rate cuts or AI-driven sectors face regulatory headwinds.

Conclusion

The question of whether to "buy the dip" in the Nasdaq 100 hinges on an investor's time horizon and risk tolerance. While the index's structural shifts and earnings momentum offer compelling long-term arguments, its current valuation and technical vulnerabilities necessitate a measured approach. For those with a multi-year outlook, a strategic entry near key support levels could align with the index's growth trajectory. Yet, short-term volatility and profit-taking risks remain significant. As always, diversification and disciplined risk management will be critical in navigating this pivotal phase for the Nasdaq 100.