After the close Friday, the XLK ETF will be rebalanced to drop Apple's 22% share down to 4.5% and increase Nvidia's 5.9% share up to 21.1%, based on Bloomberg estimates.

All of this stems from Great Depression-era investor protection laws, which require that indexes limit the concentration of individual stocks to earn the label "diversified."
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Briefly stated, there are four companies — Nvidia, Apple, Microsoft, and Broadcom — that overrun the critical 4.8% threshold for individual names in a diversified index. And because they collectively exceed 50% of the entire index by weight, the weights of the smallest members are reduced according to a formula until all of the legal thresholds are respected.

Amazing. So the rule says that if the top 4 are over 50%, at neutral weights, you reduce the smallest ones of the top 4 to 4.5%?

It seems so - here are the rules:

6. The sum of the companies with weights greater than 4.8% cannot exceed 50% of the total index weight. These caps are set to allow for a buffer below the 5% limit.
7. If the rule in step 6 is breached, rank all companies in descending order by FMC weight, and reduce the weight of the smallest company whose weight is greater than 4.8% that causes the step 6 breach to 4.5%. This process continues iteratively until step 6 is satisfied.

spglobal.com - Methodology sp US indices

In other words, when Microsoft is $3.2t and Apple is $3.1t and Nvidia is $3.0t and Broadcom is $809b, you end up having MSFT at 22.1%, AAPL at 22.0%, NVDA at 5.9% and AVGO at 5.6%. Then when NVDA moves up from $3.0t to $3.2t and drops Apple to 3rd place, you get NVDA and MSFT with the >20% stakes and it's AAPL that has to be cut to 4.5%. And if NVDA drops back to number 3, you reverse all that? Seems like a rule dreamed up by amateurs, not the premier indexer S&P. Their brokers must be having a field day with commissions.

dtb