Nvidia stock has continued its stunning run this yr, pushing the AI ​​chip leader’s valuation above $3 trillion and giving it a fair larger presence within the S&P 500.
In fact, in line with Torsten Sløk, chief economist at Apollo, 34.5% of the S&P 500’s market capitalization gains thus far this yr will be attributed to Nvidia alone.
Shares are up 166% yr thus far, over 200% from a yr ago, as the substitute intelligence craze has gripped Wall Street, and Nvidia’s quarterly results show no signs of slowing down the frenzy for AI chips.
However, relying so heavily on one stock also carries great risks, warned Sløk.
“Such high concentration means that everything will go well as NVIDIA continues to grow,” he said. wrote in a note on Wednesday“But if it starts to decline, it will hit the S&P 500 hard.”
Because the S&P 500 is weighted by market capitalization, even relatively small price fluctuations in large corporations comparable to Nvidia, Apple and Microsoft could cause the broad stock index to wobble.
And as retail investors increasingly spend money on S&P 500 index funds, meaning – for higher or for worse – that their exposure to Nvidia can be increasing.
“The bottom line is that the extreme concentration of returns in the S&P 500 means that investors are more vulnerable to single headlines influencing the one stock that drives index returns,” Sløk added.
It isn’t the primary time that he has warned in regards to the stock market’s dependence on major technology corporations.
When Nvidia’s market capitalization crossed the $2 trillion mark for the primary time earlier this yr, Sløk compared the technology corporations’ valuations to the bubble in the course of the dot-com era.
“The top 10 companies in the S&P 500 are more overvalued today than the top 10 companies were during the tech bubble in the mid-1990s,” he said. wrote at the moment.
Others on Wall Street are also becoming increasingly skeptical about Nvidia’s valuation and its attractiveness as an investment after its epic share price rise.
But the bulls at Nvidia remain. Beth Kindig, senior technology analyst at I/O Fund, expects further astronomical gains in the approaching years and predicts that the corporate’s market capitalization will greater than triple again to achieve $10 trillion by 2030.
Meanwhile, Nvidia CEO Jensen Huang continues to surprise Wall Street, most recently with the announcement of rapid development of recent AI platforms.
Earlier this month, he said Nvidia plans to update its AI accelerators yearly, announcing the Blackwell Ultra chip for 2025 and a next-generation platform under development called Rubin for 2026.
