Nvidia's Meteoric Rise: The AI Chip Giant Steering the S&P 500's Fortune
1min read Nvidia's substantial stock surge continues to exert a significant influence on the S&P 500 Index, raising concerns that a shift in the chip-making giant's fortunes could impact the broader market. This year, Nvidia's shares have skyrocketed by 140%, contributing to approximately one-quarter of the S&P 500's 17% rise, as its chips are deemed the gold standard for artificial intelligence applications.
On Wednesday, Nvidia demonstrated its robust sway over Wall Street. An 8.2% jump in its stock helped boost the S&P 500 to its largest intraday gain in nearly two years. The index reversed a 1.6% decline to close up 1.1%.
According to Nomura's data, Nvidia's stock soared and its market value increased by more than $200 billion after CEO Jensen Huang expressed confidence in strong demand for its chips. This accounted for 44% of the day's S&P 500 gains, with Susquehanna Financial Group's Chris Murphy noting that Nvidia's rally "lifted the entire market."
Analysis shows that the S&P 500 has struggled to make progress on days when Nvidia's stock declined. On such occasions, the index only rose by 13% this year, with no instances of gaining more than 1% on down days, unlike in 2020, which saw 13 such occurrences.
The recent movements have revived worries among investors about a small number of stocks driving the market's direction. Combined, Microsoft, Apple, and Nvidia hold nearly 20% of the S&P 500's total weight, despite the former two's lower gains this year compared to Nvidia. Analysts caution that continued selling of any tech giant could severely impact the wider market.
Traders are closely monitoring Nvidia's options, which have played a pivotal role in recent movements. Trade Alert data indicates that Nvidia recently accounted for about 22% of daily single-stock options trading, up from roughly 5% at the start of the year, making it the most active stock in the options market on most days.
The rush to buy call options on Nvidia has amplified its gains. As the demand for these options surged, market makers selling the contracts had to purchase more Nvidia shares at agreed prices, a situation known as "short gamma" in options terms. This additional buying to cover risk has further propelled the stock price upwards.
Nvidia is not the first stock to wield such influence over other markets. Nomura strategist Charlie McElligott pointed to Tesla as another favorite among retail traders, which displayed similar characteristics a few years ago when the options market magnified its stock volatility. However, he notes that artificial intelligence excites investors' imagination more than electric vehicles ever did, marking a significant paradigm shift across the corporate landscape.