Nvidia's Stock Surge Creates Big Ripples in the S&P 500, Raising Market Concerns

Nvidia’s remarkable stock rally has been a significant force in driving the S&P 500 index’s performance this year, raising both opportunities and concerns for investors. With Nvidia shares soaring 140% in 2024, the chipmaking giant’s influence on the broader market has become more pronounced, contributing approximately 25% of the S&P 500’s overall 17% gain.

On Wednesday, Nvidia’s stock surged 8.2% following CEO Jensen Huang’s announcement of robust demand for its chips, a move that propelled the S&P 500 to its largest intraday gain in nearly two years. The rally reversed a 1.6% loss to end the day up 1.1%, showcasing Nvidia’s potent effect on market movements. Data from Nomura revealed that Nvidia was responsible for 44% of the S&P 500’s increase on that day alone.

This trend has revived concerns about market vulnerability, with analysts noting that the S&P 500 has struggled to gain ground on days when Nvidia’s shares decline. In 2024, the index has only managed to rise more than 1% on days when Nvidia’s stock closed higher, highlighting the chipmaker’s dominant role in influencing broader market trends.

The dominance of Nvidia, alongside tech giants Microsoft and Apple—whose combined weighting in the S&P 500 is nearly 20%—has led to worries about a small group of stocks steering the market’s direction. While there has been strength in non-tech sectors, a downturn in any of these major tech stocks could severely impact broader market performance.

Traders are closely monitoring Nvidia’s options market activity, which has surged significantly. Nvidia now accounts for about 22% of daily individual stock options trading volume, up from 5% earlier in the year. This heightened trading activity has amplified Nvidia’s stock movements, as buying of upside call options leads market makers to purchase more shares, driving the stock price even higher.

Nvidia’s influence parallels past cases like Tesla, which also saw its stock swings magnified by options trading. However, the excitement surrounding AI has created an even more intense market dynamic, according to Nomura strategist Charlie McElligott. The transformative potential of AI has captivated investors to a greater extent than previous tech trends.

As Nvidia continues to drive significant market movements, its future performance will be closely watched, with potential implications for the broader financial landscape.