Nvidia stock plunge highlights Big Tech’s influence on markets

NEW YORK: Nvidia and other Big Tech stocks have helped propel markets to record highs this year, but their recent volatility is making investors nervous.

The chipmaker’s stock plunge wiped $279 billion off Nvidia’s market capitalization Tuesday, the biggest one-day drop in market value in the history of a U.S. company. The stock rebounded Wednesday, rising 1% in late morning trading.

Whether the sharp decline is due to investors becoming more cautious about the artificial intelligence trend that has been a big driver of earnings growth this year or concerns about the health of the U.S. economy, further trouble for Nvidia stocks and other big tech companies would likely spell trouble for the broader market.

Nvidia — along with Apple, Microsoft, Amazon, and Alphabet — now accounts for more than a quarter of the S&P 500 and more than a third of the Nasdaq 100. Nvidia alone accounted for 23% of the S&P 500’s total annual return, which was 19.5% at the end of August.

Further declines in the value of these companies’ shares will likely have a negative impact on the indices, which reached record levels in July, unless shares from other market sectors take the initiative.

“When you look at Nvidia as a market leader, it’s not holding up despite very strong gains,” said Jason Teh, chief investment officer at Vertium Asset Management in Sydney. “There’s an old saying: If the troops can’t follow the generals, that’s a warning sign.”

Nvidia’s quarterly forecast last week fell short of investor expectations, even though second-quarter revenue and profit beat estimates.

“These gains were good last week; they beat expectations,” said Steve Sosnick, a market strategist at Interactive Brokers. “But the magnitude of those gains has been decreasing quarter over quarter, and that hasn’t gone unnoticed by investors.”

Index funds tracking the S&P 500, Nasdaq 100 and other benchmarks could also take a hit if Nvidia falls, given the stock’s growing weighting in those indices. The chipmaker has an even bigger influence in narrower indexes and ETFs that focus on technology and semiconductor stocks.

Despite the recent slide, Nvidia’s shares had more than doubled in 2024 as of Tuesday’s close, and the stock remains the best-performing stock in the S&P 500 this year. The artificial intelligence giant’s shares are up 800 percent since October 2022.

Nvidia’s rise has helped lift the broader S&P 500 technology sector, raising some concerns about a tech-stock bubble. But the sector’s forward price-to-earnings multiple remains well below levels reached in 2000, during the dot-com era.