One study says that Nvidia Corp. is the most important company to global markets, even though it’s not the biggest.
Since Nvidia’s stock fell 4.7% on Tuesday, DataTrek Research looked at how much it affected the market. Nvidia makes up 6.84% of the S&P 500 SPX 0.46%, so the researchers think that Tuesday’s drop was responsible for 42% of the drop in the index.
That fits with something the DataTrek team just recently said: Nvidia’s stock can go through big changes, even though the company’s market value has grown to $3.26 trillion, second only to Apple Inc.’s AAPL -0.98% $3.51 trillion.
“It is generally thought that stock price volatility is inversely related to market cap,” Nicholas Colas, co-founder of DataTrek, wrote. “But it looks like common sense has never owned [Nvidia],”
So, even though it’s exciting that Nvidia’s stock could reach new highs, like it did on Monday, Colas wrote that buyers “must also be mindful of the effect a highly volatile super-cap stock has on the index.”
He also said that the Nvidia effect isn’t just happening in the U.S. The stock makes up 4.3% of the MSCI All Country World Index, which is more than any other country’s stock except for two—Japan at 4.9% and the United States at 64.8%. Colas pointed out that France and Germany together make up 4.4%, which is about the same as Nvidia’s overall share.
Because of this, he said, “Nvidia has become, quite literally, the single most important company in the world to global equity investors.” It’s possible for global investors to get stuck on country allocations, but he said, “Choosing whether to over or underweight this one security can easily be more important.”
Chip investors were worried about ASML Holding N.V.’s ASML -6.85% warning of a slower-than-expected market recovery, which caused Nvidia’s stock to drop on Tuesday. However, ASML pointed out AI as a rare area of strength, and Nvidia is heavily invested in AI trends. The stock is going up 1.8% on Wednesday.
It will be interesting to see how Taiwan Semiconductor Manufacturing Co.’s (TSM) overnight earnings report does. According to Mizuho desk-based analyst Jordan Klein, it “has to look and sound good, namely on outlook,” because that company has a higher bar to meet than ASML.
