Nvidia's Immense Market Power Is Worrying Investors — Here's Why

Nvidia has jumped 140% year-to-date — and made up about one-fourth of the full S&P 500's 17% wide gain. In June, Nvidia had an moreover higher effect connected the index's returns, making up complete a 3rd of wide returns.

Demand for the company's AI chips is truthful precocious that CEO Jensen Huang says it is his biggest worry.

Related: Why Are Nvidia Earnings So Important? They Could Be a 'Market Mover,' Says Expert

Though Nvidia banal could rally further this week if the Federal Reserve cuts liking rates, immoderate boost could besides reenforce concerns astir the AI giant's undeniable power connected the index, and what whitethorn hap to the marketplace if request slows aliases shifts distant from Nvidia's AI chips.

Nvidia's effect arsenic of June 2024. Graphic by Visual Capitalist via Getty Images

When Nvidia banal fluctuates, it noticeably impacts the broader market; Nvidia's drops travel declines successful markets overall.

For example, a debased constituent earlier this period wiped retired complete $10 billion of Nvidia CEO Jensen Huang's individual wealthiness successful 1 time and complete $279 cardinal of the company's wide marketplace capitalization. The Nasdaq besides dropped by 3.3% and the S&P 500 by 2.1% that day.

In contrast, erstwhile shares grew complete 30% crossed the 2 weeks ending August 21, Nvidia's marketplace capitalization grew by $750 cardinal and lifted the Nasdaq by over 7%.

Swings successful Nvidia's banal value "could power broader indices for illustration the Nasdaq 100 and S&P 500, fixed their beardown relationship pinch Nvidia shares," Lukman Otunuga, elder marketplace expert astatine online trader FXTM, told Entrepreneur successful an email earlier Nvidia's second-quarter net study in August.

Related: Nvidia CEO Jensen Huang's Biggest Worry Shows that Success Has a Downside

Nvidia's capacity has a deeper impact: It affects investors' perceptions of AI request arsenic a whole. The 4 companies that comprise complete 40% of Nvidia's profits are Amazon, Google, Meta, and Microsoft — truthful if Nvidia's net are up, liking successful AI parts among awesome players is too.

Nvidia posted second-quarter profits of $16.6 cardinal past month, beating expectations of $15 billion. It had its fourth 4th successful a row of triple-digit growth.

The AI chipmaker had a market cap of astir $2.866 trillion astatine the clip of penning and was the third-largest institution by marketplace headdress successful the world.