Last week, for NVIDIA, the leading AI company, it was like riding a roller coaster. After topping the US stock market value list, Nvidia fell for two consecutive days with a decline of over 3%, and its market value evaporated by over 200 billion US dollars. It only sat for one day as the "global stock king".
Correspondingly, the S&P 500 index and Nasdaq index also recorded a slight decline in these two trading days. This inevitably makes investors wonder whether the two benchmark indices will also suffer if the market leader continues to be sluggish?
"Mathematically speaking, considering it is the largest stock in the US market, if it falls, the market will fall," said Melissa Brown, Director of Applied Research at SimCorp, in an interview
"It's hard to imagine a significant decline in a stock when other stocks look good," she added.
But Brown said that the decline in Nvidia's stock price may not necessarily bring huge pain to the overall index, especially if the lagging sectors start to "exert force".
Concentration is still an issue
Since the rise of the AI craze, Nvidia and a few other AI winners have contributed increasingly to the rise of the two benchmark indices (the S&P 500 and Nasdaq Composite), causing investors to become more concerned.
Ross Yarrow, Managing Director of the US stock market at Baird, an independent investment firm and financial services company, pointed out that as of last Wednesday, Nvidia alone has contributed 5.28 percentage points to the S&P 500's rise so far this year, a proportion that no company has achieved since 2020.
According to data from the S&P Dow Jones Indices, as of the end of May, the top 10 components of the S&P 500 index accounted for 34% of the total weight of the index, the highest level in at least 30 years.
Brown also found an even more terrifying sign: in the past few weeks, only 30% of stocks in the S&P 500 index have performed better than the index for five consecutive days, which means that 70% of stocks in the S&P 500 index have performed lower than the index.
The impact may not be significant
Excluding the closing data of the US stock market last week, Nvidia opened high and fell 3.54% on Thursday, while the S&P 500 index and Nasdaq only fell 0.25% and 0.79%, respectively; On Friday, Nvidia fell another 3.22%, while the S&P 500 index and Nasdaq fell by 0.16% and 0.18%, respectively.
Moreover, despite Nvidia's pullback, other beneficiaries of artificial intelligence remain steadfast. Amazon's stock price rose 1.6% on Friday, driving the non essential consumer goods sector of the S&P 500 index up 1%; The stock price of Alphabet Inc., the parent company of Google, rose 1.89%, while Microsoft rose 0.92%.
Market consulting firm Navellier& Louis Navellier, founder of Associates, commented, "If Nvidia falls by 3.5%, it will be difficult for the S&P 500 or Nasdaq to maintain an upward trend. However, the overall loss is not significant, with the Dow Jones Industrial Average rising."
Mark Newton, head of technology strategy at Fundstrat Advisors, a US investment firm, pointed out that although the extent to which technology stocks outperform other sectors of the US stock market has become more apparent, this does not necessarily mean that the overall market will be "led by the nose" and inevitably follow a significant sell-off.
"In recent days, there have been some improvements in the financial, healthcare, industrial, and energy sectors of the US stock market, which may lead to a short-term rebound in the S&P 500 index after experiencing severe weakness since March.".
Will Nvidia still fall?
As for the future, Kevin Demper from Renaissance Macro Research said, "We suspect Nvidia will experience further profit taking.". He expects a possible 20% pullback, bringing Nvidia's stock price back to around $110 at the beginning of this month.
Navellier said, "If you believe in the claims of artificial intelligence, Nvidia is still a secure bet to reap rewards from the construction of artificial intelligence in the short term."
Previously, Bank of America also stated that Nvidia's stock still represents an attractive investment opportunity - any decline in the stock should be seen as an opportunity to buy more stocks.
According to Vivek Arya, an analyst at the bank, "Nvidia's stock price has surged significantly, rising by 50% in the second quarter alone (compared to a 4.4% increase in the S&P 500 index), which may make it vulnerable to profit taking in the short term. However, we believe that any volatility can be short-lived."