Nvidia’s massive surge, which has gained 140% this year, has played a major role in the S&P 500’s performance, contributing about a quarter of the index’s 17% gain. The chip company’s impact was highlighted Wednesday when Nvidia’s 8.2% surge helped the S&P 500 recover from a 1.6% decline to close up 1.1%, its biggest intraday gain in nearly two years.
Nvidia's stock surge came after CEO Jensen Huang reported strong demand for the company's chips, adding more than $200 billion to its market value and accounting for 44% of the S&P 500's gain for the day, according to data from Nomura.
The co-head of derivatives strategy at Susquehanna Financial Group noted that Nvidia’s rally had a significant impact on the market. However, the S&P 500 struggled to advance on days when Nvidia stock fell, managing to post gains only 13% of the time when Nvidia stock fell. Moreover, the index did not see a gain of more than 1% on any day when Nvidia stock finished lower, a stark contrast to the 13 such instances that occurred in 2020.
Investors have expressed concern about the outsized impact that a small group of stocks, such as Nvidia, Microsoft and Apple — which together make up nearly 20% of the S&P 500 — could have on the direction of the market. And while there has been a recent rally in non-tech sectors, analysts warn that a big drop in the tech giants could weigh on the broader market.
Options trading has been closely watched, with Nvidia options accounting for about 22% of daily individual stock options volume, up from 5% at the start of the year. That makes Nvidia the most traded stock in the options market on most days.
The company's gains are compounded when traders buy bullish call options en masse, forcing market makers to buy more Nvidia shares to cover their risks, pushing the stock price higher.
Nvidia isn’t the only company that has had such a strong impact on the market; Tesla has previously shown similar patterns due to the options market. However, Nvidia’s focus on AI appears to have caught the attention of investors more than electric cars, with a Nomura strategist commenting on the fundamental theme that AI represents across the corporate landscape.
