Recently, Nvidia has experienced a slight correction. The Wall Street Journal stated, “The S&P 500 Index relies too heavily on Nvidia. If Nvidia’s stock price had not fallen on Thursday and Friday, the S&P 500 Index would have continued to rise.”
In the AI boom, led by Huang Renxun, Nvidia’s stock price has skyrocketed by over 162% this year, and its market value has surpassed $3.1 trillion, making it the most expensive stock in the S&P 500 Index. However, although Nvidia’s performance is impressive, it does not reflect the overall market sentiment, as other stocks in the S&P 500 have shown divergence.
The Wall Street Journal pointed out that investors are starting to worry about the market’s over-reliance on Nvidia. Nvidia accounted for one-third of the S&P 500 Index’s gains this month before its pullback on Thursday, and 44% of the gains since the beginning of 2022. This means that the performance of the entire S&P 500 is almost solely dependent on Nvidia.
If chip demand weakens, AI hype becomes a reality, or the market becomes saturated, the S&P 500 Index will have to rely on the performance of other sectors, which are not as stable as Nvidia. Analyst James Mackintosh from the Wall Street Journal stated that investors buy cheap and popular index ETFs to diversify risks and spread them across many companies. However, they are instead taking on a large amount of risk associated with AI concept stocks related to Nvidia.
If Nvidia stagnates, other parts of the market may accelerate their development. But if Nvidia performs poorly, the performance of other stocks boosted by AI will also be subpar. The market’s gains will depend on “economically sensitive stocks” outside of large tech companies.
Analysis: Nvidia’s FOMO sentiment will lead to a 20% decline
Although Nvidia has performed outstandingly in the market, no one accurately predicts the future revenue growth trend. Whether it’s Wall Street analysts or Nvidia executives, they have been continuously raising their target prices this year. However, Nvidia experienced a slight correction last Thursday and Friday.
Kevin Dempter, an analyst from Renaissance Macro Research, stated that Nvidia’s stock price surged last Thursday due to investors’ fear of missing out (FOMO). However, buying pressure subsided, and the stock price fell below the previous day’s low, causing investor sentiment to shift from optimism to pessimism. This has resulted in investors who bought in over the past two trading days being trapped.
Dempter emphasized the importance of such a trend after a significant rise, indicating that market sentiment is likely to fluctuate like a roller coaster in the future. He pointed out that Nvidia’s stock price also turned negative after a surge on March 8 and corrected by 20% within a month. Looking at the extreme change in market sentiment and the sudden reversal of trends, Dempter predicts that Nvidia will face more selling pressure to take profits. If a similar 20% correction occurs, it could pull the stock price back to around $110 in early June.