Fri Sep 13 20:15:50 UTC 2024: ## Nvidia’s AI Boom Fuels Market, But Raises Concerns of Fragile Gains

**NEW YORK (Reuters):** Nvidia’s meteoric stock rise continues to disproportionately influence the S&P 500, igniting worries about the broader market’s vulnerability if the chip giant’s fortunes turn. This year’s 140% surge in Nvidia shares, fueled by the company’s dominance in the artificial intelligence (AI) sector, has accounted for roughly a quarter of the S&P 500’s 17% gain.

Nvidia’s impact was particularly evident on Wednesday, when the stock’s 8.2% rally propelled the S&P 500 to its biggest intraday jump in almost two years. The index, previously down 1.6%, closed up 1.1% on the day. This surge in Nvidia’s value, driven by CEO Jensen Huang’s announcement of robust demand for its chips, added over $200 billion to the company’s market value, accounting for 44% of the S&P 500’s gain that day.

“Nvidia got the whole market moving,” noted Chris Murphy, co-head of derivative strategy at Susquehanna Financial Group.

However, the S&P 500 has struggled to gain ground on days when Nvidia’s shares fall. A Reuters analysis reveals that the index has only managed to eke out gains on 13% of the days when Nvidia closed weaker. This year, the index has failed to rise more than 1% on any day when Nvidia’s shares closed lower.

This dependence on a few tech giants, including Nvidia, Microsoft, and Apple, has stirred concerns amongst investors. While recent strength in non-tech sectors has raised hopes of a broader rally, analysts warn that a sustained sell-off in any of the tech megacaps could severely impact the overall market.

“If Nvidia is weak because demand for their product goes down, then that’s going to tank the whole market,” Murphy stated.

Traders are closely monitoring Nvidia’s options market, which has significantly amplified recent stock movements. Nvidia currently accounts for roughly 22% of the daily volume of individual stock options traded, up from around 5% at the start of the year, making it the most actively traded stock in the options market.

The surge in buying of upside call options, contracts that give buyers the right to purchase Nvidia shares at a set price, has contributed to the stock’s gains. When these options surge, market makers who sell them are obligated to buy and deliver more Nvidia shares, creating a “short gamma” position. This, in turn, pushes the stock even higher.

“You do see the market keen to buy upside calls when it’s working,” said Chris Weston, head of research at online broker Pepperstone. “When it’s hot, these flows absolutely make a difference.”

While Nvidia’s influence echoes Tesla’s dominance a few years ago, analysts believe AI’s disruptive potential is far greater.

“The mania that is the actual paradigm shift which AI represents across the corporate landscape, is just making it a magnitudes-larger theme,” said Charlie McElligott, a Nomura strategist. “Tesla was never close to that. AI is just its own animal.”

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