In figures: Index funds held nearly half of the assets of large private-sector 401(k) plans in 2023, according to the Investment Company Institute.
- These funds include investments tracking the S&P 500, and Nvidia makes up about 8% of that index, according to Tom Graff, chief investment officer of financial planning firm Facet.
- That exposure amounts to about 14% in growth index funds and can be as high as 25% to 30% in some technology and semiconductor funds commonly found in retirement plans, Graff said.
Zoom: For an investor with $100,000 in an S&P 500 fund, a 30% decline in Nvidia shares would reduce the value of that investment by about $2,400 given an 8% stake in the S&P, assuming the fund’s other stocks remain stable.
- For a growth-style tech fund with 25% exposure to Nvidia, this drop would equate to $7,500 in lost value.
- The average baby boomer has about $260,000 in their 401(k), according to Fidelity. Technology exposure applied to this amount of securities would equate to a reduction of approximately $20,000.
Yes, but: Remember that a decline in the value of your investment does not mean you actually lost that money unless you sell your holdings.
Zoom out: The potential consequences extend beyond Nvidia itself.
- About 40% of the S&P 500 is tied to the development of AI, for which Nvidia plays a central role, providing much of the funding and infrastructure needed to fuel the tech boom.
- If Nvidia’s problems slow the pace of investment in AI data centers, the damage could extend to other stocks held in Americans’ retirement portfolios, analyst Bob Iaccino notes to Axios via message.
- “A lot of people are starting to realize how much exposure they have to Nvidia in funds that they thought were diversified,” Graff told Axios. “You don’t want your retirement to depend too much on whether Nvidia’s transition to new leadership is successful,” he added.
Reality check: If Nvidia has managed to define the AI market, its competitors have also emerged as potential beneficiaries of the stock’s decline.
- “The mindset very quickly shifted to ‘who could benefit from this?’” Steve Sosnick of Interactive Brokers told Axios.
- Shares of chip company AMD have soared, rising more than 30% in five days last week, contributing to a broader rally in the semiconductor sector. Nvidia makes up a significant portion of many semiconductor indexes and ETFs, showing how rotation can keep bull runs alive even if individual stocks falter.
- Hyperscalers with their own chip ambitions, which have at times looked competitive with Nvidia, also beat the S&P 500 index’s growth over the past five days.
Reality check: For those who are direct shareholders, widely distributed financial advice will always tell you not to lock in losses if stocks fall.
- It’s unclear what the investigation will reveal.
- Nvidia is expected to report earnings on Tuesday, giving shareholders a better look at its latest quarterly performance.
The bottom line: Americans don’t need to directly own Nvidia stock for their retirement savings to be tied to the company’s successes or failures.
Gn bussni
