What do Nvidia's stock struggles mean for your 401(k)?
Nvidia's share value initially fell nearly 10% over the past two days.
Shares of Nvidia are down about 8% in value this week since the computer chip giant said over the weekend it opened an investigation into chief executive Jensen Huang amid allegations of a Chinese intelligence-gathering effort targeting him.
The selloff incurred losses not only for direct Nvidia shareholders, but also for many everyday people’s 401(k) accounts, analysts told ABC News. Those accounts often hold index funds, which track stock indexes like the Nasdaq 100 and the S&P 500.
Such indexes, in turn, are often weighted toward major companies like Nvidia, the second-largest corporation in the world as measured by market capitalization, following Apple.
Analysts who spoke to ABC News acknowledged short-term losses suffered by many 401(k) portfolios as a result of the stock slide, but the experts differed about the extent to which those losses should concern account holders.
Some analysts emphasized the relatively large share taken up by Nvidia in index funds and the risk the allegations about Huang pose for the company. Others stressed the durability of the stock market over time and the capacity for a diversified portfolio to absorb losses by a single company, even one the size of Nvidia.
"Nvidia does make up a big chunk of some important indexes," Reena Aggarwal, professor of finance and director of the Georgetown Psaros Center for Financial Markets and Policy, told ABC News. "Obviously, that company is extremely important, but I would think long term and not about day-to-day market fluctuations."
The Nvidia board initiated an "independent investigation in light of recent reporting that founder and CEO Jensen Huang has been the target of a foreign intelligence effort," the company said in a statement Sunday.
The investigation will be overseen by a "committee of independent directors, assisted by outside independent counsel," Nvidia added.
Huang "fully supports the review" and will cooperate with it, the Nvidia statement noted.
The Republican chair of the House Foreign Affairs Committee, Rep. Brian Mast, told ABC News on Tuesday that he's prepared to subpoena Nvidia CEO Jensen Huang if he did not respond by Wednesday to a request from several House Republicans for a closed-door briefing on Huang's reported relationship with an alleged Chinese spy.
Shares of Nvidia dropped nearly 10% in value combined over two days at the outset of this week, following the company's announcement on Sunday of a probe into Huang's alleged actions. In early trading on Wednesday, Nvidia rose 2.5%, recovering a portion of the losses.
While the stock has performed well over a long-term period it has struggled to keep rising of late. Shares of Nvidia are up a staggering 465% over the past five years, even though the stock has fallen about 13% compared to a year ago.
Nvidia soared to prominence in recent years by selling many of the chips behind the AI boom. The company has defied skeptics with strong revenue quarter after quarter, despite political backlash against data centers and looming concerns about am AI financial bubble.
Some analysts cautioned about the possibility of Huang's departure from Nvidia because of the scandal, saying it could hurt the value of the company and its shares.
"We believe if Jensen was removed as CEO, Nvidia is worth a lot less (25%-30%) as a company/stock," Yorkville Ives analyst Dan Ives said in a post on X Tuesday.
Sam Taube, lead investing writer at NerdWallet, echoed that worry.
"The concern here is that there is a chance this news could result in Jensen Huang stepping down," Taube told ABC News. "His departure would be a big unknown."
Since index funds depend disproportionately on Nvidia, 401(k) account holders could face further losses if the stock value falls, Taube added.
"The concentration risk here is the thing to be worried about," Taube said.
Aggarwal, by contrast, downplayed the immediate threat posed by fallout from the allegations, saying Nvidia's stock losses remain fairly modest and shares could very well recover over time. Plus, Aggarwal said, rival firms may rise in value in response to Nvidia's struggles, offsetting some of the losses for holders of broad index funds.
The major stock indexes climbed on Monday, shrugging off Nvidia's losses and delivering gains for holders of index funds, Aggarwal noted.
"Nvidia stock fell but the rest of the sector did quite well. If you have a diversified portfolio in your 401(k), something falls but other companies benefit and they rise," Aggarwal said.
The major indexes fell Tuesday, though the dip appeared a response in part to a hotter-than-expected inflation report. In early trading on Wednesday, the major indexes were mixed, even as Nvidia turned upward.
The ultimate outcome for Nvidia -- and, in turn, many 401(k) account holders -- remains unclear, according to Aggarwal.
"It's too early to tell," she said.
Related Topics
Popular Reads
ABC News Live