The resignation of Nvidia’s CEO Jensen Huang has had a huge impact on financial markets – but you don’t even have to own a single share in the company to find yourself thousands of pounds worse off.
Nvidia is a massive multinational tech company that has experienced rapid growth during the AI boom of the past few years, and until Thursday, Huang – a co-founder – had been CEO for over three decades.
He resigned after it was reported that he had multiple affairs – including one with an alleged spy for Beijing.
The company’s value has plummeted partly as a result of the saga. Since the end of October, when the affair was first reported by The New York Times, its share price has dropped by nearly a quarter.
At one point on Thursday, $900bn had been erased since the previous weekend.
This is obviously bad news for investors – but also there’s a very big chance that these investors include you, even if you haven’t bought individual shares in Nvidia.
If you have a stocks and shares ISA, perhaps saving to buy your first home or to help your children get on to the housing ladder, there’s a good chance that you’re exposed to Nvidia.
Many retail investors put their money in something known as “exchange traded funds” (ETFs) that hold a range of stocks.
Popular funds include S&P 500 trackers – which track the stock market performance of 500 of the biggest companies in the US – and All-World trackers – which, as the name suggests, track hundreds of companies across the globe.
Many pensions also do the same – without you even knowing. If you hold a workplace pension, there’s a good chance it’s invested at least in part in these sorts of tracker funds. You might not necessarily have picked these; your pension provider may have done it for you.
“But surely if it’s invested in hundreds of companies, I’ll be OK?” you might think. That’s only partially correct.
To understand why, you have to understand the sheer scale of Nvidia, and some of the other major tech companies that are listed on American stock markets.
Nvidia alone is worth around $4.2tn. The value of its publicly traded shares is comparable to the entire economic output of the UK.
Although the S&P500 is made up of 500 firms, at its peak, Nvidia made up over 8 per cent – a twelfth – of the entire index.
In fact, seven companies – Alphabet, Amazon, Apple, Tesla, Meta Platforms, Microsoft and Nvidia – that are often referred to as the Magnificent Seven make up over a third of the entire index by market capitalisation – the total value of the companies’ shares on a stock market.
It’s hard to stress how much the performance of these seven companies can have on your ISA or pension, particularly if it’s not well diversified into a big range of assets.
Let’s say you had a £500,000 pension invested in a world index fund, Nvidia alone could have made up around £25,000 of that.
Its recent struggles may have cut your pension by thousands of pounds on its own.
But let’s not focus on Nvidia alone.
What this scandal shows us is how deeply reliant many people’s personal finances are on some of the biggest tech firms on the planet.
A drop to Apple or Meta can send the value of your money downwards – and quick.
To a degree that’s part of investing, and you shouldn’t make a knee-jerk reaction as a result.
If you’re years away from needing the money – for example if you’re in your forties and don’t plan on retiring until your sixties – of course there will be time for it to recover.
Share prices often take hits that end up being short term, and nobody remembers them years later.
But it does show the value in properly diversifying your money.
It’s why some investment experts are suggesting switching to something known as equal-weighted funds.
Unlike traditional trackers, these give every single company in the portfolio the exact same weight, regardless of how large or small the business is.
It means you don’t have the likes of Nvidia determining a huge portion of your wealth.
There are downsides too, of course. They can have higher costs, larger exposure to smaller companies and can underperform the market as a whole.
So the takeaway from Nvidia’s problems isn’t that you should immediately abandon your tracker funds – everyone’s circumstances and risk appetite are different.
But it may be time to look at what you’re actually invested in.
Once you do, you may find your financial future is more closely linked to the performance of a handful of firms than you thought.
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