Nvidia stock drop isn’t big deal for many ETF, mutual fund investors

Nvidia stock plunged in early trading on Thursday after Jensen Huang stepped down as CEO. Huang co-founded the chipmaker 33 years ago and built it into a behemoth at the center of the artificial intelligence boom.

Since Nvidia is among the largest publicly traded companies by market capitalization, its stock is, by default, a substantial holding in several popular mutual funds and exchange-traded funds.

Many investors therefore hold the chipmaker’s stock in their portfolios — and may worry about their exposure.

But mutual fund and ETF investors’ exposure to Nvidia stock is likely relatively low, data shows — and any big swings in its stock price are likely to have a fairly muted impact on investor portfolios, financial advisors said.

“This is just a very contemporary, sensational case of risk,” said Philip Chao, a certified financial planner and chief investment officer at Experiential Wealth, based in Cabin John, Maryland. “But that is part and parcel to stock investing.”

Nvidia’s stock fell more than 10% early Thursday on news of Huang’s resignation.

Huang stepped down following his admission to having an affair with Alice Huang, a woman who U.S. intelligence officials believe is a spy for China, and after reports that he had a separate extramarital relationship with a direct report, Kimberly Powell, vice president of healthcare at Nvidia. Reuters also reported Thursday that Huang had an “intimate relationship” with a second Nvidia employee, citing two people familiar with the matter.

The stock has since pared some of those losses, and was down more than 5% as of roughly 2:50 p.m. EST.

However, investors “shouldn’t worry” about their exposure, Chao said.

For example, if Nvidia were 5% of an overall fund’s holdings and the stock dropped 10%, the fund’s value would decline 0.5%, assuming all else was equal, Chao said.

“It’s not a big deal,” he said. “Most people are just reacting to the sensational aspect of this [news].”

Let’s look at some of the most popular stock ETFs for some specific examples of why investors likely have limited exposure.

1. Vanguard S&P 500 ETF

Nvidia stock is the largest holding in the Vanguard S&P 500 ETF (VOO).

The fund, as the name suggests, tracks the performance of the S&P 500 U.S. stock index and had a market capitalization of $1.7 trillion as of Sept. 30, according to the most recent Vanguard data.

On that date, Nvidia stock accounted for about 8.4% of the entire portfolio.

Assuming that weighting carried forward to today, a 5% decline in Nvidia’s stock would only cause the fund to lose about 0.42% of its value, all else equal, according to an analysis by Experiential Wealth for CNBC.

A 10% decline would lead the fund to drop by 0.84%, according to the analysis.

2. Invesco QQQ Trust

The Invesco QQQ Trust (QQQ) is an ETF that tracks the performance of the tech-heavy Nasdaq-100 index.

The fund held about $473.8 billion as of Nov. 10, according to Invesco data.

Nvidia was its second-largest holding, at 6.8% of the overall portfolio. Apple was No. 1, at about 8.4%.

Based on that weighting, the fund would lose just 0.34% of its value if Nvidia’s stock lost 5%, all else equal, according to the Experiential Wealth analysis. A 10% Nvidia loss would equate to a 0.68% loss for the overall fund.

3. Vanguard Morningstar Total Stock Market ETF

Nvidia stock was the largest holding in the Vanguard Morningstar Total Stock Market ETF (VTI).

The fund had $1.8 trillion as of Oct. 31, according to Vanguard.

Nvidia stock accounted for about 7.13% of the fund, as of Sept. 30.

According to that weighting, the overall fund would lose roughly 0.36% of its value if Nvidia’s stock lost 5%, all else equal, according to Experiential Wealth’s analysis. A 10% Nvidia loss would equate to a roughly 0.71% loss for the overall fund.

“There’s a difference between [stock] volatility and substantial losses you cannot recover,” Chao said.

The Nvidia stock moves fall in the former camp, not the latter, he said.

Across all mutual funds and ETFs, “large growth” funds have the largest average weighting to Nvidia stock, according to Morningstar data. These are funds that tend to hold shares in fast-growing U.S. stocks with large market capitalizations.

Large growth funds had an average 10.34% weighting to Nvidia stock as of Wednesday, according to Morningstar. Funds that focus on the technology sector had a 7.31% average weighting to the stock, the second-largest exposure, it found.

Of course, Nvidia stock doesn’t exist in a vacuum, financial experts said.

“A 10% Nvidia drop would usually pull down other semiconductor and AI-linked names, such as AMD … and Micron,” Chao said.

And that means mutual fund and ETF losses could be larger than Nvidia holdings might otherwise suggest, he said.

“This event could easily add further pressure to already stretched AI-related stock valuations,” Renée Friedman, global head of research at EXANTE, a brokerage firm, wrote in an e-mail.

However, that’s not a foregone conclusion, experts said.

The S&P 500 index and the Nasdaq Composite, for example, were down slightly for the day as of about 2:50 p.m. EST.