Nvidia stock falls after CEO resignation, analysts say fund impact is limited

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.

Nvidia’s stock fell more than 10% early Thursday on news of Huang’s resignation. The stock has since pared some of those losses, and was down more than 5% as of roughly 2:50 p.m. EST.

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.

Impact on ETFs and mutual funds

Many popular ETFs have a roughly 6% to 8% stake in Nvidia. Financial advisors say mutual fund and ETF investors’ exposure to Nvidia stock is likely relatively low, and any big swings in its stock price are likely to have a fairly muted impact on investor portfolios.

“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.”

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.

A flash poll of members of CNBC’s Financial Advisor Council and Financial Advisor 100 on Thursday showed 18 respondents are planning to hold their Nvidia allocations steady in client portfolios. Three are increasing their stake, and six do not own the chipmaker. None of the respondents are decreasing their ownership. The online poll, conducted from 11 a.m. to 2:30 p.m. ET on Thursday, was sent to 122 firms and 27 responded.

Specific fund exposure

The Vanguard S&P 500 ETF (VOO) 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. 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%.

The Invesco QQQ Trust (QQQ) 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. A 10% Nvidia loss would equate to a 0.68% loss for the overall fund.

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. A 10% Nvidia loss would equate to a roughly 0.71% loss for the overall fund.

Across all mutual funds and ETFs, “large growth” funds have the largest average weighting to Nvidia stock, according to Morningstar data. 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.

Why it matters

Nvidia is among the largest publicly traded companies by market capitalization, so its stock is a substantial holding in several popular mutual funds and exchange-traded funds. However, analysts say the impact on diversified portfolios is likely small because Nvidia makes up a single-digit percentage of most broad funds.

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Sources

• cnbc.com: Nvidia stock drop isn't big deal for many ETF, mutual fund investors
• engadget.com: Apple TV 4K (4th Gen) Review: Still Great, But Drastically More Expensive
• ctvnews.ca: Girls' sports: Gender gap is widening, report finds

This article was drafted with AI assistance and checked against the sources above. Company claims are reported as claims. Cover image is AI-generated.