Nvidia stock has continued its stunning rally this year, pushing the AI chip leader’s valuation past $3 trillion and giving it an even bigger presence in the S&P 500.
According to Torsten Sløk, Apollo’s chief economist, 34.5% of the S&P 500’s market cap gain so far this year can be attributed to Nvidia.
Shares are up 166% in the past year and are up more than 200% from this time a year ago. That’s now that the artificial intelligence craze has gripped Wall Street, and Nvidia’s quarterly earnings show no sign of the rush to stock up on AI chips abating.
But relying so much on one stock also entails great risk, Sløk warned.
“Such a high concentration implies that if NVIDIA continues to rise, all is well,” he wrote in a note on Wednesday. “But if the price starts to fall, the S&P 500 will be hit hard.”
Because the S&P 500 is weighted by market capitalization, even relatively small moves from giants like Nvidia, Apple and Microsoft can move the needle on the broad stock market index.
And as retail investors increasingly turn to S&P 500 index funds, that means exposure to Nvidia – for better or worse – is also increasing.
“The bottom line is that the extreme concentration of returns in the S&P 500 makes investors more vulnerable to individual headlines that impact the returns of the single-stock index,” Sløk said.
This isn’t the first time he’s raised alarms about the stock market’s dependence on Big Tech.
When Nvidia’s market cap hit the $2 trillion mark for the first time ever earlier this year, Sløk compared tech valuations to the bubble we saw during the dotcom era.
“The top 10 companies in the S&P 500 today are more overvalued than the top 10 companies during the mid-1990s tech bubble,” he wrote at the time.
Others on Wall Street are also growing more skeptical about Nvidia’s valuation and its attractiveness as an investment after the stock’s epic rally.
But Nvidia’s stock bulls persist. Beth Kindig, chief technology analyst at the I/O Fund, sees even more astronomical gains in the coming years and predicts that the market cap will more than triple again to $10 trillion by 2030.
Meanwhile, Nvidia CEO Jensen Huang continues to surprise Wall Street, most recently by offering a rapid succession of new AI platforms.
Earlier this month he said Nvidia plans to upgrade its AI accelerators every year, when he announced the Blackwell Ultra chip for 2025 and a next-generation platform in development called Rubin for 2026.
This story originally appeared on Fortune.com
