Nvidia's Near-30% Slide Hits 401(k) Savers Through Index Funds

The slide followed the resignation of chief executive Jensen Huang after he had an affair with an alleged Chinese spy.

The exposure is large because Nvidia is the biggest single holding in many benchmark funds. Nvidia accounts for roughly 8% of the S&P 500, according to Tom Graff, chief investment officer at financial planning firm Facet. He put the weight at around 14% in growth-style index funds and between 25% and 30% in some technology and semiconductor funds commonly offered in retirement plans.

Index funds held nearly half of the assets in large private-sector 401(k) plans in 2023, according to the Investment Company Institute.

The arithmetic is direct. On $100,000 held in an S&P 500 fund, a 30% fall in Nvidia removes about $2,400 if every other stock in the fund stays flat. In a growth-style tech fund with 25% Nvidia exposure, the same fall removes $7,500. Fidelity puts the average Baby Boomer 401(k) balance at about $260,000. Applying tech-fund exposure to that balance gives a reduction of about $20,000.

These are paper losses. Holders do not lock them in unless they sell.

"A lot of people are starting to realize just how much Nvidia exposure they have in funds they thought were diversified," Graff said. "You don't want too much of your retirement riding on whether Nvidia has a successful transition to new leadership or not."

The risk reaches beyond one company. About 40% of the S&P 500 is tied to the AI buildout, in which Nvidia is central, providing much of the financing and infrastructure behind it. If Nvidia's troubles slow investment in AI data centres, the damage could spread to other stocks held in retirement portfolios, analyst Bob Iaccino said.

Some rivals have gained from the sell-off. AMD shares rose more than 30% over five trading days last week, feeding a broader rally in semiconductor stocks. Because Nvidia makes up a sizable portion of many semiconductor indices and ETFs, that rotation has helped keep the sector's run going even as Nvidia has fallen. Hyperscalers building their own chips have also beaten the S&P 500 over the last five days.

"The mindset has flipped very quickly to 'who might benefit from this?'" said Steve Sosnick of Interactive Brokers.

Nvidia reports quarterly earnings on Tuesday. It remains unclear what the investigation will uncover.