Nvidia's outsized representation in day-to-day stock trading
could leave investors more vulnerable should the chipmaker's revenue growth
fail to meet investors' high expectations and puncture a Wall Street rally that
has been fueled by euphoria about artificial intelligence.
The Santa Clara, California chipmaker's quarterly report on
Wednesday will be one of Wall Street's most watched events of the week. Some
strategists believe anything short of a blowout report could reverse a rally
that has sent Nvidia's stock soaring 47% in 2024.
About $30 billion worth of Nvidia shares changed hands daily
on average over the past 30 sessions, pulling ahead of Elon Musk's electric car
maker, which averaged $22 billion per day over the same period.
Tesla since 2020 had dominated daily U.S. stock trading,
according to LSEG data, with turnover -- a stock's share price multiplied by
the number of shares exchanged -- peaking above $35 billion several times in
recent years.
On Friday, combined trading in Nvidia and Super Micro
Computer, another company benefiting from the boom in AI, accounted for over
40% of all turnover of the 10 most traded U.S. stocks, including Tesla, Meta
Platforms, Apple , Amazon and Microsoft.
"There's an argument here that this is the dawn of a
new era of trading, like the dawn of the internet, with Nvidia in the pole
position," said Dennis Dick, a trader at Triple D Trading in Ontario,
Canada.
But Dick also warned that sky-high turnover in AI-related
stocks suggests retail investors and algorithmic traders are driving share
prices higher based on momentum rather than fundamentals, such as expectations
of future revenue growth.
Super Micro, which sells AI-related server components to
Nvidia, has seen its value more than triple to $45 billion so far in 2024. It
tumbled 20% from record highs on Friday after Wells Fargo started covering the
stock with an equal weight rating, saying its valuation already discounts
"solid upside".
Nvidia controls about 80% of the high-end AI chip market,
and last week its market capitalization eclipsed, separately, Amazon's and
Alphabet's to make it Wall Street's third-most valuable company, behind
Microsoft and Apple. Nvidia's stock market value has surged to $1.8 trillion
from $540 billion a year ago.
Meanwhile, Tesla's stock has tumbled 20% so far in 2024 as
it struggles with tepid demand for its electric cars and growing competition