Nvidia stock's 6 eras: Comparing it to the rest of the chip sector

Yahoo

3 days ago

After posting first quarter earnings earlier this week, how much of an influence does Nvidia (NVDA) still have on the broader AI chip sector and various markets (^DJI, ^IXIC, ^GSPC)?
Yahoo Finance markets and data editor Jared Blikre — who also hosts the Stocks In Translation podcast — goes on to compare Nvidia's stock moves to the PHLX Semiconductor Index (^SOX) and lists off the semiconductor manufacturer's eras alongside the market trends that have helped propel it higher.
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If Nvidia sneezes, the whole market can catch a cold, and we've got the correlation charts to show it. I'm Jared Blikre, host of Stocks and Translation. Now, we've tracked Nvidia's correlation with chip stocks, tech, and the broader market over six distinct eras, from niche player to a fledgling crypto play to the AI Mach 7 era. Each chapter, it brought Nvidia closer to the center of gravity for the entire market. We're going to go over all of them, but first, let's start with this chart here. This shows Nvidia in the top panel with a log scale Y-axis, and in the bottom panel, we have the quarterly correlation between Nvidia and the Philly Semiconductor Index or SOX, that is in blue, and its four-year average is in orange. Each of those eras we were just looking at is numbered in the chart. We're going to break those down in a minute, but first, just notice that slowly rising orange line. After 2018 in the two box, Nvidia's correlation with chip stocks never falls below 0.7. It is the beginning of its rise to market dominance. And the biggest spikes, the 2018 chip selloff and COVID in 2020, and the 2022 bear. This is expected since bear markets tend to make everything move together and drive correlations up. Now, zooming out to the broader story, we still have the six eras in this chart behind me. This time we're only showing the four-year average or the quarterly correlations with Nvidia, but with three different markets. Nvidia versus SOX again in orange, then versus the S&P Select Tech Spider Fund or XLK, that's in blue, and finally, versus the entire S&P 500 index in pink. In pink, excuse me. So, in era one, this we call Niche No More. From 2015 to 2017, Nvidia was a bit player, low correlation and minimal market impact having. Era two is the crypto and first-gen AI liftoff. Crypto mining and early AI dreams turned Nvidia into a tech market leader. Era three, pandemic data center boom. Nvidia's correlation shot higher in both the pandemic bear and bull markets. This is when Nvidia really became a market-leading stock. Era four, bear market glue. The Fed starts hiking, semis collapse, correlations surges, yet again, everything falls together. Hedging stocks with stocks fails, and bonds actually make things worse, but that's a side story. Era five, AI turbocharge. ChatGPT, it ignites the next leg higher, pushing Nvidia above a trillion-dollar market cap, locking correlations at elevated levels. Finally, era six, this is the plateau, or is it the powder keg? Recently, Nvidia has traded sideways, but correlations remain high and volatility is building. So the big question is now, what if Nvidia stumbles? A meaningful reset could shake up passive portfolios far beyond, far beyond just the chip sector. And with Nvidia earnings behind us for the next three months, but with correlations at these elevated levels, a surprise in Santa Clara, it could quickly affect all stock investors. So stay tuned for that one. And stay tuned for new episodes of Stocks and Translation, more jargon busting deep dives, new episodes on Tuesdays and Thursdays on Yahoo Finance's website or wherever you find your podcast.