Is NVIDIA Stock Increasing Your Market Risk?

You own or plan to own NVIDIA (NVDA), the chipmaker worth about $5.5 trillion, probably alongside funds that follow the market. If NVIDIA rises and falls with the market, it adds to a risk those funds already give you. So is NVIDIA stock increasing your market risk?

Yes, NVIDIA Stock Moves Further Than The Market

Yes. NVIDIA moved further than the S&P 500 on both down days and up days over the past year of daily closes. The index lost 0.61% on an average down day. NVIDIA lost 1.08% on those same days. On a $10,000 holding of NVIDIA, that is about $108 gone on an ordinary down day. The same money in an index fund would have lost about $61.

NVIDIA did the same on up days. The index gained 0.64% on an average up day, and NVIDIA gained 1.15%. On $10,000 of NVIDIA, that is about $115 on an ordinary up day. The same money in an index fund would have gained about $64.

NVIDIA’s swings were also wider across the whole year. Volatility measures how widely a price swings over a year. NVIDIA’s volatility over the past year was 37.7%, against 13.0% for the index. NVIDIA also moved about 1.89% for each 1% the index moved, a measure known as beta. So NVIDIA adds to the market risk you already have. NVIDIA does not steady that risk.

Are NVIDIA’s Big Swings Likely To Last?

Probably, because NVIDIA still depends on one kind of customer spending. That spending is on AI data centers. NVIDIA’s data center revenue was $89 billion of its $96 billion total in fiscal Q2 2027, a quarter it has already reported. Management’s preliminary expectation is for revenue to grow about 70% in fiscal 2028. Management said that figure is held back by how much NVIDIA can supply.

NVIDIA is also using its own balance sheet to support purchases by some AI labs. On the fiscal Q2 2027 call, management said those AI labs should contribute roughly a quarter of its business the following year. Management also said some people will call that support circular financing. The term means NVIDIA helps fund customers who then buy from NVIDIA.

NVIDIA’s moves have also been tied to the market’s. Correlation says how often two prices move in the same direction. NVIDIA’s correlation with the S&P 500 over the past year was 0.65.

NVIDIA is likely to keep swinging like this while most of its revenue comes from one kind of spending.

NVIDIA’s Long-Run Return More Than Covered Its Volatility

NVIDIA has paid holders for its swings over the past five years. Its total return was 61.8% a year, against 13.5% for the S&P 500. Its volatility over the past five years was 52.0% a year, against 17.0% for the index.

You can divide each return by its volatility to see how much return each unit of swing earned. NVIDIA’s figure for the past five years is 1.19, against 0.8 for the index. So NVIDIA has returned more for each unit of swing than the market over the past five years.

NVIDIA will likely add to your gain the next day the market rises. NVIDIA will likely add to your loss the next day the market falls. If you already own other chipmakers or companies building AI data centers, NVIDIA is more of the same bet on AI spending. Your pay for NVIDIA’s extra risk depends mostly on AI data center spending continuing to grow.

Does This Mean You Should Act On NVDA?

Our purpose is to inform you with unique data so you make the right investment decisions. That said, betting on a single stock is always risky, no matter which direction you choose.

There is a smarter approach. Since its inception, the Trefis High Quality (HQ) Portfolio has returned 105%, beating the benchmark that combines the three major indices – the S&P 500, S&P Mid-cap, and Russell 2000. And it did so without taking the concentrated risk that comes with do-it-yourself stock picking. If that is how you want to invest, the HQ Portfolio is the place to start.