Nvidia's steep decline this week could hurt retirement savings for millions of Americans even if they never directly bought the company's shares. The chipmaker is a major component of the S&P 500 and other widely held indexes including the Nasdaq 100 and Dow Jones Industrial Average, all popular with retirement savers through funds offered in employer 401(k) plans. According to March research from the Investment Company Institute and ISS Market Intelligence, about 97% of retirement plans now offer index funds, up from 79% in 2006. Nvidia makes up about 6% of the S&P 500 index, making it the second-largest component after Apple, according to Yahoo Finance.
The company's shares began falling on Monday following revelations about cofounder Jensen Huang's personal conduct. Huang resigned as CEO on Thursday, triggering a further decline. Since November 6, Nvidia's value has dropped by more than $550 billion, a decrease of about 13% in one week. Many retirement savers are likely exposed to Nvidia through index funds such as the SPDR S&P 500 ETF Trust or Vanguard's S&P 500 ETF, even without owning the stock directly.
Shiva Rajgopal, a Columbia Business School professor who studies corporate governance, told CBS News that Nvidia's troubles highlight risks in big tech companies widely held by US investors. The "Magnificent Seven" tech stocks account for about one-third of the S&P 500, and several are closely associated with celebrated CEOs whom investors view as central to their success, such as Elon Musk at Tesla. When a charismatic CEO faces trouble, it can quickly affect the company's stock price. "They are amazing wealth creators for shareholders," Rajgopal said. "But hopefully, shareholders know what they are doing when they buy the stock of these companies, because the exact same structure also has a lot of fragility built into it."
Despite Nvidia's turmoil, the S&P 500 rose 2.9% for the week through Thursday's close. Excluding Nvidia, the index would have gained an estimated 3.8%, showing how broader diversification can cushion individual stock declines. Donald Calcagni, chief investment officer at Mercer Advisors, said in a blog post that diversification is essential to minimize risk. "Events like this, where the outcome hinges on one company's leadership, are a risk we try to minimize through diversification," he wrote. "This is the core principle behind portfolio diversification strategies: spread your risk broadly enough that no single company's troubles can derail your long-term plan."
Investment experts cautioned against trying to time the market in response to sudden news. Research has repeatedly shown that attempting to determine the right time to buy or sell usually results in losses. Tech experts also noted that Nvidia's chips remain essential to artificial intelligence, a competitive edge unlikely to change in the near term despite Huang's departure. Calcagni advised investors to pause and let their diversified portfolios work as designed. "When a single company's stock drops on unexpected news, the best response is usually the simplest one: pause, keep the news in perspective and let your diversified portfolio do what it was designed to do," he said.