Nvidia's tide is no longer lifting other boats
The chipmaker is pulling away from its peers and industry.
The AI boom is narrowing.
More and more, Nvidia stands alone in driving this particular theme within the stock market.
The chip designer’s operating results show that spending on AI clearly isn’t slowing down. But lately, investors seem to be treating this more and more as a winner-takes-all situation than one in which a rising tide lifts all boats. The post earnings report rally that pushed the stock into the $3 trillion market cap club has seemingly not produced many positive spillovers for other companies.
The different ways to slice and dice it:
The 21-day correlation between the daily percent change in Nvidia and its 10 closest peers (per Bloomberg’s filter) has collapsed to virtually zero – that is, there’s no longer any connection there.
The correlation between the daily change in Nvidia and the broader iShares Semiconductor ETF (SOXX) is much stronger (42%) than for the aforementioned smaller handful of its peers. But even so, this relationship has weakened to the 5th percentile relative to its history (going back to August 2001). That’s particularly striking given that Nvidia’s weight in this ETF has increased from less than 0.1% to more than 11% over this period.
And remember when utilities were an AI play thanks to the heightened demand for energy from data centers? Yeah, that was a fun month. As Bloomberg’s Joe Weisenthal notes, utilities rallied 15% from around the time the stock market bottomed in mid-April. More recently the sector ended last week as the worst performing S&P 500 sector for three straight sessions.
Nvidia’s no longer driving the performance of its peers, its industry group, or associated bank-shots in different sectors. The good news for investors, from an index level perspective, is that the stock continues to power higher — and there’s no way that Nvidia will stop driving Nvidia’s performance.
