What Nvidia’s Entry Into the $1T Club Means for ETFs
The chip giant is knocking on the door of a $1 trillion market cap.
The $1 trillion club might have a new member soon. Shares of chip giant Nvidia surged a whopping 27% Thursday after reporting blowout earnings, bringing its market capitalization to the cusp of that exclusive level.
As of this writing, the stock has a market cap of $958 billion, meaning that it needs to rise less than 5% to eclipse $1 trillion.
That’s a big deal, not just for the stock but for the plethora of ETFs that hold Nvidia. For market-cap-weighted funds, the bigger the market cap, the bigger the weighting a stock has.
Today the SPDR S&P 500 ETF Trust (SPY) holds a 2.2% weighting in Nvidia, more than all but four stocks, each of which are already in the $1 trillion club—Apple, Microsoft, Alphabet and Amazon.
In the Invesco QQQ Trust (QQQ), Nvidia holds a 5.6% weighting—again, more than any stock other than members of the $1 trillion club.
And in the VanEck Semiconductor ETF (SMH), Nvidia has a 15% weighting—the largest of any stock.
Equal Weighting
The market-cap-weighting scheme contrasts with ETFs that hold all of their stocks at an equal weight. In these equal-weighted ETFs, a stock with a massive market cap like Nvidia is treated the same as a much smaller stock like Bath & Body Works Inc., which has an $8.5 billion market cap.
In the Invesco S&P 500 Equal Wght ETF (RSP), both Nvidia and Bath & Body Works have a 0.2% weighting.
Similarly, in the Invesco S&P 500 Equal Weight Technology ETF (RYT) and the SPDR S&P Semiconductor ETF (XSD), Nvidia’s weighting is 2% and 4%, respectively—about equal to the other stocks in the ETFs.
On a day in which a single large-market-cap stock like Nvidia is surging, market-cap-weighted ETFs benefit. SMH is up 8% versus only 4% for XSD.
But when stocks with smaller market caps outperform, equal-weighted ETFs tend to do better.
Contact Sumit Roy at sumit.roy @etf.com
