Nvidia juggernaut upends markets

Back in the day, I had a mild obsession with Mario Draghi’s ties. At the time, the Italian was president of the European Central Bank and the internet was fun in a way that is hard to imagine now. Very online people, including me but also including supposedly busy bankers and fund managers, spent a decent amount of time on Twitter guessing what colour tie Draghi would wear to his post-rate-announcement press conference and what symbolism it would convey. (Answer: none, but it was good clean fun, and that electric blue tie did seem to come out a lot at key moments.)

His successor Christine Lagarde upped the ante big time this week, explaining the ECB’s historic decision to cut interest rates out of step with the US while sporting a necklace that spelt out “in charge”. I am in awe of this styling move and will henceforth pay more attention to her bling.

However, it increasingly feels like the thing to watch is not ECB neckwear but Nvidia, Nvidia and Nvidia.

The US-listed chipmaker has assumed a dominant role in global markets over recent months, and this week hit some new milestones. Its market capitalisation briefly vaulted over $3tn, making it larger than Apple and also larger than JPMorgan, Berkshire Hathaway and Meta combined. The company is worth the entire French Cac 40 stocks index plus most of Germany’s Dax. It’s a monster. 

The famous Magnificent Seven grouping of tech stocks is starting to feel like the Chosen One. Several of the others have made a great start to the year (not you, Tesla), with Meta up 43 per cent, for example, and Alphabet up 27 per cent. (Elon Musk’s electric-vehicle company has lost 28 per cent, which must warrant some kind of demotion.) But Nvidia has gained more than 147 per cent just this year.

Daily broker research notes are peppered with constant references to this one stock. Whether it’s up, down or sideways, it drags global markets along with it for the ride.

In part this is because, pretty much by accident, it has found a cute niche where heads, it wins and tails, it also wins. Want a risky stock to ride the market momentum because hey, you only live once? Nvidia fits the bill. Want a rock-solid haven to hide in if things get tough? May I present Nvidia. How about something in the middle — a high-quality stock churning out enormous revenues? Funny you should mention…

Big tech stocks, among them Nvidia, “are being rewarded for being some of the most successful companies of all time, with unbelievable cash flows”, says Paul Quinsee, global head of equities at JPMorgan Asset Management. “The profitability is just extraordinary.”

It seems implausible that Nvidia can keep on climbing this fast, otherwise by the end of the year the company will be worth more than $6tn and, I mean, come on. That would be reminiscent of the parabolic ascent of Cisco, which ended in tears in the dotcom era.

But a counterintuitive bedrock of support is still likely to come not just from the momentum jockeys and punters, but also from professional investors. How many of them will want to take the career risk of missing on Nvidia’s gains given it accounts for more than 6 per cent of the S&P 500 index? And for some investors, the risk to return ratio of some big tech stocks may be better than it seems in a world where haven assets are in short supply.

French asset manager Carmignac touched on this in a presentation this week. Government bonds, it said, simply no longer fit the bill of a safe retreat to balance out a diversified and generally risk-seeking portfolio. The nature of inflation — the mortal enemy of bonds — has shifted from something that is predominantly demand-driven to something stickier.

Reasons for that include nasty geopolitics, and the global need for companies and governments to spend vast sums on defence and on trying to ensure the survival of the planet. Carmignac chief economist Raphaël Gallardo argues this new era is “changing the way we invest”.

“We have spent most of our careers where . . . the low-risk asset is bonds,” he says. “Now we need to completely review our assessment of risk. Our hedges are the assets traditionally seen as high risk.”

Carmignac is avoiding long-term government debt, with maturities from 10 to 30 years, which is so sensitive to shifts in inflation and interest rates, leaning, instead, on short-term debt and a “barbell” of exposure to stocks. That means a slice in stocks that do well when inflation picks up, notably in commodities, balanced out by what Gallardo considers lower-risk assets, including tech stocks such as, of course, Nvidia.

Just like anything in markets, this could all go horribly wrong. Artificial intelligence, the driving force behind demand for Nvidia’s chips, could still overpromise and under-deliver. Tariffs or regulation or some hitherto unforeseen source of competition could bite. Everyone knows this. Until then, Nvidia chief executive Jensen Huang might want to flash some “in charge” jewels. 

katie.martin@ft.com