According to the Zhitong Finance and Economics APP, the rising trend that is driving the US stock market to new historical highs is increasingly dependent on NVIDIA (NVDA.US) and several other large-cap stocks, raising concerns once again that the overall market performance is becoming intertwined with certain companies.
Market Cap Soars! NVIDIA Shines Bright
With its dominant position in the field of artificial intelligence chips, NVIDIA's stock price has been on the rise this year, surpassing a market cap of 3 trillion USD on Wednesday and successfully overtaking Apple to become the world's second-largest company by market cap, second only to Microsoft.
This milestone performance has also driven the rise of several ETFs with high exposure to NVIDIA. Data shows that the top 10 ETFs with the highest exposure to NVIDIA all rose on Wednesday.
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Data shows that in the past 32 trading days, NVIDIA's market cap has increased by over 1 trillion USD, a growth over the 6 weeks that exceeds the total market cap of Berkshire Hathaway built by the &#34;Oracle of Omaha&#34; Warren Buffett over 60 years. From the low point in October 2022 to now, NVIDIA's stock price has risen by nearly 1000%!
Strong demand has led to NVIDIA's explosive financial reports and performance guidance. The company achieved revenue of 26 billion USD in the first quarter, a year-on-year increase of 262%. Among them, the data center business revenue was 22.6 billion USD, a year-on-year increase of 427%. Net profit in the first quarter soared by 628% year-on-year to 14.81 billion USD. Meanwhile, NVIDIA expects revenue for the second quarter to be 28 billion USD (±2%), higher than analysts' expectations of 26.8 billion USD. NVIDIA CEO Jensen Huang also stated that with the launch of the next-generation Blackwell architecture chips, the company is preparing for the &#34;next wave of growth.&#34;
Since NVIDIA released its first-quarter performance, the stock has risen by 29%, while during the same period, the S&amp;P 500 index has only risen by 0.9%. Michael O'Rourke, Chief Market Strategist at JonesTrading, bluntly stated that NVIDIA itself is supporting this uptrend. However, he also warned that this poses a risk, as investors will intuitively feel it in the market if the stock experiences a pullback.
It is worth mentioning that NVIDIA will implement a &#34;1-for-10&#34; stock split plan after the market closes this Friday. Although a stock split does not change the company's market cap, it is usually interpreted as a positive signal. The market generally believes that a stock split shows management's confidence in the company's future growth and stock price, which may temporarily boost the stock price.
Market Breadth Raises Concerns About Vulnerability - How Long Can the US Stock Market Keep Rising?
According to data from S&amp;P Dow Jones Indices, the S&amp;P 500 Index has risen by over 12% so far this year, with about 60% of the increase being driven by five companies with significant weightings in the index, namely NVIDIA, Microsoft (MSFT.US), Meta (META.US), Alphabet (GOOGL.US), and Amazon (AMZN.US). Among them, NVIDIA has risen by 147% year-to-date, contributing approximately one-third of the S&amp;P 500 Index's gain this year.
With the rising stock prices of these large companies, their weights in the S&amp;P 500 Index have also increased, giving them greater influence on the overall index. Data from Bianco Research shows that as of the end of May, the top four stocks by market capitalization in the S&amp;P 500 Index - Microsoft, Apple, NVIDIA, and Alphabet - accounted for nearly 24% of the index, the highest level in 60 years.
Many investors believe that considering these companies' strong earnings, dominant market positions, and the expected progress in the emerging field of artificial intelligence, their market influence is well-deserved. However, some investors are concerned that if some of these large companies start to experience volatility, the phenomenon of gains being concentrated in a few large companies could pose a threat to the overall index.
Angelo Kourkafas, Senior Investment Strategist at Edward Jones, said, &#34;If these stocks underperform and we don't see other parts of the market providing that support, that could be a potential vulnerability.&#34;
Howard Silverblatt, Senior Index Analyst at S&amp;P Dow Jones Indices, pointed out that analysis of the top ten components of the S&amp;P 500 Index showed that their weightings surged to 34.1% at the end of May, reaching a historical high.
Concerns about market breadth have been recurring in recent years. The S&amp;P 500 Index rose by 24% in 2023, driven mostly by the &#34;Big Seven&#34; in the U.S. stock market, as concerns about an economic downturn at the time led investors to shift towards large companies less affected by economic fluctuations. The &#34;Big Seven&#34; performed well in 2023, even though the economic recession did not materialize, while most other stocks in the U.S. market remained lackluster.
Signs of broadening market breadth appeared in the first quarter of this year, when the financial, energy, and industrial sectors outperformed the S&amp;P 500 Index. However, these sectors faltered as the market rallied in the second quarter. Additionally, the equal-weighted S&amp;P 500 Index has narrowed its gain to 4.5% year-to-date, compared to the 12% increase in the S&amp;P 500 Index.
Jack Manley, Global Market Strategist at JP Morgan Asset Management, said, &#34;We were all excited about the broadening recovery, but it seems to have stalled, at least in the first half of this year.&#34; Analysts cited some reasons for the narrowing market breadth, including the profit advantage of large tech companies in the first quarter and investors' enthusiasm for companies benefiting from artificial intelligence
Concerns about economic slowdown - reflected in recent data such as weakening US manufacturing data - may be another factor.
Some investors believe that this concentration simply reflects the economic strength of these large companies and is not worth worrying about. Peter Tuz, President of Chase Investment Counsel, stated that large stocks &#34;perform well because their performance and prospects are strong.&#34; However, he also added that the rise of a broader category of stocks is usually more preferable as it reflects the overall strength of the economy.
Others are optimistic that with the improvement in performance of other components of the S&amp;P 500 index, the upward trend in the US stock market will expand again in the coming months. Tajinder Dhillon, Senior Research Analyst at the London Stock Exchange Group (LSEG), stated that the earnings of the &#34;Big Seven&#34; US stocks are expected to grow by 27% in 2024, while the earnings growth of S&amp;P 500 index components excluding these seven companies is expected to be 7.4%. However, over time, this gap is expected to gradually narrow. Angelo Kourkafas also believes that the gap in earnings growth will begin to narrow, and &#34;investors should not give up on the theme of market breadth expansion&#34;

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The rising trend driving the US stock market to new highs is increasingly dependent on NVIDIA and a few other large-cap stocks, raising concerns about the correlation between market performance and individual companies. NVIDIA's stock price continues to rise, with a market value exceeding $3 trillion, surpassing Apple to become the world's second-largest company by market capitalization. Several ETFs with a high proportion of NVIDIA holdings have also risen. NVIDIA's first-quarter revenue and net profit saw significant growth, with expectations for continued revenue growth in the second quarter. Market strategists point out that NVIDIA itself is supporting the stock price increase

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During the "show off the whole scene" moment, the ETF heavily invested in NVIDIA also made a profit. How much longer can the US stock market rise?