Nvidia’s market capitalization reached $5.4 trillion on Friday, according to data cited by Charlie Bilello of Creative Planning. This valuation exceeds the combined market value of the Russell 2000 Index, which stood at approximately $3.5 trillion.
The disparity between the AI-chip leader and smaller companies is highlighted by profitability figures. Nvidia generated about $193 billion in profit over the previous year, while Russell 2000 companies collectively recorded a $13 billion loss.
Market-cap-weighted ETFs automatically give larger companies greater portfolio representation. Nvidia accounts for roughly 8.08% of the Vanguard S&P 500 ETF (VOO). In the Invesco QQQ Trust, Nvidia represents about 8.2% of the portfolio. This concentration means that as Nvidia and other mega-cap technology companies gain value, their weight in these ETFs rises, increasing the funds' exposure to them.
Investor Michael Burry has raised questions regarding the sustainability of AI assumptions. He warned that recursive use of AI-generated material to train future models could lead to "model collapse," referencing research published in Nature. Burry also questioned whether large language models can achieve artificial general intelligence, arguing that language alone cannot produce genuine understanding.
Burry’s comments do not directly challenge Nvidia’s earnings or valuation but raise a broader question about how much of today’s mega-cap valuations depends on assumptions about the continued expansion of AI. The article notes that this issue is particularly relevant for ETF investors whose portfolios have significant exposure to the same mega-cap technology companies driving market gains.
