ETFs: Are investors overexposed to stocks like Nvidia?

Chipmaker Nvidia (NVDA) seems to be a major market influencer ahead of its earnings results due out after Wednesday's closing bell. The stock — a member of the Magnificent Seven — has certainly been a major tech driver, but do investors and ETFs have too much exposure on this AI darling?

ETF Think Tank Director of Research Cinthia Murphy sits down with Yahoo Finance Live to weigh in on ETF themes boosted by Nvidia's success, and which types of ETFs are adjacent to artificial intelligence narratives.

"The worst thing you can do is be unaware of being really heavy on Nvidia. So go make sure if you have Nvidia... if you have a semiconductor ETF, and you have a Big Tech ETF, and have an AI ETF... and you have Nvidia across all of these exposures you may be really loaded on that single stock," Murphy explains. "So now as we are faced with a potential correction, if guidance disappoints today, you could really be in a position where you're overly exposed to it. Awareness is the first step here. Make sure you're aware to how much exposure you have to a single stock for that single stock risk."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

AKIKO FUJITA: We are counting down to Nvidia's quarterly results after the bell today. And you see the stock down nearly 2%. The stock has arguably been the most consequential to markets, accounting for more than a quarter of the S&P 500's gains this year. But any miss or failure to impress could ripple across ETF funds. ETFs with more than 440 ETFs holding in Nvidia stock.

Let's bring in Cinthia Murphy, ETF Think Tank director of research. She joins us for our ETF report brought to you by Invesco QQQ. And good to talk to you today. Give me a sense of which ETFs are the most exposed to Nvidia.

CINTHIA MURPHY: Hi, Akiko. Yeah, it's amazing how pervasive Nvidia is across the ETF ecosystem. To your point, there's more than 400, almost 500 ETFs that have exposure to it and it may not be in funds you would expect.

So you think about big tech, it's there. You think about semiconductor ETFs, they are huge Nvidia allocators. Like to the tune of one ETF, it has 25% of its entire portfolio just allocated to Nvidia stocks. But then you also will find in things like big data funds. You will find it in-- there's a minority impact fund, NACP, that has Nvidia stock.

You may find it in portfolios you don't expect it to see. So that's why as you're looking for your Nvidia exposure, it may be all over your portfolio and you don't even realize. So any kind of hit to Nvidia stock could actually trickle down to all sorts of different segments that you may not immediately associate with the stock.

RACHELLE AKUFFO: So then, Cinthia, with that in mind, which have been the best performing ETFs that have Nvidia in them?

CINTHIA MURPHY: So if you look at the semiconductor ETFs, I mean Nvidia is a huge component there. So they have really ridden that wave higher. What's interesting is I think we've been seeing a little bit of a halo effect of just the Nvidia effect, which is part of the Mag Seven story.

But it's ETFs, things like cybersecurity ETFs, or software ETFs, ETFs that are associated with the AI theme, which is a theme everybody has been really excited about, they may not even hold Nvidia, but just as a story of this is the future, this is where technology is going. And the chips, the semiconductors are a big story. Nvidia is a big story there.

There's been a halo effect that it has boosted a lot of ETFs that are not Nvidia holders or they have very little exposure to Nvidia. I mean QQQ itself has only 5% in Nvidia and look at the year it's had just thanks to that small allocation to that one stock. So it's been interesting to see some of these ETFs do really well. Like, cybersecurity ETFs have done really well and they're not big Nvidia holders. But they just fit within this AI theme that has been a beneficiary of that Nvidia run as well.

AKIKO FUJITA: So what's the way to play this? I mean is it to be in some ETFs that have exposure to Nvidia , not necessarily outsized exposure, but also spreading your money around a bit to other AI plays that don't necessarily include the big chip maker?

CINTHIA MURPHY: Yeah, I think I think the key here is to actually know what you're trying to do. So the worst thing you can do is be unaware of being really heavy on Nvidia. So go make sure, if you have Nvidia on your-- if you have a semiconductor ETF, and you have a big tech ETF, and you have an AI ETF like bots or robo, and you have Nvidia across all these exposures, you may be really loaded on that single stock.

So now as we are faced with a potential correction if guidance disappoints today, you could really be in a position where you are overly exposed to it. So I think awareness is the first step here. Make sure you are aware of how much exposure you have to a single stock for that single stock risk.

And then it's a decision about-- for the most part, everybody is still very bullish on the AI theme. And the consensus is that we have moved from hype to maturing as a theme. So different parts should be benefiting like software, big data.

So just pick the spots that you think are the next step to win. Or stay broadly allocated, but just watch out for that single stock risk. Because with a stock like Nvidia, it may be all over your portfolio and you don't even realize it.

RACHELLE AKUFFO: And obviously, we have seen a bit of a pullback ahead of the earnings coming out after the bell, but what sort of inflows have you been seeing from institutional investors versus retail investors who perhaps might be tempted to hit the panic button depending on what they hear coming out of earnings?

CINTHIA MURPHY: Yeah. Nvidia definitely is-- it's a retail darling. It makes a lot of headlines. It creates a lot of buzz. So you tend to see folks more trigger happy when it comes to jumping in or out of that stock.

That volatility sits higher among the retail investor. Institutions move a lot more slowly. They have long-term mandates. They tend to be way more broadly exposed for the long term. So you don't tend to see that kind of immediate knee jerk reaction that you would definitely see among the retail crowd.

I mean go on Twitter today and everybody's talking about Nvidia, so it's a completely different experience. But you tend to see a lot of that too in the single stock in and out. I think you'd be less likely to see that from the long term, say, a semiconductor ETF, something that's more of a long-term play. You may see less of a knee jerk reaction there than you may see just directly onto the stock.

RACHELLE AKUFFO: Yes, make sure people don't panic and really keep everything in context when they get those earning results after the bell today. Appreciate you joining us, Cinthia Murphy, ETF Think Tank director of research. Thank you so much.

CINTHIA MURPHY: Thank you.