Nvidia volatility surges

Nvidia volatility surges as AI mania takes over

One of the main features of financial markets this year is the lack of volatility across the main indices. The Vix, the volatility gauge of the S&P 500, which is also called Wall Street’s fear gauge, has been at subdued levels since November 2023. The Vix is currently at 13.8, below the average level for the last year of 15.5.

Nvidia: more volatile than Bitcoin

However, while the overall volatility level for the S&P 500 is low, there are pockets of extreme volatility, including for Nvidia, the top performing stock on the S&P 500 so far this year, which is higher by nearly 80%. It has higher levels of short-term volatility than Bitcoin!

Nvidia’s volatility index is also soaring. The implied 30-day volatility for Nvidia, derived from the options market, is currently at 65, the highest level since July 2023.

The reason for the extreme levels of volatility in Nvidia can be explained by looking at the price swings in the stock price in the last month. The low for the stock was $667.66 on 21^st February, the high was $972 on 8^th March. A range of $305 in a stock price in just a few weeks is extremely rare, it is even rarer for a stock on the S&P 500, which usually trade with far less volatility, as the Vix shows. Added to this, Nvidia has had massive price swings in recent days. On 8^th March, after making a record high, it sold off more than 8%, on 12^th March it rallied more than 7%. This compares with the overall S&P 500, which rose approximately 1% on 12^th March.

Nvidia is trading more like an alternative asset class, not one of the most highly valued companies in the world.

Why is Nvidia so volatile?

So, why is Nvidia so volatile? We think that there are three main reasons: 1, It is the main supplier for Artificial Intelligence hardware, and this is the hottest theme in financial markets for years. 2, Nvidia has had mega earnings and expects to continue to dominate the AI space, so there is a rush of investors to buy the stock, which is pushing the stock price up. 3, when a stock rises sharply, it is natural that people want to book profits, and investors rush to the exit at the same time, causing dysfunctional price movements.

Microstrategy: the most volatile stock in the US

Until the AI theme calms down, Nvidia could stay volatile. Another US stock that has similarly seen its volatility level surge is Microstrategy, the app creator. It is also used as a proxy for Bitcoin, since it is the largest corporate holder of Bitcoin on the S&P 500, with $14bn of Bitcoin tokens.

In the chart below, you can see 30-day volatility for Nvidia (yellow), bitcoin (white) and Microstrategy (green). This shows that Nvidia has higher short-term volatility than Bitcoin! Microstrategy has had a massive surge in volatility in recent weeks, largely due to it coming into the public’s consciousness due to its large holdings of bitcoin.

This tells us two things: 1, Nvidia is currently more volatile than bitcoin, so trade with caution. 2, That AI and crypto are the two main themes in financial markets right now, and there is a huge amount of interest in stocks associated with these themes. When everyone is piling into a small number of assets, it can spell trouble in the future.

Chart 1:

Source: XTB and Bloomberg