Nvidia Forms the $5 Trillion Club. Here's What It Would Take for the AI Growth Stock to Comprise 10% of the S&P 500 and 20% of the Nasdaq.

On Oct. 29, Nvidia (NASDAQ: NVDA) closed with a market cap of $5.04 trillion, becoming the first member of the $5 trillion club. The move comes about three months after Nvidia became the first company to reach $4 trillion in market cap.

Here's how Nvidia is moving markets and how it could impact your financial portfolio, even if you don't own the stock outright.

Image source: Nvidia.

Nvidia is showing no signs of slowing down

In just three years, Nvidia's market cap has gone from under $350 billion to over $5 trillion. The unprecedented value creation has changed the dynamics of the S&P 500, the Nasdaq-100, and even the Dow Jones Industrial Average -- with Nvidia joining the Dow in November of last year.

NVDA data by YCharts

Nvidia's rally isn't just hot air. In just a few years, Nvidia went from earning a few billion in profit to $86.6 billion in trailing-12-month net income. Nvidia has become the most valuable company in the world by growing profits faster than any other company. And best of all, there are plenty of reasons that can continue, with hyperscalers lining up to accelerate capital expenditures on artificial intelligence (AI).

Reshaping stock market indexes

At the time of this writing, Nvidia makes up 14.6% of the Nasdaq-100 and 8.1% of the S&P 500. For context, that's roughly the size of the entire industrial sector in the S&P 500 and more than the combined value of the consumer staples and energy sectors.

In the near term, investor excitement will drive Nvidia's stock price, and in turn, its role in the major indexes. But in the long term, the simplest way for Nvidia to keep gobbling up a larger share of the Nasdaq-100 and S&P 500 is to grow earnings faster than the field, and, in turn, continue to outperform other companies.

For Nvidia to reach 20% of the Nasdaq-100, it would need to outperform the index by around 37%. If Nvidia gained 37% and the Nasdaq-100 was flat, Nvidia would have a market cap of $6.9 trillion, and that $1.9 trillion in extra market cap creation would boost its share of the index to 20%. If Nvidia outperformed the S&P 500 by 23.5%, it would make up 10% of the index.

Nvidia's ripple effects

Nvidia's size will make it more challenging for the company to compound in value as quickly. But Nvidia's runway for future growth is the real deal, and it wouldn't be surprising to see it continue to make up a larger share of the major indexes.

Nvidia's move past $5 trillion has sweeping effects for investors who aren't directly invested in Nvidia, as many financial products -- from index funds to exchange-traded funds (ETFs) to blended equity and bond products -- are based on major indexes.

Nvidia's size will make it dominate market-cap-weighted Nasdaq-100 ETFs like the Invesco QQQ Trust and growth-focused ETFs like the Vanguard Growth ETF. More concentrated growth-driven ETFs will have an even larger share of Nvidia.

The Vanguard Mega Cap Growth ETF has a 13.8% weighting in Nvidia. And despite the massive size of Apple and Microsoft, Nvidia still dominates the tech sector with a 17.2% weighting in the Vanguard Information Technology ETF.

The more the major indexes depend on just a handful of stocks, the more prone they may be to volatility, both in terms of outsize gains, as we have seen in recent years, and steep, rapid sell-offs. The "Magnificent Seven," which includes Nvidia, Microsoft, Apple, Alphabet, Amazon, Meta Platforms, and Tesla, now makes up over 35% of the S&P 500. Throw in three more names -- Broadcom, Oracle, and Netflix, which together with the Magnificent Seven form what I call the "Ten Titans" -- and you get over 40% of the S&P 500.

In sum, the S&P 500 has become a growth and tech-driven index -- making it less representative of the broader market and the economy.

Expect more volatility at the index level

Mega-cap growth stock domination has been a net positive for investors and could continue to produce excellent long-term returns. But investors should be aware of the composition of the major indexes when approaching ETFs and index funds.

Nvidia is so large that it can single-handedly move the entire market. So, if you see a sell-off or a big pop in the major indexes, it may not always mean that stocks are going up, but rather, a handful of names are driving the price action.

Daniel Foelber has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Netflix, Nvidia, Oracle, Tesla, and Vanguard Index Funds - Vanguard Growth ETF. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.