Interconnected Dynamics: How Nvidia, the Stock Market, and the U.S. Economy Are Shaped by AI Advancements

As the price of almost everything has increased, and American workers’ wages have all but stalled, politicians like President Donald Trump have tried to ease our minds by telling us that the economy is “doing great” and that the stock market is booming. “Record high, record high, record high,” Trump said at an event earlier this month in Florida.

• The world’s most important company, Nvidia, is driving the entire growth of the US stock market to an extent that no single company has in recent memory.
• If it falters, there’s a fear it will take the entire US economy down with it — and there are signs that it might.
• The shock waves of Nvidia falling would be devastating and far-reaching — from tech startups and cloud computing to construction, land development, and steel — because of the AI supply chain.

Still, despite what has been a good year for the stock market, it’s hard to find a day in which a podcaster, influencer, or economist isn’t warning that the AI boom that’s powering the economy could be a bubble — one that is about to burst.

The company that’s driving Wall Street’s positive movement is Nvidia, the most valuable company on the planet. And that’s because the recent rash of data centers popping up across the country are filled with Nvidia’s graphic processing units, or chips.

So why did the health of this single company become an outsized force in the economy? And why does its health scare so many people? Today, Explained co-host Noel King asked economic commentator, educator, and author of In This Economy? Kyla Scanlon.

Below is an excerpt of their conversation, edited for length and clarity. There’s much more in the full podcast, so listen to Today, Explained wherever you get podcasts, including Apple Podcasts, Pandora, and Spotify.

Recently, the markets have been a rollercoaster. And when you ask why, the answer broadly is because of Nvidia. Why is the world holding its breath for Nvidia? What’s the worry here?

Well, Nvidia is kind of emblematic of the entire AI buildout. So every single tech firm from Microsoft to Meta to Amazon have based all of their future plans around Nvidia. (If you hear anything about “circular financing,” that’s what that means.)

Nvidia is just so wrapped into the broader market — is such a big part of AI — that if they sneeze, everybody else catches a cold. And so markets are a little bit nervous, because the entire AI story, [and] therefore the entire stock market, [and] therefore the entire economy depends on Nvidia maintaining pretty impossible growth metrics.

It really feels like this shouldn’t happen — that there shouldn’t be one company that’s big enough, important enough to make world markets like quiver.

What exactly happened here?

Nvidia just became so big so quickly, and the US economy decided to design itself around AI. You know, 40% of GDP growth is coming from AI buildout. And so Nvidia, because of that concentration, because of the bet that the US economy is making on AI — they have become somewhat of a macro variable.

You can kind of think of their earnings reports like you would a jobs report that we get from the BLS or an inflation report that we get. Earnings day for Nvidia is a test of the AI narrative, and is therefore a test of the US economy. And that just is because we’ve spent so much money on data centers [capital expenditure] — so much money on these chips and these companies just building out continuously. So that’s what happened.

Are there any other companies that hold this sort of sway? Does Walmart or Chevron have that kind of power?

No. Nvidia is such a big part of the S&P 500; it’s almost 8% of the entire index. It’s contributed, I think, a fifth of the index’s total gain this year.

Walmart is not that big of a percentage of the S&P 500, and it has not driven that much growth, that much earnings power, that much investment. Nvidia is really special in that way. …

The S&P 500 has always been pretty top heavy. There’s always been companies that are more important than other companies. But without Nvidia, the story of 2024, 2025, would look like economic stagnation.

You know the old saying, right: The stock market is not the economy. Is Nvidia just playing this enormous role in the markets, or does it represent an outsized portion of other parts of the economy? If Nvidia stumbles, do a million Americans lose their jobs?

I don’t think it would be something that extreme. The stock market is definitely not the economy, but they are increasingly intertwined because the AI narrative is so important. If Nvidia implodes, it wouldn’t be that, like, people who are doctors and bus drivers and construction workers would suddenly be without work.
It would just be that the stock market would collapse, and the economic growth narrative would collapse. And you could see secondary effects. Like maybe the construction firm decides to start laying off people because Nvidia leads to some sort of recession if they do end up imploding. But it would not be a direct correlation, no.

Everybody’s been asking, “Are we in an AI bubble?” And lately I’ve seen people suggesting that Nvidia will be one of the big signs telling us if it’s going to pop.

What do we know about the threat of an AI bubble and where Nvidia plays in?

If I had a nickel for every time somebody talked about the AI bubble, you know, I’d be able to invest in Nvidia. But I think that the way that you can think about it is: Nvidia is the entire AI thesis.

If all of a sudden, Nvidia stumbles — and there’s increasing worries that they’re going to, because their growth path is pretty impressive, and pretty unsustainable because it is so impressive — companies might pull back on spending tens of billions of dollars on data centers. Cloud providers would delay expansion, and startups built around “AI is the future” would face funding problems. The stock market would lose double-digit percentages. The regional construction booms tied to data centers would slow. Places like in Iowa where they’ve helped to revive local economies to a certain extent — everything from steel plants to electrical workers, to construction workers, land developers — would feel the shock.

And then of course if the stock market goes down, ultimately the broad economy does suffer, because then the Federal Reserve would have to come in with some sort of emergency funding plan. President Trump might have to come up with a fiscal policy plan to prevent the bottom from going out and having a massive blow-up.

The worry is if Nvidia does go [down], the entire AI supply chain becomes wobbly. And because the economy and stock market are so tied up into that, it could really lead to some other repercussions.

I wonder, at the end of the day, what you think a company like Nvidia means for the American economy. It is a beast. It takes up a huge share of the market.

What kind of position are we in here that we have a company that is this influential?

Well, Greg Ip from the Wall Street Journal wrote a great piece calling Nvidia the joyless tech revolution. And I think that is a really good way to think about it. The AI trade, if it works, [then] the benefits are going to be accrued to a select few people, right? So companies like Nvidia — people will invest in Nvidia a little bit. Companies like Open AI, companies like Anthropic — they’re going to really benefit if all of this ends up working out.

But the losses from AI are socialized. So if all of a sudden the data centers don’t work, if the AI trade totally blows up, you’re gonna have people’s retirement accounts really suffer, because the S&P 500 is what most people invest in for their retirement account, and Nvidia is a lot of the S&P 500 as we discussed. And then if the data centers don’t work out, you’re going to have a lot of local communities that have pinned hope on these things and have dreamed that they’ll work and add jobs. And so that’s kind of the issue with AI and Nvidia taking up such a big part of the economy.

That’s why Greg is calling it the joyless tech revolution — because a lot of people don’t like this. I think that’s a really important thing to consider. I believe the statistic was 6 out of 10 Americans, essentially, don’t want all of this. They don’t like what the AI companies are promising, especially when the CEOs come on and say that they’re going to take people’s jobs.

Then there’s also a chart from the [Financial Times] that I think encapsulates this broad conversation that we keep having really well, too, where it’s like: AI could either be the end of scarcity, meaning it solves everything; the end of humanity, meaning it kills everybody; or it could add 0.2 percentage points to GDP. And it’s just like how the internet was to a certain extent.

It seems like there’s the potential here that this problem of inequality that we’ve been dealing with now for about a generation could really be exacerbated.

The frustrating thing about the AI conversation is that everybody’s talking about it, but there’s no policy solution yet. We don’t have any idea of how we’re going to re-skill people. We don’t know if we need some form of UBI, universal basic income, to help people out during a time of transition.

We have so many lessons that we could learn from things like what happened to the Rust Belt, when manufacturing went overseas, and how that devastated local communities. We could see something like that happening with AI over time.

How does the increasing demand for Nvidia’s GPUs reflect broader trends in AI development and its economic impact?

The Nvidia Boom: Fueling the AI Revolution

Nvidia’s ascent isn’t simply a tech company succeeding; it’s a barometer of the accelerating artificial intelligence (AI) revolution. The demand for Nvidia’s GPUs (Graphics Processing Units), initially designed for gaming, has skyrocketed due to their unparalleled ability to handle the complex computations required for machine learning, deep learning, and AI development.This surge in demand has directly translated into massive revenue growth for Nvidia, impacting the stock market significantly. Investors are betting heavily on Nvidia as the key enabler of the AI future, driving its stock price to record highs.

* GPU dominance: Nvidia currently holds a dominant market share in the high-end GPU market, essential for AI workloads.

* Data Center Expansion: A important portion of Nvidia’s growth comes from sales to data centers powering AI applications.

* AI Chip Shortages: The intense demand has, at times, led to AI chip shortages, impacting various industries.

Nvidia’s Impact on the Stock Market: Beyond the Hype

The Nvidia stock (NVDA) has become a focal point for investors tracking the AI sector. Its performance isn’t isolated; it influences broader market indices like the Nasdaq and the S&P 500. the company’s market capitalization has soared, briefly surpassing trillion-dollar valuations, making it one of the most valuable companies globally.

Here’s how Nvidia’s stock performance impacts the market:

1. Tech Sector Leadership: Nvidia’s success often pulls up other tech stocks, particularly those involved in AI or semiconductor manufacturing.
2. Investor Sentiment: Positive Nvidia news generally boosts overall investor confidence in the tech sector and AI specifically.
3. Market Volatility: Given its significant weight in market indices, fluctuations in Nvidia’s stock price can contribute to market volatility.
4. ETFs and Funds: Many Exchange Traded Funds (ETFs) and investment funds hold ample positions in Nvidia, amplifying its impact.

AI’s Ripple Effect on the U.S.Economy

The advancements driven by Nvidia’s technology are extending far beyond the stock market, reshaping the U.S. economy in profound ways. AI-driven automation is impacting various sectors, from manufacturing and logistics to healthcare and finance.

Key Economic Impacts:

* Productivity Growth: AI is automating tasks, increasing efficiency, and boosting overall productivity across industries. This is a key driver of potential economic growth.

* Job Market Conversion: While AI creates new jobs in areas like AI development and data science,it also displaces workers in roles susceptible to automation. Reskilling initiatives are crucial to address this challenge.

* Innovation & New Industries: AI is fostering innovation, leading to the creation of entirely new industries and business models. Think of the rapid growth in generative AI and its applications.

* Increased Investment: The AI boom is attracting significant investment in research and development, further fueling economic growth. Venture capital funding for AI startups has surged.

* supply Chain resilience: AI-powered predictive analytics are helping businesses optimize their supply chains, making them more resilient to disruptions.

The Role of Government Policy & Regulation

The U.S. government is actively involved in shaping the AI landscape thru policy and regulation.The CHIPS and Science Act of 2022, such as, provides substantial funding for domestic semiconductor manufacturing, aiming to reduce reliance on foreign suppliers and bolster U.S. competitiveness in the AI era.

* Export Controls: Restrictions on the export of advanced AI chips to certain countries are aimed at national security concerns.

* AI Safety Regulations: Discussions are ongoing regarding the need for regulations to address potential risks associated with AI, such as bias and misuse.

* Investment in Research: Government funding for AI research is crucial for maintaining U.S.leadership in the field.

Real-world examples: AI in Action

Several industries are already experiencing the transformative power of AI, powered by technologies like Nvidia’s GPUs:

* Healthcare: AI is being used for drug