6. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Investors in Q2 2024: 179
GS’ Number Of Funds: 41
NVIDIA Corporation (NASDAQ:NVDA) is the world’s leading GPU designer. It provides the chips for enterprise computing (including AI), consumer gaming, assisted driving, and other use cases. NVIDIA Corporation (NASDAQ:NVDA)’s GPU performance boosted by its design strengths has pushed it right to the top of the AI hardware supply chain. The firm’s GPUs are the most highly sought products in the market, and they provide NVIDIA Corporation (NASDAQ:NVDA) with significant pricing power. At the same time, all eyes remain on the firm for consistent upgrades, and it might struggle if it fails to launch new products. This has been evident in 2024, with multiple reports having claimed that NVIDIA Corporation (NASDAQ:NVDA)’s leading edge Blackwell chips are facing delays. Its CUDA software is another advantage since it enables users to fully control their GPUs. However, high GPU prices could incentivize NVIDIA Corporation (NASDAQ:NVDA)’s big ticket customers to design their own products and reduce the demand for its chips. Furthermore, if Wall Street decides that AI monetization is not worth the billions of dollars being spent, then the stock could see headwinds.
Baron Funds mentioned NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter. Here is what the firm said:
“More recently, however, we’ve entered the period of doubts and questioning, some of which is real and normal in the first stages of a new paradigm, and some of which is prompted by short sellers. Given the explosive returns of NVIDIA and other AI leaders, AI bears and fear mongers have been comparing the current AI market winners with the internet bubble of the late 1990s/early 2000s, and NVIDIA’s stock move today with Cisco’s back then. First, while many stocks were trading at nosebleed valuations and on made up metrics (such as price per eyeballs) before the bursting of the internet bubble, as we’ve said many times, the internet proved to transform our world and create the digital age we are now living in. Second, while NVIDIA’s stock price inflection has been nothing short of unprecedented for a company of its size, it was fueled almost entirely by explosive growth in revenues, earnings, and cash flows– not multiple expansion. Over the last 12 months, NVIDIA’s stock has eectively tripled, but its forward P/E multiple has remained essentially flat, because NVIDIA blew away Wall Street expectations despite being covered by over 60 sell-side analysts, who have increased their forward projections every single quarter. In my career, the only comparative analogue is when Apple first introduced the iPhone and stunned Wall Street with its growth. In contrast, most of Cisco’s move in the late 1990s was due to multiple expansion. At its peak, Cisco traded at a P/E ratio over 130 times, more than quadruple its five-year average of 37 times. At the end of the second quarter, NVIDIA traded at a P/E ratio of 40 times, equal to its five-year average, and at a P/E to growth (or PEG) ratio for 2025 of 0.8 times, as consensus expectations are for NVIDIA to grow earnings per share 40% next year.
Moreover, investor concerns have arisen about the financial impact AI is having and whether surging capital expenditures (capex) across the technology landscape, particularly the large cloud players (Microso, Google, Amazon, and Meta), known as the hyperscalers, will be justified and earn reasonable returns on invested capital (ROIC). First, the adoption and penetration of new technology typically traces a classic S-curve–or more precisely, in our view, a series of S-curves or phases. For at least the past year and a half, we’ve been in what might be called the AI infrastructure- build phase – building the AI factories, as NVIDIA CEO Jensen Huang has articulated it, and this phase has been dominated by the infrastructure- layer players – the accelerated computing chips suppliers like NVIDIA and Broadcom, as well as data center, cloud infrastructure and energy companies. The hyperscalers, other enterprises, and sovereign entities investing ahead understand that if you want to be in the AI game, you must invest now – build the infrastructure, build the factories – or else you’ll find yourselves disrupted on the sidelines or playing catch up in the biggest game, the most important race in a technology generation. Only those who invest today even have the chance to be the winners of the future.”
