Hedge Funds Are Cashing Out Of NVIDIA Corporation (NVDA)

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards NVIDIA Corporation (NASDAQ:NVDA) changed recently.

Is NVIDIA Corporation (NASDAQ:NVDA) a buy here? The smart money was becoming less confident. The number of long hedge fund positions fell by 8 recently. NVIDIA Corporation (NASDAQ:NVDA) was in 80 hedge funds’ portfolios at the end of March. The all time high for this statistic is 95. Our calculations also showed that NVDA isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 88 hedge funds in our database with NVDA holdings at the end of December.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, advertising technology one of the fastest growing industries right now, so we are checking out stock pitches like this under-the-radar adtech stock that can deliver 10x gains. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let’s take a look at the recent hedge fund action surrounding NVIDIA Corporation (NASDAQ:NVDA).

Do Hedge Funds Think NVDA Is A Good Stock To Buy Now?

At first quarter’s end, a total of 80 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the fourth quarter of 2020. By comparison, 95 hedge funds held shares or bullish call options in NVDA a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Griffin’s Citadel Investment Group has the largest call position in NVIDIA Corporation (NASDAQ:NVDA), worth close to $2.3202 billion, corresponding to 0.6% of its total 13F portfolio. The second largest stake is held by Rajiv Jain of GQG Partners, with a $1.0572 billion position; the fund has 3.9% of its 13F portfolio invested in the stock. Other peers that hold long positions contain D. E. Shaw’s D E Shaw, Ken Fisher’s Fisher Asset Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Panview Capital allocated the biggest weight to NVIDIA Corporation (NASDAQ:NVDA), around 12.23% of its 13F portfolio. Kadensa Capital is also relatively very bullish on the stock, setting aside 7.31 percent of its 13F equity portfolio to NVDA.

Because NVIDIA Corporation (NASDAQ:NVDA) has experienced falling interest from hedge fund managers, it’s safe to say that there were a few money managers that decided to sell off their entire stakes heading into Q2. It’s worth mentioning that John Overdeck and David Siegel’s Two Sigma Advisors cut the largest investment of the “upper crust” of funds monitored by Insider Monkey, totaling close to $341.2 million in stock, and Philippe Laffont’s Coatue Management was right behind this move, as the fund sold off about $326.8 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 8 funds heading into Q2.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as NVIDIA Corporation (NASDAQ:NVDA) but similarly valued. We will take a look at The Home Depot, Inc. (NYSE:HD), Paypal Holdings Inc (NASDAQ:PYPL), Intel Corporation (NASDAQ:INTC), ASML Holding N.V. (NASDAQ:ASML), Comcast Corporation (NASDAQ:CMCSA), Verizon Communications Inc. (NYSE:VZ), and Exxon Mobil Corporation (NYSE:XOM). This group of stocks’ market valuations resemble NVDA’s market valuation.

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As you can see these stocks had an average of 78.7 hedge funds with bullish positions and the average amount invested in these stocks was $7777 million. That figure was $6205 million in NVDA’s case. Paypal Holdings Inc (NASDAQ:PYPL) is the most popular stock in this table. On the other hand ASML Holding N.V. (NASDAQ:ASML) is the least popular one with only 35 bullish hedge fund positions. NVIDIA Corporation (NASDAQ:NVDA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NVDA is 43.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and still beat the market by 3.3 percentage points. Hedge funds were also right about betting on NVDA as the stock returned 33.6% since the end of Q1 (through 6/11) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.

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