We recently published a list of the Big Tech Funds are Buying These 10 AI Stocks. Since NVIDIA Corporation (NASDAQ:NVDA) ranks 4th on the list, it deserves a deeper look.
As mega-cap technology stocks continue to soar to new highs, the number of Wall Street analysts highlighting the “concentration of gains” problem are increasing. It’s more than evident now that just a handful of technology companies account for most of the gains in the market, thanks to the AI-fueled rally that is favoring only those companies that are leading in the AI arms race. Barclays analyst Venu Krishna recently said in a report that “Big Tech” has “largely carried the broader U.S. equity market through 1Q24 earnings results.” Krishna said that Q1 results showed the “ongoing dominance” of Big Tech over earnings revisions and margin upside.
“This makes it difficult to argue for a broadening of overweight allocations,” Krishna added. The analyst said this dominance comes at the expense of other sectors as funds cut their exposure to cyclical sectors like industrials, financials and discretionary to go overweight on tech.
Billionaire Steve Cohen’s New AI Fund
Billionaires and VCs are now planning to create their own AI-focused funds to attract money from investors and tap into the unprecedented opportunities unlocked by AI. Bloomberg recently reported that Steve Cohen’s Point72 Asset Management is planning to raise about $1 billion to make a new AI-focused hedge fund. The fund will bet “on and against” companies in AI hardware and semiconductor industries. The report said that billionaire Cohen will be overseeing the fund along with Eric Sanchez. The fund’s expected launch date is later this year or early 2025.
Billionaire Cohen is already ramping up his bets on AI. To see his AI investments this year, click 10 Best AI Stock Picks of Billionaire Steve Cohen.
Since Krishna of Barclays talked about the rise of big tech funds and their concentration into AI, in this article we will take a look at the major AI stocks that form the portfolios of these funds and discuss their growth catalysts and long-term outlook. For that we first listed down all holdings of major tech funds like Technology Select Sector SPDR Fund and iShares Global Tech ETF and picked 10 AI stocks with the highest number of hedge fund investors.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
NVIDIA Corp (NASDAQ:NVDA)
Number of Hedge Fund Investors: 186
There is no shortage of Wall Street analysts calling NVIDIA Corp (NASDAQ:NVDA) a top dog in the AI race. Recently, Oppenheimer’s Rick Schafer joined the NVIDIA Corp (NASDAQ:NVDA) chorus, raising the chipmaker’s price target to $150 from $110 following the 10-1 stock split.
NVIDIA Corp (NASDAQ:NVDA) is one of the stocks accounting for a huge chunk of the total market returns, thanks to its AI-fueled rally that seems to have no end in sight. NVIDIA Corp (NASDAQ:NVDA) shares have gained about 206% over the past one year.
Recently, Barclays Tom O’Malley gave bullish comments on the stock, with a $145 price target and an Overweight rating. The analyst pointed to a potential $25 billion opportunity from countries building up their AI capabilities. O’Malley expects NVIDIA Corp’s (NASDAQ:NVDA) earnings at $3.62 per share in fiscal 2026, while Wall Street analysts on average have a $3.55 per share estimate for NVIDIA Corp (NASDAQ:NVDA) earnings for 2026.
NVIDIA Corp’s (NASDAQ:NVDA) latest product announcements and its plans revealed at the Computex 2024 show that NVIDIA Corp (NASDAQ:NVDA) has much more in its arsenal to power its growth engine. Analysts like NVIDIA Corp’s (NASDAQ:NVDA) shift to new AI architecture known as Rubin (R100) and think its powerful H100 and Blackwell chips easily beat competitors.
NVIDIA Corp (NASDAQ:NVDA) will start shipping H200 in the second half of this year. At its GTC conference NVIDIA Corp (NASDAQ:NVDA) revealed three accelerators – B200, GB200 and GB200 NVL72. All of these products provide growth catalysts for NVIDIA Corp (NASDAQ:NVDA) shares and justify its P/E multiple of 71, given NVIDIA Corp’s (NASDAQ:NVDA) growth expectation of over 100% this year and 32% next year. Based on 2026 EPS estimate set by Wall Street, NVIDIA Corp (NASDAQ:NVDA) is trading at a forward P/E multiple of 35.74, which makes the stock’s valuation attractive given the growth catalysts it has.
RiverPark Large Growth Fund stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its first quarter 2024 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA): NVDA shares were our top contributor in the quarter following blowout 4Q results and 1Q guidance driven by strong data center sales. The company reported quarterly revenue of $22.1 billion, up 265% year-over-year, and EPS in the quarter of $5.16, up 487% year-over-year and 12% ahead of expectations. Revenue guidance for 1Q of $24 billion was 8% above very high expectations. The artificial intelligence arms race kicked-off by ChatGPT and Alphabet’s Bard, among others, has generated tremendous demand for Nvidia’s next generation graphic processors.
NVDA is the leading designer of graphics processing units (GPU’s) required for powerful computer processing. Over the past 20 years, the company has evolved through innovation and adaptation from a predominantly gaming-focused chip vendor to one of the largest semiconductor/software vendors in the world. Over the past decade, the company has grown revenue at a compound annual rate of over 20% while expanding operating margins and, through its asset light business model, producing ever increasing amounts of free cash flow. Following recent results, Jensen Huang, founder and CEO of NVIDIA stated in the company’s press release, “a trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process.”
Overall, NVIDIA Corporation (NASDAQ:NVDA) ranks 4th on Insider Monkey’s list titled Big Tech Funds are Buying These 10 AI Stocks. While we acknowledge the potential of NVIDIA Corporation (NASDAQ:NVDA), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA Corporation (NASDAQ:NVDA) but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These Stocks.
Disclosure: None. This article is originally published at Insider Monkey.