We recently compiled a list titled Jim Cramer’s Top 10 Stocks to Track for Potential Growth. In this article, we will look at where NVIDIA Corporation (NASDAQ:NVDA) ranks among Jim Cramer’s top stocks to track for potential growth.

In a recent episode of Mad Money, Jim Cramer advised investors to hold onto their stocks, anticipating a rebound after the market’s downturn. This advice proved useful as the Dow rose by 484 points or 1.16% and the NASDAQ also climbed by 1.16%, indicating that selling during the market decline was not the best choice.

“Last week, I advised you to hold off on selling everything and just wait, as I believed that once the pain ended, we would see a rebound. The average investor saw gains, with the Dow up 484 points, or 1.16%, and the NASDAQ also climbing 1.16%. While it might not be a full recovery, it shows that selling into Friday’s downturn wasn’t the best strategy.”

Jim Cramer noted that the previous week was tough for economically sensitive and tech stocks, despite a mixed August employment report. This report suggested a balanced economic outlook, not too strong or weak, which initially seemed favorable for those hoping for Federal Reserve rate cuts. Despite this, Wall Street reacted negatively, shifting away from cyclical stocks to more recession-proof sectors like consumer goods and pharmaceuticals, with industries such as industrials and semiconductors being particularly affected.

Cramer observed that recession-proof stocks, such as pharmaceuticals and medical devices, have performed well recently but have seen significant gains, raising concerns about a potential correction.

“Today, recession-proof stocks like pharmaceuticals, drug wholesalers, and medical devices continued to perform well, which is dangerous as these stocks have seen parabolic gains and could be due for a correction.”

He highlighted that historically, when the Federal Reserve is about to cut rates, it signals a shift in investment strategy. With the Fed expected to ease rates soon, Cramer suggests investors consider moving away from recession-proof stocks and look into more cyclical companies that could benefit from economic stimulus. While investing in cyclical stocks during a downturn is challenging, the anticipated rate cuts could make these stocks more attractive. Cramer advises maintaining diversification but being ready to adjust investment strategies based on the economic outlook.

“Historically, when the Fed is about to start cutting rates, we know that it’s time to shift focus. With the Fed leaning towards easing and an expected rate cut next week, it’s time to consider moving away from recession-proof stocks and investing in more cyclical companies. While it’s challenging to buy cyclical stocks during a slowdown, anticipating that the Fed will boost the economy can make them strong investment opportunities. It’s important to maintain diversification but be ready to adjust as needed.”

Our Methodology

This article reviews a recent episode of Jim Cramer’s Mad Money, where he talked about several stocks. From there, we picked ten companies and discussed how hedge funds are investing in them. Finally, we rank these companies from those least owned to those most owned by hedge funds.

At Insider Monkey we are obsessed with 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 Corporation (NASDAQ:NVDA)

Number of Hedge Fund Investors: 179

Jim Cramer highlights NVIDIA Corporation (NASDAQ:NVDA) as a standout despite recent negativity surrounding its performance. After a strong earnings report, NVIDIA Corporation (NASDAQ:NVDA) fell from $126 to $102, with many investors misunderstanding the company’s potential and even mispronouncing its name. This week, those who sold in panic might be regretting their decision.

Cramer notes that demand for NVIDIA Corporation (NASDAQ:NVDA)’s new Blackwell supercomputer chipset is so high that CEO Jensen Huang mentioned customers are becoming “emotional about allocation,” indicating strong demand rather than a shortage. Additionally, NVIDIA Corporation (NASDAQ:NVDA)’s use of accelerated computing with its advanced GPUs offers significant energy efficiency and cost advantages compared to traditional CPUs from companies like Intel Corporation (NASDAQ:INTC).

“Naturally, saving the best for last: NVIDIA Corporation (NASDAQ:NVDA). We got a huge quarter from them last month, yet all we heard was how disappointing the numbers were. Yeah, cancel the watch parties for NVIDIA Corporation (NASDAQ:NVDA), no more tailgating. The stock was trading around $126 before the quarter and fell to $102 at its lows last week. The world had given up on it, but they didn’t even know why or how. They didn’t even know what NVIDIA Corporation (NASDAQ:NVDA) does. They certainly can’t pronounce it—they say it like Nivea cream.

This week, those who panicked and dumped the stock. Well, guess what? I think they’re trying to remember why the heck they did something so foolish. We’ve now learned that demand is so strong for Blackwell, the new supercomputer chipset that is shipping in volume this year, that CEO Jensen Huang says customers are getting “emotional about allocation.” That sure doesn’t sound like NVIDIA Corporation (NASDAQ:NVDA)’s got a demand problem, as many critics speculated at the time.

It sounds more like they’ve got “too much” demand. Plus, Jensen talked about the other huge part of the business: accelerated computing. No one talks about that, which uses NVIDIA Corporation (NASDAQ:NVDA)’s ultra-fast graphics processing units (GPUs) to handle anything intensive, rather than the CPU, which is usually made by Intel. This approach is much more energy-efficient and faster, not to mention cheaper when it comes to energy consumption, which has become the key variable in the total operational cost of semiconductors. Next thing you know, the stock’s at $119. Can it get back to where it was before the so-called horrendous quarter? Can it hit 127 again? I don’t know. All I can say is: why not?

Look, it’s right to be skeptical when you’re investing. It’s right to be cautious. But the bottom line is, not every executive deserves the same level of skepticism or scorn. Some CEOs have earned your trust.”

NVIDIA Corporation (NASDAQ:NVDA) is a top investment pick due to its strong position in the AI sector, impressive financial performance, and growing presence in data centers. NVIDIA Corporation (NASDAQ:NVDA) leads in AI hardware with its powerful GPUs, like the A100 and H100, which are crucial for AI model training and inference. This leadership has significantly boosted NVIDIA Corporation (NASDAQ:NVDA)’s revenue.

In Q2 FY2024, NVIDIA Corporation (NASDAQ:NVDA) exceeded expectations with revenue reaching $26 billion, a 206% increase from the previous year, and an EPS of $4.02. The demand for NVIDIA Corporation (NASDAQ:NVDA)’s AI chips remains high, with growth expected to continue in data centers and AI applications through 2025 and beyond. NVIDIA Corporation (NASDAQ:NVDA)’s strategy to diversify its data center revenue across different sectors and regions strengthens its growth prospects.

While high valuation and potential fluctuations in AI demand are risks, Wall Street’s strong buy ratings and price targets up to $1,200 reflect NVIDIA Corporation (NASDAQ:NVDA)’s potential for significant returns, making it an attractive investment in AI and accelerated computing.

Ithaka US Growth Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter:

“NVIDIA Corporation (NASDAQ:NVDA) is the market leader in visual computing through the production of high-performance graphics processing units (GPUs). The company targets four large and growing markets: Gaming, Professional Visualization, Data Center, and Automotive. NVIDIA’s products have the potential to lead and disrupt some of the most exciting areas of computing, including: data center acceleration, artifi cial intelligence (AI), machine learning, and autonomous driving.

The reason for the stock’s appreciation in the quarter was twofold: First, the stock benefi ted from tremendous excitement surrounding the further development of generative AI and the likelihood this would necessitate the purchase of a large number of Nvidia’s products far into the future; Second, Nvidia posted another strong beat[1]and-raise quarter, where the company upped its F2Q25 revenue guidance above Street estimates, showcasing its dominant position in the buildout of today’s accelerated computing infrastructure.”

Overall NVDA ranks 1st on the list of Jim Cramer’s top stocks to track for potential growth. While we acknowledge the potential of NVDA as an investment, our conviction lies in the belief that under the radar 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 NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.

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