Morgan Stanley’s Best Stocks For Economic Recovery: Top 9 Cyclical Stocks

2. NVIDIA Corporation (NASDAQ:NVDA) 

Number of Hedge Fund Holders In Q3 2024: 193

NVIDIA Corporation (NASDAQ:NVDA) is the GPU designer whose products have taken the artificial intelligence industry, the technology industry, and Wall Street by storm. The firm’s shares are up by more than 700% since OpenAI publicly released ChatGPT as the AI model has convinced investors that NVIDIA Corporation (NASDAQ:NVDA)’s products are at the heart of any innovation in AI. Yet, the firm’s reliance on its GPUs also means that any weakness in AI spending or big tech’s inability to generate profits from the technology can lead to headwinds for NVIDIA Corporation (NASDAQ:NVDA). Given the high demand for its products, big tech is adamant in developing custom AI chips, and the resulting short supply has also introduced smooth availability of the products as another key factor in NVIDIA Corporation (NASDAQ:NVDA)’s hypothesis. Consequently, for the stock to do well, not only does the firm have to keep its margins high, but it also has to ensure that a steady stream of products is available to customers who otherwise might start seeking alternatives to stay ahead in the AI race.

Polen Capital mentioned NVIDIA Corporation (NASDAQ:NVDA) in its Q3 2024 investor letter. Here is what the fund said:

“In a reversal from the past two quarters, NVIDIA Corporation (NASDAQ:NVDA) represented our top relative contributor this quarter, despite the modest underperformance, declining -1.7%. In many ways, NVIDIA was a microcosm of the broader market’s heightened volatility. Beneath the placid surface, the company experienced a 27% drawdown followed by a +31% rally, only to repeat the cycle with a -21% drawdown followed by a subsequent 20% rally to finish the quarter. In our view, the stock’s volatility goes beyond fundamental business drivers, but the company in turn benefitted from increasing capital spending budgets from cloud service providers and large enterprises for generative AI (“GenAI”) infrastructure spending. Simultaneously, the stock endured weakness related to the delayed next-generation Blackwell chip, and an earnings forecast that exceeded expectations, albeit not as much as some investors hoped. While we continue to believe NVIDIA is a highly advantaged business, with significant demand for their chips and servers ahead of the need for that hardware from real-world businesses, we are cautious about its growth sustainability since it lacks recurring revenue.”