We recently compiled a list of the 10 Best ESG Stocks To Buy Now. In this article, we are going to take a look at where NVIDIA Corporation (NASDAQ:NVDA) stands against the other ESG stocks.
Defining ESG can sometimes be straightforward: it’s a finance and investing approach centered on managing risks related to environmental factors, social issues, and corporate governance. Although the concept emerged about two decades ago through a collaboration between United Nations officials and the finance industry, who argued that addressing ESG risks like climate change, labor disputes, and poor corporate governance can safeguard investments, it wasn’t until the late 2010s and into the 2020s that ESG evolved into a more proactive movement, rather than a reactive one.
A report from the World Meteorological Organization (WMO) confirmed that 2023 was the warmest year on record, with the global average near-surface temperature reaching 1.45°C—closer than ever to the 1.5°C lower limit set by the Paris Agreement on climate change. Another report from the United Nations’ Intergovernmental Panel on Climate Change (IPCC) also reveals that climate-driven disasters are already surpassing scientists’ initial predictions. This urgency has sparked increased interest in niche yet rapidly expanding sectors of ESG investing, such as climate-transition funds and catastrophe bonds. In 2024, global investment in clean energy is expected to hit a significant milestone, doubling the amount allocated to fossil fuels. The International Energy Agency’s (IEA) 2024 World Energy Investment report forecasts that total global energy investment will surpass $3 trillion this year, with $2 trillion directed toward clean technologies like renewables, electric vehicles, and nuclear power. Furthermore, Bloomberg reports that global investment in the energy transition surged by 17% last year, reaching a record $1.8 trillion, with this growth trend continuing. Former VettaFi financial futurist Dave Nadig said:
“If you solely look at climate as your window, you’ll probably not end up not owning a lot of energy companies, not owning a lot of miners [and] not owning a lot of steel companies. So, you end up with something that looks like services, healthcare, and technology, which is a very strong bet to take.”
That said, U.S. funds with ESG goals seem to be losing popularity as of late. Despite the broader stock market’s gains, assets in the sector have dropped to around $335 billion, down from a peak near $365 billion at the end of 2021. Political criticism of ESG in the country has also has led some investors to reconsider their strategies within the sector. Moreover, ESG stocks are also grappling with other significant challenges, such as a key climate regulation from the U.S. Securities and Exchange Commission that is currently under legal dispute, and the Federal Reserve’s resistance to including environmental risks in global financial regulations.
However, despite criticism labeling the ESG sector as “woke” investing, many U.S. firms remain dedicated to ESG initiatives. Investor interest also remains somewhat robust, as these funds continue to attract attention for considering both financial performance and environmental, social, and governance factors. While there have been big outflows from the sector, many institutional investors are approaching climate risks and opportunities in their portfolios with a heightened sense of urgency, with an August analysis published in the Harvard Business Review showing that nearly three-quarters of the corporate climate commitments announced in 2021 had been fully or partially achieved. JPMorgan Chase & Co. and Citigroup Inc. are among the top global underwriters of green bonds this year, while Bank of America, alongside other prominent investment banking firms, recently sponsored ESG-focused conferences in New York and Chicago.
With that in mind, ESG funds saw strong performance in the first half of the year, largely driven by their substantial investments in technology stocks. Most ESG funds that aren’t focused on renewable energy tend to allocate more to tech stocks while maintaining a lower exposure to oil and gas stocks. In the first six months of the year, the S&P 500 rose by approximately 15%, and nearly 60% of this gain was driven by the majority of the ‘Magnificent Seven’, which are often among the largest holdings in ESG funds.
Our Methodology
To create the list of top ESG stocks to buy now, we chose companies from the Vanguard ESG U.S. Stock ETF and ranked them by their percentage weight in the fund, listed in ascending order. In addition, we used hedge fund sentiments regarding each stock to illustrate how well these stocks hold up in the eyes of hedge fund investors. These were taken from Insider Monkey’s Q2 2024 database.
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).
A close-up of a colorful high-end graphics card being plugged in to a gaming computer.
NVIDIA Corporation (NASDAQ:NVDA)
Percentage of holdings in the fund: 6.73%
Number of Hedge Fund Holders: 179
NVIDIA Corporation (NASDAQ:NVDA) leads the market in designing and selling Graphics Processing Units (GPUs), a sector that has surged due to the growing demand for artificial intelligence models. The company’s Blackwell GPUs are up to 20 times more energy-efficient than traditional CPUs for specific AI and high-performance computing (HPC) tasks. Additionally, by the end of FY25 and each year after, NVIDIA Corporation (NASDAQ:NVDA) aims to achieve and maintain 100% renewable electricity for its offices and data centers under operational control.
NVIDIA Corporation (NASDAQ:NVDA) recently announced plans to increase production of its Blackwell chips in the second half of 2024. Experts predict that its current-generation Hopper chips will continue to see strong sales through the end of the year, with Blackwell chips likely becoming a significant sales driver by then. Despite a reported delay in the release of NVIDIA Corporation (NASDAQ:NVDA)’s GPU architecture, Goldman Sachs remains optimistic that management commentary and upcoming supply-chain data could boost NVIDIA’s earnings outlook.
Stifel also maintained its Buy rating on NVIDIA Corporation (NASDAQ:NVDA) shares with a price target of $165.00 ahead of the company’s second-quarter fiscal 2025 results. The firm is optimistic about the demand for NVIDIA’s H-Series SKUs and expects that the company’s July results and October guidance could exceed expectations.
Patient Capital Opportunity Equity Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA) continued to lead both the market and the portfolio, remaining a top performer in the period gaining 36.7%. Nvidia is the market leader in designing and selling Graphics Processing Units (GPU), which has recently benefited from the insatiable demand of artificial intelligence (AI) models. The company currently captures 92% market share of data center GPUs and grew revenue, earnings and free cash flow (“FCF”) an astounding 126%, 392%, and 610%, respectively, over the last year. While we expect competition to increase, we think NVDA can continue to maintain top market share. While many are concerned with backlog times shortening, we think the rollout of the B100, which promises 2.5x better performance for only 25% more cost, later this year will create more shortages. With leading edge technology, an increasing innovation cycle and strong cash generation, the company is well positioned for the increased adoption of artificial intelligence (AI).”
Overall NVDA ranks 3rd on our list of the best ESG stocks to buy. While we acknowledge the potential of NVDA as an investment, 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 NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.