We recently published a list of 10 Best Innovative Stocks to Invest in According to Hedge Funds. In this article, we are going to take a look at where NVIDIA Corporation (NASDAQ:NVDA) stands against other best innovative stocks to invest in according to hedge funds.
Technology is a Big Deal, Strategist Highlights
The Magnificent Seven continues to grasp a sizeable market share of the market gains over the past few years. That said, investors and analysts are excited to see what this earnings period has to offer for the magnificent seven and how much of an influence they have on the market. On October 31, Christian Dery, head of macro strategy at Capital Fund Management, appeared in an interview on Yahoo Finance to discuss the impact of the magnificent seven on the market.
Dery suggested that these companies have grown to become large entities and their market capitalization often fluctuates by $2 billion to $400 billion on earnings events. Looking at the dispersion of the index, Dery adds that individual stocks within the S&P are very diverse and more independent, hinting towards a very low correlation in the index.
He adds that generative AI and LLMs are very different from the traditional software business. Therefore, the hyperscaling model that is conventionally taken from software can not be applied here. For every new customer in the software business, the marginal cost often goes down to nearly zero. However, if you look at the “tech incumbents”, they have to increase their capital expenditures to develop compute clusters and scale their operations, suggests Dery.
In 2023, the chips industry generated revenue of about $3 billion, reflecting that we are yet to find a killer use case or see results of generous AI spending. Dery adds that the market is more likely to be “discerning” on the path to profitability since companies are going to focus more on capital expenditures and projections for capital expenditures. He is particularly interested in the CapEx projections of the Magnificent Seven and shares that if they miss there could be a negative reaction among those stocks.
Dery reiterated that the market is yet to see the investments pay off multiple times but maintains his interest in capital expenditures by these companies playing out. While he is bullish on technological innovation and believes artificial intelligence is disruptive and a “big deal”, he fails to see viable results as of now. Dery also emphasizes that these companies are directing their investments to AI because they do not want to fall behind competitors, with no proper timeline for AI monetization.
That said, some companies are investing heavily in innovation and are at the forefront of a technological revolution.
Our Methodology
To come up with the 10 best innovative stocks to invest in according to hedge funds, we went over multiple similar rankings on the internet from credible financial websites. We then examined the hedge fund sentiment of each stock and picked the most popular ones. Our list is in ascending order of the number of hedge fund holders as of the end of Q2 2024.
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).
A close-up of a colorful high-end graphics card being plugged in to a gaming computer.
NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 179
NVIDIA Corporation (NASDAQ:NVDA) ranks 4th on our list of the best innovative stocks to invest in according to hedge funds. NVIDIA is a leading GPU maker that is driving innovation in artificial intelligence, gaming, creative design, autonomous vehicles, and robotics.
There is no doubt about NVIDIA’s position in the technology and AI sector. On October 21, the company announced a partnership with Deloitte to deploy digital AI agents for healthcare. On the same day, NVIDIA Corporation (NASDAQ:NVDA) joined hands with Microsoft to support AI startups across the globe with a focus on healthcare and life sciences in the first phase. On October 29, the company revealed Enterprise Reference Architectures. These blueprints will help the company’s partners and customers build AI factories.
NVIDIA Corporation (NASDAQ:NVDA) is scheduled to release earnings towards the end of this month, one of the most awaited events at the moment. On October 26, Toshiya Hari, managing director at Goldman Sachs, appeared in an interview on Yahoo Finance to discuss his thesis on NVDA. According to Hari, the environment is pretty robust supported by broadening customer demand. He shares his bullish stance on the stock and suggests that its ability to innovate across “multiple components” sets it apart from competitors, also contributing to its dominant position. He adds that the stock has more room to run and expects more upside to come. Hari also believes that as hyperscalers announce earnings, NVDA is likely to go even higher.
Ithaka Group’s 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 4th on our list of best innovative stocks to invest in according to hedge funds. While we acknowledge the potential of NVDA to grow, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. 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.
