1. NVIDIA Corp (NASDAQ:NVDA)
Number of Hedge Funds Investors: 193
Eric Diton from The Wealth Alliance said in a latest program on Schwab Network that NVIDIA Corp (NASDAQ:NVDA) shares fell after earnings because customers want to hear the names of specific customers spending “boatloads” of money on AI.
“Earnings came out great; they beat all expectations. NVIDIA Corp (NASDAQ:NVDA) got crushed, and it’s telling you that when stocks have made those kinds of profound moves, even a beat may not be enough. And that’s what happened—they beat, but by less, and people are kind of tired of hearing NVIDIA Corp (NASDAQ:NVDA) say everything is great. They want to hear customers. They want to hear Amazon, Google, and Microsoft say they’re going to spend loads of money. Deep seek, no matter what anyone says, it definitely put just a dent in the armor. When stocks have made those kinds of moves and all of a sudden, you have a question mark about whether the growth will continue as planned, that’s a lookout below.
So, we’re having this pullback. Look, you’ve got to own big tech, but you don’t have to have 35% of your money in stocks like the S&P. You know, you shouldn’t. You’ve got to be more widely diversified, so we’re not jumping into tech.”
The market will keep punishing Nvidia for not coming up to its gigantic (and sometimes unrealistic) growth expectations. About 50% of the company’s revenue comes from large cloud providers, which are rethinking their plans amid the DeepSeek launch and looking for low-cost chips. Nvidia’s Q1 guidance shows a 9.4% QoQ revenue growth, down from the previous 12% QoQ growth. Its adjusted margin is expected to be down substantially as well to 71%. The market does not like when Nvidia fails to post a strong quarterly beat. The stock will remain under pressure in the coming quarters when the company will report unimpressive growth.
Nvidia is facing challenges at several levels. Competition is one of them. Major competitors like Apple, Qualcomm, and AMD are vying for TSMC’s 3nm capacity, which could limit Nvidia’s access to these chips. Why? Because Nvidia also uses TSMC’s 3nm process nodes. Nvidia is also facing direct competition from other giants that are deciding to make their own chips. Amazon, with its Trainium2 AI chips, offers alternatives. Trainium2 chips could provide cost savings and superior computational power, which could shift AI workloads away from Nvidia’s offerings. Apple is reportedly working with Broadcom to develop an AI server processor. Intel is also trying hard to get back into the game with Jaguar Shores GPU process, set to be produced on its 18A or 14A node.
Brown Advisors Global Leaders Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q4 2024 investor letter:
“The main driver of our 2024 relative underperformance was not being invested in NVIDIA Corporation (NASDAQ:NVDA). Since ChatGPT introduced the power of generative artificial intelligence to the world on 30 November 2022, the Global Leaders Strategy has outperformed its benchmark despite being underweight the USA and specifically underweight the “Magnificent Seven”.7 2024 underperformance of -2.81% versus our benchmark was almost precisely matched by the individual outperformance of NVIDIA, which we did not own. On balance the rest of the portfolio is doing just fine albeit with areas of strength (AI) and weakness (EM financials) discussed below.
We wrote about the concentration within global indexes last year and this continued with only 29% of companies within the ACWI Index at the start of 2024 outperforming this benchmark over the year. Our capital allocation added value in 2024 as five of our top ten largest weights over the year were also in our top ten percentage winners. Conversely, within our ten worst performers, seven were also amongst our smallest ten weights. Capital allocation is critical when index hit rates are below 50%…” (Click here to read the full text)
While we acknowledge the potential of NVIDIA Corporation (NASDAQ: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 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.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
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